Juan Hernandez, Founder & CEO of Open Finance Network: Crypto's Biggest Impending Issues

Juan Hernandez is the founder and CEO of Open Finance Network. In this conversation, Juan and Anthony Pompliano discuss the current state of digital securities, the quality of assets being tokenized today, and the challenges facing the industry moving forward. ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Anthony Pompliano?

  Juan Hernandez is the founder and CEO of Open Finance Network. In this conversation, we discuss the current state of digital securities, the quality of assets being tokenized today, and the challenges facing the industry moving forward. I really enjoyed this conversation, and I hope you do as well.

• 0:31Anthony Pompliano?

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Bang, bang. What's going on guys? We've got Juan here. A nice early morning on a Friday, rainy in New York City. Thank you very much for coming.

• 1:08Speaker 01

  Yeah, absolutely. Thanks for having me.

• 1:10Anthony Pompliano?

  How are things going?

• 1:11Speaker 01

  Good, good. You know, a lot of what we're seeing on the marketplace is just this level of growing excitement for digitized securities. The ability to take these existing alternative assets or New York's alternative assets, be able to tokenize them, expose them to a broader universe of participants and investors, both in the US and worldwide. And so a lot of that momentum is just slowly building up and picking up steam across the board.

• 1:40Anthony Pompliano?

  Cool. Before we get into kind of a state of the digital security ecosystem, maybe let's go through your background, because you obviously weren't in crypto early on and kind of backed into this in a very unique way. So just kind of where you started your career and then we can get into how you actually discovered all this.

• 1:57Speaker 01

  Yeah, so a quick background on me. So I have a computer science degree from Northwestern University, did software consulting for a while, went back to business school to get my MBA at Kellogg, and then just started doing entrepreneurship, just started doing startups in 2010. And so had a couple of small startups, one small exit, and then in 2014 started what is now Open Finance, which at the time we were focused on This is before crypto. So it was pre-crypto, alternative assets, building out a trading platform for these alternative assets. And then the crux of it was at the time crowdfunding was really getting started, really going. And for us, we looked at that

• 2:41Speaker 01

  industry and said, okay, where is the next challenge for this sector? And what's the next hurdle they have to overcome in order for the industry to really grow? And for us, that was the issue of liquidity. So what happens after you buy one of these crowdfunded securities? People expect to be able to move around to them like they do with a Google or a Microsoft stock. And that just wasn't possible at the time. And so we built a trading platform. We acquired a broker dealer, built a trading platform for trading of alternative assets. And we're doing that successfully, expanded into publicly registered non-listed REITs as well, which is an instrument in between private REITs and then the more traditional publicly listed REITs that you see on NASDAQ or NICE. And then from there,

• 3:25Speaker 01

  in 2016, much like every other financial exchange, we started looking at blockchain for clearing and settlement solutions, for efficiencies on the clearing and settlement side. Started playing with that late 2016. And then 2017, hit, right? The big ICO craze, if you will. And from that big boom craze, what we saw emerge was this new form of asset, sorry, capital raising mechanism in these tokenized offerings. But we knew that they were securities. And we knew that once the sort of all of the dust settled, if you will, that they would be classified as securities. And so we began positioning ourselves to

• 4:08Speaker 01

  be able to take advantage of that coming wave of security tokens, or digitized securities, or tokenized securities, whatever you want to call them. And so we worked on that throughout 2017. And then in 2018, we did launch our digital trading platform, and have been going ever since. And so we work with tokenized securities like Blockchain Capital and several others that are out there today.

• 4:35Anthony Pompliano?

  Awesome. So here's what I want to do. I want to go through kind of the current state of digital securities, right? What do you call them? Tokenized securities, digital securities, smart securities? I mean, there's all these different names for them, but what we're essentially talking about is a digital form or digitally native security that is programmable, et cetera, right?

• 4:55Speaker 01

  Yeah, it's the format right now. And so that, you know, a couple of things to talk about there. Like I always said, let's circle back on like terminology and the lexicon of these types of instruments. Cause I think that's one of the things that is, it's a hindrance right now in the industry. Cause a lot of people just use these different terminologies and there's some nuances. They might mean different things, but yeah, I mean, to your point, these are just securities. At least today, these are securities within a new and improved format. So, so, you know, we went from paper certificates to electronic certificates. And now we're going to these digital certificates, digital securities.

• 5:29Anthony Pompliano?

  And so as part of this, I think in my opinion, right, we need issuance platforms. We need protocols. We need exchanges. We need accounting. We need legal, right? We need regulatory clarity, right? All this stuff. Let's just start with issuance platforms, right? So describe to me what you think the issuance platforms, what's their importance to the industry? And then let's just kind of talk through like, where are we with issuance platforms today?

• 5:56Speaker 01

  Yeah, I think issuance platforms for us serve one huge primary role right now. And it's not actually just issuance. It's actually education. To us, they're the ones that are going out there, reaching out to the issuers, doing the advocacy of why you should tokenize, why you should move to this digitized or tokenized format. And so, you know, they, they get a lot of inbound right now. I think there's a lot of interest from new issuers who want to take advantage of this capital raising technique. But I think a lot of, a lot of what we see the better ones do is reach out to more traditional issuers and try to really espouse the benefits of why you want to do this tokenized format. And so for us, that's a big, you know, they're obviously bringing in a lot of the flow,

• 6:40Speaker 01

  a lot of the influx of new assets that are able to then trade on the secondary market like ours.

• 6:45Anthony Pompliano?

  Got it. And as we move through this, I think that there are various levels of kind of maturity with each aspect. If you had to give a grade, right? So A, B, C, you can do plus or minuses, like we're in school. Issuance platforms today as a whole ecosystem alone, A+, B-, where are we in terms of just like how sophisticated they are?

• 7:13Speaker 01

  Yeah, I think as a whole, I'd give them a gentleman C.

• 7:17Anthony Pompliano?

  A gentleman C, okay, all right. And what do you think the biggest challenges are right now that like, what do we have to do to get from a C to an A minus?

• 7:25Speaker 01

  So I say that only because, you know, to be fair also, you know, we're in a tough market right now. I mean, across the board, the crypto markets have gone soft, crypto winter, you know, extended or whatever you want to call it. And so their job is very challenging right now because you have perhaps a lot of exciting new exotic offerings that are trying to raise money in this market and they're not really able to do so. Just because the market itself is very soft and also because these are very exotic offerings that might not be appealing to a broader audience. And then for the more traditional assets, more traditional issuers that might want to participate, they see the softness in the overall crypto markets and they say, well, is now really the right time, right?

• 8:09Speaker 01

  And perhaps last year, just with all the frothy and the frenziness, I think you would get a lot more traditional issuers to dip their toe in the water because they just want to, you know, be a part of that movement. But now since it's cooled off a bit, to a certain extent, that's made their jobs a lot more difficult. And so I say a gentleman C, you know, only because just as a whole, I think there are a lot of macro level, macro level issues that are playing against successful capital raises in today's market.

• 8:42Anthony Pompliano?

  And what do you think the timeline is for some of that to improve? You think it's really just market dependent in terms of if we can get some price stabilization and maybe even some recovery, a lot of that gets alleviated? Or do you think this is something where, hey, we probably have a two-year timeline and we just need time for people to build technology?

• 8:58Speaker 01

  It's, I don't know that it's a technology hurdle. Right now, I think it's more, it's an institutional level adoption hurdle, right? You, I mean, you work a lot with your institutional partners and you have a sense sort of where the appetite is and people are starting. Starting to dip their toes into water with across a variety of instruments, right? And so you've got pension funds, we're starting to allocate capital to firms such as yours. You've got, you see the fidelities of the world, the Goldman Sachs of the world start to slowly creep in a little bit, starting with Bitcoin or something. And so, once you have enough of those larger scale participants starting to throw their weight in,

• 9:40Speaker 01

  then I think that's going to bring that more mid-level tier institutional players who see now that there is a validation to a certain extent, this isn't this scary exotic crypto world anymore. It's more of just this new form of capital raise and this new form of asset management. And then, and then you'll start to see a lot of them say, okay, is there an opportunity for me to, let's say, you know, they're doing a billion dollar, a new billion dollar raise for whatever instrument they're working on. Perhaps there's an opportunity to carve out a little sidecar, a hundred mil, fifty something, and try one of these tokenized paths and see what, how that works out. And it's low risk to them in a sense of it's just a sidecar to their main vehicle.

• 10:23Speaker 01

  So, so that I think, probably by year's end. I don't think it's a two-year thing. I think there's, we're having a lot of conversations with, you know, some institutional level folks who, who want to see a bit more validation in the market before they, they decide to, okay, you know, let's try a little pilot, if you will.

• 10:39Anthony Pompliano?

  Got it. What, um, what do you think about the protocols? Right, so where are we with the protocols? What's kind of the state of the union? Too, too many protocols?

• 10:47Speaker 01

  Too many.

• 10:47Anthony Pompliano?

  Okay.

• 10:48Speaker 01

  And so. So, it was just speaking at an event yesterday at the Harvard Club here, and we talked specifically about this, right? There's, every single issuance platform out there has their own little protocol layer. And for us, as we, we interface with all of these partners, and so we, we've had a chance to review a lot of the protocols. And quite frankly, a lot of them do very similar things. And so, to us, that's not a differentiator for, for an issuance platform. You have to provide an additional level of service and products on top of that protocol. If all you have is a protocol layer, you're not really offering much to your clients. And so, so the. Protocols that are all starting to really sort of synthesize into, I think soon we'll just be able to,

• 11:31Speaker 01

  as an industry, almost take a vote and just decide, okay, we're going to pick this open source format and everyone's just going to adopt it because that's going to be better for everyone. And so even today, these are open source standards. And so you can see how certain protocols are very similar to other protocols, just with slightly different tweaks here.

• 11:47Anthony Pompliano?

  Will there be consolidation, you think, where literally they kind of all just say, all right, this one, you know, option A is the most effective, efficient and best to move forward with? And let's all just use that?

• 11:58Speaker 01

  Yeah, and the thing is, you have to, you've got folks that are putting their names on protocols, which is just, no one's going to adopt the competitor's protocol if it has their name on it. So, so we advocate a lot for just kind of trying to push forward just a, a brandless, if you will, protocol that everyone can agree to.

• 12:15Anthony Pompliano?

  Is there one, is there one that you have in mind as like, this should be the one?

• 12:19Speaker 01

  We, we're looking at a couple of, of the EIPs out there. Haven't necessarily seen one that, that's all encompassing yet. But internally, we have this thing called S3, a smart security standard, which is not another protocol. It's almost a, it's a standard of standards. And so if you want to interface with our platform, because there is a technical integration needed for, for, for the different protocols, if you want to interface with our platform, you have to adhere to this S3 standard of standards, which is really just a common interface. You can do whatever you want underneath the covers. Obviously, we have to do a security audit, a smart contract, and we have to do a review and ensure that it's properly following all the rules. But, but for us, we feel that that S3 layer allows us to ensure that, you know,

• 13:04Speaker 01

  the Security Ties Protocol and the Harbor Protocol and the Token Soft Protocol are all sort of doing what they need to be doing. And then if you want to add a couple of additional features here and there, that's fine, because I think that's-

• 13:15Anthony Pompliano?

  It's kind of the bare minimum, right? You got to meet the, you got to meet the S3 as the bare minimum, and then anything that you want to do, bells, whistles, whatever on top.

• 13:21Speaker 01

  Exactly. So, so there, you know, we've had a lot of informal discussions with the different issuance platforms and, and there's interest in, in standardizing and just kind of coming to terms with- With if we can all agree on one protocol, then that should benefit everyone. But you start getting into, you know, people put their names on protocols and no one wants to adopt their competitors' protocols. So I that that's something that's just going to take time. Ultimately, too, I mean, a lot of the, you know, by our last count, there's over 80 issuance platforms out there that we've cataloged. Only a handful of them are are active.

• 13:56Anthony Pompliano?

  Yep.

• 13:56Speaker 01

  And so I think the active protocols, the protocols are in production today that are being used on out in the wild already. Ultimately, I think those will also be the ones that are going to really influence a lot of what the the the final protocol will look like. Simply because they're out in the wild, they're being vetted, they're being battle tested right now. And that's going to be, I think, a big attractive selling point across the board.

• 14:18Anthony Pompliano?

  For sure. And then I guess the other piece of this is there's exchanges, right? One of which you guys, I think you guys were the first to be up running and trading. And and I and I should say.

• 14:29Speaker 01

  Clarification.

• 14:30Anthony Pompliano?

  Good.

• 14:30Speaker 01

  We're not in exchange.

• 14:31Anthony Pompliano?

  Okay.

• 14:32Speaker 01

  It's a SEC reserve term. We're an ATS.

• 14:35Anthony Pompliano?

  An ATS, okay.

• 14:36Speaker 01

  Alternative Trading System.

• 14:37Anthony Pompliano?

  Describe what the difference is.

• 14:39Speaker 01

  Yeah, so. So there are three tiers, if you will, in the broker dealer. You know, think of these like Pokemon, I think, if you will. You've got your base broker dealer that that can transact in private securities, like these alternative assets, digital securities. Then you can upgrade your broker dealer to what's called an ATS, an alternative trading system, which is that next level. What the ATS allows you to do then as well is now other broker dealers could fit pipe into you. So think of it a little bit as a spoken hub type model where the ATS, other broker dealers are able to pipe into it via APIs or fixed feeds to receive real time quotes, put in automated orders, et cetera.

• 15:18Speaker 01

  And so then the third level, sort of the the final level on top of that is the exchange. So so a full blown SEC registered exchange. At that level, a lot of what, there are a lot of similarities between an exchange and an ATS, but that as a, just to oversimplify it as a whole, an exchange is subject to much, much higher standards and reporting requirements and varying levels of different regulatory hurdles that they need to overcome. So so for us, there is a. A future where we will move to that model when it makes sense. Right now, as an ATS, we are able to do a lot of the things that an exchange can do. But it's a bit more a better fit for what we're trying to do within the industry.

• 16:02Anthony Pompliano?

  Got it. And I should say as a disclaimer, obviously, we're investors in open finance. And so a fan of what you're doing. Maybe describe kind of, okay, where are we with ATS's exchange? Are there actually exchanges that are doing this? Is it all ATS's right now?

• 16:19Speaker 01

  It's all ATS's right now. Yeah, there's no. So again, like an ATS and exchange are very similar in certain regards. Just it is a much bigger undertaking to be a full blown exchange. And quite frankly, just the industry is not there yet. Right? So for us, we're an ATS. And so we have the ability to allow other broker dealers to plug into us to effectively, you know, be e-trades to our NASDAQ, if you will, right? Where they can onboard their own clients and then through their trading interface, they can, you know, send in automated orders, you know, receive real time price feeds, et cetera. There aren't really any broker dealers doing that right now. So to be a full blown exchange, this doesn't make sense, right? I think you need a right now as ATS is, you know, there's only a handful of broker dealers

• 17:03Speaker 01

  that are out there that are actively working with these digital securities. And so on the ATS side, there's a handful of us out there.

• 17:13Speaker 01

  So there's open finance, there's T zero is also active. They're only trading their own token. SharesPost is someone who's also done. They've done one live trade and there's some others out there, but they, to our knowledge, they have not done a live trade yet and are in varying stages of readiness.

• 17:32Anthony Pompliano?

  Got it. Okay. And then in terms of the, let's go back to the protocols for a second.

• 17:37Speaker 01

  Yep.

• 17:38Anthony Pompliano?

  What grade are you going to give protocols?

• 17:43Speaker 01

  Incomplete.

• 17:44Anthony Pompliano?

  Incomplete. Okay. All right. Not that we haven't even taken the test yet.

• 17:47Speaker 01

  Taken the test. Yeah.

• 17:48Anthony Pompliano?

  Okay.

• 17:48Speaker 01

  We are just, you know, again, I mean, some of these instruments just went live and we haven't, you know, one of the challenges, we were talking about one of our partners the other day was that they, there's a certain tokenized fund that we work with that is actively trading. Now that fund wants to do sort of a second tranche. And so now you need to, the smart contract layer needs to be able to handle, okay, you've got investors tokens from the, shares from the first tranche. And they've been trading, you know, there's different holding periods around, you know, on the Reg D, Reg S side of when it can start trading both in and out of the US. And now you're adding the second tranche layer that now in theory, share, not in theory, in actual practice, shares from this second tranche, although they are the same

• 18:30Speaker 01

  underlying share class, they need to act a little bit differently because now these have a different timeline around them. So that it sort of restarts the clock for these particular shares. And so how do we manage that? Right? I mean, how do you manage that, that sort of aspect? In the traditional world, what you would do is you would simply just not release the second tranche of, of shares to, to the shareholders until the holding periods had passed. And so you kind of bypass any of that interim period, but by just withholding them. And, and obviously that's not what we want to do collectively across the board. We want to be able to empower the, the investors, you know, allow them to hold their tokens or store them in cold storage as they prefer. So that's something that we're just, that's still being worked on.

• 19:14Speaker 01

  So that's why I say incomplete, right? I mean, it's, there's still a lot of factors that are being worked on as more and more edge cases start showing up and need to be handled properly.

• 19:23Anthony Pompliano?

  What grade would you give the ATSs and exchanges?

• 19:27Speaker 01

  Well, I would give us an A.

• 19:30Speaker 01

  Killing it across the board.

• 19:33Anthony Pompliano?

  That's like if the teacher took the test, right?

• 19:36Speaker 01

  Yeah. I had the answer guy next to me.

• 19:38Anthony Pompliano?

  Yeah.

• 19:41Speaker 01

  I think across the board, as a whole, I would.

• 19:48Speaker 01

  I'd put us at a B minus.

• 19:49Anthony Pompliano?

  B minus, okay.

• 19:50Speaker 01

  Across the board. I think the one thing we talk about a lot with some of the other ATSs out there is how do we pull our, how do we pull our liquidity together? Cause there's not any one of us that has just like a massive pool of liquidity just yet. And so in order for us to really catalyze growth in the industry, we feel that there's a need to really pull these pockets together in a way that now we can increase the distribution and the eyeballs in the audience that see these type of tokenized offerings. That to me is really the only, that collaborative, what do they call it? Collaboratition or something? What is it?

• 20:28Anthony Pompliano?

  Collaboration.

• 20:29Speaker 01

  And that collaboration, where it's like collaboration with your competition.

• 20:32Anthony Pompliano?

  Oh, okay. Oh, yeah.

• 20:35Speaker 01

  Friendemies.

• 20:38Speaker 01

  But so that's, that's my sentiment that in early days, we need to do that. We need to pull liquidity together in order to, to make it work. And so there, I still think we're a B minus just because we, there's been a lot of talks of that, but we haven't actually pulled together and put that out. Individually for us, I'll give us an A. I think there's room for improvement. A minus, A minus. No, I, I, I think we're, we're, I think we're doing a lot of things right. I think we could do a lot of other things better.

• 21:05Anthony Pompliano?

  What's the number one thing that you're like, you wake up in the middle of the night, you're just like, man, we suck at doing this. We gotta get better at X.

• 21:14Speaker 01

  I think honestly, I, I, we are hampered to a certain extent by how the regulations and how we can talk about what we're doing. I think that's one thing we need to work on. And it's not a, it's not a, we need to do better marketing. I think it's more just, because I think our marketing's killing it. I think it's more, we need to understand how to better communicate the value proposition of what we're doing to, to, to, to our audience. And also not even just to our audience of folks who are already active in crypto, because I think that that's easy enough, right? You know, you, you can push our content to crypto channels, but the real growth is going to come from mainstream adoption. So we need to.

• 21:57Speaker 01

  We need to really detail out what is the value proposition for a mainstream investor? Why would someone who, or even a traditional alternative asset investor, right? Why would somebody who's accustomed to buying these assets on paper, if you will? I mean, certainly for us in the room, it's easy to say, oh, of course you want to digitize, you know, your investment holdings. But, but we say that because we're very techno savvy and we're kind of like are very excited and caught up in this little bubble, if you will. But how do you get a mainstream, traditional investor excited about the opportunities here? How do you communicate to them that this is a better instrument for you? And not even just the instrument itself, this is a better format for you. That's what I think we need to do better.

• 22:39Speaker 01

  And quite frankly, across the board, I think that as a whole, the industry needs to do better on that to try to really increase the pie. Because otherwise, we're all just fighting for that same little pie slices.

• 22:50Anthony Pompliano?

  Yeah, makes, makes sense. Service providers. So we'll just lump in accounting, legal, auditing, kind of everything together, which is probably unfair to a number of people, but, but we only have so much time to talk. Walk through kind of where do you see in that service provider bucket, the most important aspect or two? And then we can get into what you think the grade is.

• 23:14Speaker 01

  Yeah. I mean, I've got, I've got to go with lawyers is the most important factor.

• 23:18Anthony Pompliano?

  I thought you were going to say.

• 23:19Speaker 01

  Yeah, I mean, it's, it's so funny because just had this conversation yesterday too, that, that there are folks out there who are saying they're blockchain lawyers and you're like, what does that mean? What does that actually? There's no new law for blockchain per se. And so for, for us, it's the securities lawyers that are kind of savvy enough to recognize sort of this new technological format and how it applies to existing securities laws. Those are the folks that, that we, that, that to us are critical to kind of educate more and more of the securities lawyers through this new format so that they can take it forward to their clients and, and/or when their clients approach them and say, you know, we've been hearing a lot about digitized assets. Is this something for us? Could this be appropriate for us?

• 24:03Speaker 01

  The lawyer can actually then give them a educated response. Instead of a, I don't know, I'll go ask our new 22 year old, you know, intern or whatever, who is more tech savvy than I am, right? We need to have that, that education sort of at the frontline because the securities lawyers are at the frontline of all of these new offerings coming out and sort of, you know, even before they start doing an offering, the first thing you do is go talk to your securities lawyer. The first thing you should do is go talk to your securities lawyer. So I think that that's the most sort of, that's the most important layer of service providers. Accountants, I think it's also pretty critical in a sense of, especially as you start dealing with the Reg D, Reg S combinations that are very popular today.

• 24:44Speaker 01

  There's a lot of implications around selling outside of the US and in terms of tax with holdings and whatnot that aren't necessarily being accounted for properly today. And I think it'll flush out over time, but you know, we, people have kind of just been sweeping it under the rug right now because they're like, oh, that's an end of year thing. We'll, we'll deal with that when we get there. And I think it's something that's going to potentially bite a lot of the issuers in a way that that could hamper growth because it's going to leave a bad taste in their mouth and they're not going to be interested perhaps in doing a second offering in a tokenized format.

• 25:15Anthony Pompliano?

  Got it. Okay. And then what do you think about the assets themselves, right? The assets seem to be, we, we just went through kind of the ecosystem, if you will, right? So everything from the issuance platforms, the protocols, the exchanges and the service providers, they're all, in my opinion, going to live or die with the quality and the demand for the assets, right? What are you seeing in terms of the types of assets? And maybe even which ones are being successful and then which ones are just falling flat on their face and failing?

• 25:45Speaker 01

  Yeah. So, I mean, we're seeing stuff across the board, like venture capital funds, hedge funds, real estate, private companies, revenue sharing models of like new product lines. It's, it's. Right now, everyone's struggling across the board to raise capital. But what we believe to be a winning formula, which is going to sound obvious when I say it, is sort of a marquee name, putting out a high-quality product. And so we think real estate is just well-suited for this type of... Real estate in general is just well-suited for fractional ownership. I think it's an asset that people generally understand across the board. Everyone knows that real estate is a critical component of a well-balanced portfolio, a well-diversified portfolio.

• 26:29Speaker 01

  And so if you can have a marquee name that's offering some sort of a downtown New York office building, for example, like that, I believe is a product that will do very well because people will understand that. They'll understand the hard asset that is under the offering and they'll have a place for it in their portfolio. The more exotic stuff that we're seeing, a lot of new, sort of brand-new companies per se that are very unproven, this is almost like their Series A that they're trying to raise, I think those are going to have a really hard time right now because you've already got this exotic format of tokens and then you've got this exotic underlying asset as well. That's a hard sell. You have to cross two hurdles.

• 27:08Speaker 01

  So, but blockchain capital, they did a tokenized offering of one of their venture capital funds that did very well. They're a name in the industry where people recognize them and they kind of recognize the management team behind them. They know that they have a successful track record. And so if they were to do another fund offering, I believe it would do well as well. We're starting to see some real estate offerings. Harbor is working on a private REIT right now that seems to have good reception in the market. And so real estate, I think, is going to be that big driver because I think it's just something people really understand.

• 27:50Speaker 01

  And so then you remove that exotic asset offering element of it and now you just have to get people across the hurdle of this is just the same real estate you've invested in before, now it's just an improved digital one.

• 28:00Anthony Pompliano?

  What's the number one asset? If you could pick any asset in the world, you were like, if we tokenize X, that would be your dream?

• 28:08Speaker 01

  I gotta go with real estate.

• 28:10Anthony Pompliano?

  No, but like, like what piece of real estate?

• 28:12Speaker 01

  What piece of real estate?

• 28:13Anthony Pompliano?

  Yeah, like the actual asset itself. Which one would you pick?

• 28:16Speaker 01

  I, I.

• 28:18Speaker 01

  There's like a big marquee name. Let's, for example, in Chicago, let's say, you know, if, if they were to tokenize the Sears Tower, something like that, like refinance the Sears Tower, something to that extent, that I think, I mean, people would recognize that worldwide. I mean, that's a landmark building. It would have that broad name recognition. And then, quite frankly, so long as he underlined offering the economics are sound. Like, I think that's an easy sell. And so, but, but that to me, I say an easy sell just because that appeals to a wider audience of participants and what's in the market today. You know, the folks that are in the market today, some of them perhaps invested in ICOs back in the day, or, or they've done Bitcoin and Ethereum, so they're kind of used to that exotic element of it.

• 28:59Speaker 01

  But again, to my earlier point, for us to really grow the market, we need to have more mainstream adoption. And so, a marquee name, something that people immediately recognize, give them that sense of, of stability, confidence, and trust. I, I think something like that will be a, a, a watershed moment in the industry.

• 29:17Anthony Pompliano?

  Got it. And then what about regulators, right? Obviously, you've spent a bunch of time, both just kind of in getting your own regulatory licensing, et cetera. And then also, I'm sure a lot of regulators have wanted to just understand what's going on. What have you found maybe they're most curious about or, or learning about? And then also, what's their reception to, to this whole digital security space?

• 29:36Speaker 01

  Yeah, it's, it's been a lot of education, in a good way, in a good way. I think there is a lot of, there's been a lot of back and forth conversations that we've had around

• 29:48Speaker 01

  properly conveying how these digital securities interact, how they're different than what's been done before, and also how they're very much the same as what's been done before. And so, for us, we had the benefit of having an operational business already that was doing exactly what we're doing today, just non-blockchain. And so, we were able to really, you know, we had our policies and procedures from how we do this on paper, if you will. And we were able to walk the regulators through that and then almost show them a red line version. And here's how we're doing it on the digital side now. And so a lot of that, just kind of being able to relay it back and forth at like, okay, here's how we did it in the traditional space. And this is how we've all kind of understood that it's okay to be done.

• 30:32Speaker 01

  And here, you'll note here that instead of using some sort of transfer agent or fund administrator or something like that, we're using someone, a service provider that that is the books and records keeper on chain, if you will. So one of these issuance platforms, you know, serves as a digital registrar to a lot of these issuers. So similar to a transfer agent or a fund administrator. And so kind of being able to show sort of the the old way and the new way side by side, I think was really beneficial and kind of was helpful and educating kind of how these digital securities are different. And then more importantly, why they're better, right? I think for us, a big thing that we talk about is, is it's because you can

• 31:17Speaker 01

  code a lot of the rules and regulations at the smart contract layer, you can actually ensure that they're being enforced across the board in a way that was never be able to be done before. So, so you explain that to the regulators and now they can actually, without having to sift through mountains of paperwork, they can actually see that these offerings are adhering to the rules and the regulations and the process and enforcing investor protection at a much higher level than was possible before. That, that to us is sort of like a huge boon to the regulators. Because at the end of the day, they're out for the protection of the, you know, mainstream investor, if you will. The mom and pops out there who want access to these types of offerings for their portfolio.

• 32:02Speaker 01

  And just have to ensure that they're protected. And so the technology allows the regulation to be enforced in a much better fashion.

• 32:09Anthony Pompliano?

  We've talked a lot about kind of equity ownership, right? Whether it's in companies and in funds or in real estate. What are you seeing in the debt markets, right? Debt's a huge asset class in the traditional markets. But what are you seeing in this digital security space for debt?

• 32:24Speaker 01

  There's, there's been a handful of debt instruments that we've seen come across our desks.

• 32:30Speaker 01

  It's, haven't seen too much at a

• 32:34Speaker 01

  For us, that is really just because of the some of the the long term aspects of it. You really need to have an entity behind it that is high level and trustworthy. Like it can't be sort of a new operation per se. So we haven't seen any institutional level type players step forward with debt offerings. But we think, I mean, similar to the crowd, early crowdfunding days, we like to call this stuff crowdfunding 2.0, if you will, but early crowdfunding days, like debt, debt based instruments took off significantly because you had, you had that, that the, these entities that were taking traditional real estate product, for example, and, and, and offering, you know, debt instruments off of that. And so haven't seen too much of that yet, but, but we think it's going to be a big, big growth area in the market.

• 33:18Anthony Pompliano?

  Got it. Is there any area that people aren't talking about that you're like, look, this is either a huge opportunity or you're actually seeing quite a lot of assets and activity and just people haven't caught on to it yet?

• 33:30Speaker 01

  Yeah, I think just traditional, like limited partnerships that are out there, just like these, these traditional vehicles where people are in these for, you know, 10 or so years. We think that's an area that no one's really looking at just yet. And we think there's a lot of pent up liquidity, sort of demand there where you've got these participants who have been in these instruments for, for a very long time and these are solid, well performing instruments. And, and to give those participants the option of liquidity, we think is going to be an area that, that, that will be a good conduit towards more institutional product. We haven't really seen anyone focus on that just yet. And so that's an area that we think could be focused on.

• 34:11Anthony Pompliano?

  Got it. Before I wrap up, I always do rapid fire questions. What is the most important company in crypto other than your own?

• 34:23Speaker 01

  I will go with, I go with backed, actually.

• 34:28Anthony Pompliano?

  Backed?

• 34:28Speaker 01

  Yeah.

• 34:29Anthony Pompliano?

  B A K K T?

• 34:30Speaker 01

  K K T, yeah. I, I think.

• 34:34Speaker 01

  They're going to, on the regulatory side, they're going to push the envelope much further than than companies like ours can do simply because they have much larger financial backing. And so they they're able to kind of really push the push, push the needle forward. On the regulatory side, I think will benefit all other participants in the market. So they'll be the ones out there advocating and lobbying, you know, and in Washington to to really push for a refresh of some of these securities laws and the regulation in place. And I say refresh, it's not a redo, it's not a rewrite, it's just refreshing them to account for this new distributed format.

• 35:13Anthony Pompliano?

  Got it. That makes sense. What do you think is your most controversial thought in crypto? What do you believe that a high majority of other people would disagree with?

• 35:20Speaker 01

  I, so, so a lot of people are struggling with the fact that these security tokens, I think, they're not bearer assets anymore. I think people have that mentality of, you know, you've got your Bitcoin, you've got your Ethereum, you can hold it in your wallet, and no one can take that away from you. And the way a lot of these security tokens are being coded is there, there actually are, for regulatory and legal reasons, there are ways to kind of claw them back if you need to. And so I think that that's, that's something that a lot of people aren't, they feel it kind of goes against the spirit of blockchain, because it almost kind of brings back that centralized aspect of it. But, but to me, I think that's something that needs to be done sort of in this first phase. And then as

• 36:01Speaker 01

  we move to the second phase, and we can kind of revisit that aspect of sort of, you know, autonomous ownership, if you will. But that's something that, you know, we, we hear a lot about, you know, people saying, oh, it's just inherently contradictory to the spirit of distributed ledger technology.

• 36:16Anthony Pompliano?

  Well, I mean, part of it too, right, is, you know, think of cell phones, for example. It would have been great to go from landlines to smartphones.

• 36:24Speaker 01

  Right.

• 36:25Anthony Pompliano?

  But in between, actually, people carried around a suitcase that had a phone in it, right? And then they went to like the big bricks, and then they went to like a flip phone. And then eventually we got the smartphones. And so there's some, there's some evolution that has to happen.

• 36:36Speaker 01

  We'll look back at this time and be like, man, can you believe our phones are like this big? Can you believe digital securities were this? Clunky at first and then so they got evolved into that next phase.

• 36:46Anthony Pompliano?

  When I was a kid, I've actually never told a story before. When I was a kid, I was probably, I don't know, eight, nine years old. And I remember I got in a car and I actually can't remember, was it a car that like my dad had rented? Or was it like a friend's car or something? But I remember the first time I saw like a landline looking phone?

• 37:04Speaker 01

  Yeah.

• 37:04Anthony Pompliano?

  In the car.

• 37:05Speaker 01

  Oh.

• 37:05Anthony Pompliano?

  Right? Like, like you could like pick up the phone and had the cord and like you could talk in the car on the phone, whatever. And I remember just being like, whoa. Right? And now we walk around with computers in our pocket. It's crazy.

• 37:17Speaker 01

  Yeah. Yeah. I used to have one of those like T-Mobile sidekick type.

• 37:20Anthony Pompliano?

  Yeah, yeah, yeah.

• 37:21Speaker 01

  And the slide out keyboard. I was like, this is amazing.

• 37:23Anthony Pompliano?

  Yeah. Those were the best phones ever.

• 37:26Speaker 01

  Yeah.

• 37:28Anthony Pompliano?

  All right. What, uh, what one regulation would you change or improve if you could?

• 37:33Speaker 01

  I'll go obscure here. I'll go section 12G.

• 37:35Anthony Pompliano?

  Okay, what is that? You're the first person ever named the regulation by official name. All right, what is that?

• 37:40Speaker 01

  It's on page 38, line number 40. So section 12G is sort of a, um, it does a variety of things, but it, it, it puts a cap on the number of shareholders that, that certain private companies can have. It used to be 500. You could have no more than 500 shareholders and they bumped it up to 2,000 for private companies. But, but to us, if you read sort of the, the spirit and the intent of what the rule is, it's to, again, investor protection, that once a company gets to a certain number of shareholders, in theory, they cannot properly manage slash communicate with their shareholder base well enough in a way that, that the shareholders will be protected. So at that point you have to go public and then there's a very onerous process for that or a very burdensome process. And so

• 38:22Speaker 01

  for us, with this new technology, you can streamline and properly communicate and manage relationships with those, with more than 2,000 shareholders if you needed to. And so we think that's one that, that, if you look at what the spirit and the intent of section 12G is, we think that, that, that's one that, that is ripe for refreshing. Especially as more and more companies seek to remain private longer.

• 38:46Anthony Pompliano?

  Do you think that, uh, the lines between public and private are going to kind of completely blur? Like, like there won't be a private company and a public company in the future. It'll just be there are companies and there's liquidity options associated with what the company wants?

• 39:00Speaker 01

  You look at some of these tokenized offerings out there today and they're pseudo-public in the sense of blockchain capital puts out a NAV every week. They update their NAV every week and people have this visibility now into the companies, into these tokenized offerings in a way that they never did before, right? I mean, with traditional private securities, maybe you get an update from the GP or the issuer once a quarter or once a year, depending on how active they are. And so you look at some of these new offerings and the data that's available to you now, just the transparent nature of distributed ledger technology allows for the investor to have greater insight into what's happening with the company and how it's performing.

• 39:43Speaker 01

  And so they're already pseudo-public, I think. So it just kind of then depends on what tier are you at, right? Are you just getting started and so your reporting requirements are really low? So you're down here all the way up to your NASDAQ level and obviously you have very stringent reporting and other requirements you have to adhere to. And so depending on the needs of your company and where you're at in the full sort of a capital raising lifecycle, you select a level that's right for you. I think that it just gives the issuers, the entrepreneurs, the companies a lot more flexibility and options in terms of how they raise capital, how they can access these varying capital markets.

• 40:20Anthony Pompliano?

  Makes sense. What's the most important book you've ever read?

• 40:23Speaker 01

  That's a tough one. I'll be honest, I've not read a book in a while. Actually, I have. It's The, what is it called? The Content Little Baby is the most recent book I've read.

• 40:42Anthony Pompliano?

  What is that?

• 40:43Speaker 01

  No, I have a nine-month-old at home. And so the only actual reading I've been doing lately is around like baby books.

• 40:52Anthony Pompliano?

  What's the one thing that having a child has been the biggest surprise?

• 41:00Anthony Pompliano?

  What did you not expect?

• 41:02Speaker 01

  I don't know if it's a surprise. I think to me, it just prioritized things differently. Um, in a sense of, you know, um, you know, in my spare time, I would, you know, do things that were more, you know, um, uh, perhaps more my personal interests or hobbies and stuff. And so, since you learn to kind of prioritize different things, because obviously Riley, my daughter, you know, I now, instead of, you know, doing things that might've been like a personal hobby, I'd rather just spend time hanging out with Riley at home and just, um, playing around with her. She's starting to crawl and she started to pull herself up and kind of shuffle around now. It's like, that to me is so much more exciting than, than, than, you know, finding time to read books per se. I just haven't been able to do that. So I don't know that it's

• 41:45Speaker 01

  been a surprise. I think, I think, you know, I think as a, as a first time parent, like we, and we knew what we knew and we, and we didn't know what we didn't know. But, um, but yeah, I, I think it's, it's, you know, it's been something that's just been really, uh, challenging, rewarding, and just like a lot of fun, I think.

• 42:00Anthony Pompliano?

  Yeah, that's awesome.

• 42:01Speaker 01

  Yeah.

• 42:01Anthony Pompliano?

  The, uh, the baby on the move imagery in my head of like a baby crawling around the floor while you're, uh, trying to read is probably not, uh, not something that gives parents a calm.

• 42:11Speaker 01

  It's a lot of fun though.

• 42:12Anthony Pompliano?

  All right. So two, uh, non crypto questions. Uh, how long do you dunk Oreos in milk?

• 42:20Speaker 01

  I like to let them get really soft.

• 42:22Anthony Pompliano?

  Oh my God. That's, that's a psychopath move.

• 42:25Speaker 01

  It is. No, I'll take a mug, uh, like a, like a wide mug and just put a bunch of Oreos in there and then come back like five to 10 minutes later and they're all mushy. And it's just like, it's like cereal. Yeah.

• 42:36Anthony Pompliano?

  And it's like cereal?

• 42:37Speaker 01

  Yeah, it's a little weird.

• 42:38Anthony Pompliano?

  Oh my God. That is, that's the worst answer we've ever had.

• 42:43Anthony Pompliano?

  I, I was the, like, some people are like, go real crazy. Like, oh, I dunk it for 15 seconds. You leave it for minutes?

• 42:49Speaker 01

  I just let them, yeah.

• 42:50Anthony Pompliano?

  And you just eat them really mushy?

• 42:51Speaker 01

  Yeah.

• 42:52Anthony Pompliano?

  All right.

• 42:53Speaker 01

  It's like, it's like Oreo, it's not even cereal at that point, I guess.

• 42:56Anthony Pompliano?

  Yeah. Oh man, I, we got a lot to talk about. All right. And then what about aliens? Believer, non-believer, real, not real?

• 43:06Speaker 01

  I, I think I'm a believer in the sense of it's, it's, it's a very big universe. And I think it's a little self-centered to think that we're the only life out there. Um, beyond that, I don't know what it looks like, right? I mean, I, I don't think it's going to be, you know, no, no, I, I, I, I think, I mean, in, in what sense, like, you know,

• 43:29Anthony Pompliano?

  Are you, would you rather go to the depths of the ocean, which we know nothing about really? Or would you rather go to space, which we think we actually know a lot about?

• 43:36Speaker 01

  I'd rather go to space.

• 43:37Anthony Pompliano?

  Space.

• 43:38Speaker 01

  Yeah. Yeah. To me, that's, that's, I, you know, I look at, I look at like what Elon is doing and like, I think, like, I think, I think my daughter's going to live on Mars one day. Like, I think that's, that's going to be like the up and coming neighborhood, right? You could live in like, you know, instead of people moving to like, um, you know, some of the key cities out there, you know, like today, like New York, Chicago, Los Angeles, people sort of in that region gravitate towards those hubs. I think.

• 44:04Anthony Pompliano?

  People are like, I'm gonna leave Chicago and go to Mars.

• 44:07Speaker 01

  Well, I, I, I think, you know, for, for, for the same reason that people come to these hubs for like opportunities, right? I think there's going to be a lot of opportunities in these different outposts, you know, when it comes in 20 years from now. Um, and I think people will flock to it simply for the opportunities to be part of that first wave. And to be able to capitalize on a lot of those opportunities that are popping up of, you know, from a professional perspective or from, from a, a just, um, I guess scientific or, or, or just exploratory perspective. But yeah, I, I think I'd much rather go to space and then deep underwater.

• 44:38Anthony Pompliano?

  Yeah. The ocean kind of scares me a little bit.

• 44:40Speaker 01

  It's a little, yeah, yeah.

• 44:41Anthony Pompliano?

  Like what's down there?

• 44:43Speaker 01

  Yeah.

• 44:43Anthony Pompliano?

  Like you might find, you might find like a sunken ship with treasure or you might find a sea monster that we don't know about.

• 44:48Speaker 01

  Yeah. But, but see, that's less, it's not like we're going to find Atlantis, right? Like, like if there was a possibility that Atlantis was down there, like that would be exciting to me because then you could, to me, the, the civilization that might've evolved from there could be.

• 44:59Anthony Pompliano?

  The, the aspect of adventure and discovery to you is more exciting of like Mars, space, the unknown than like down in the ocean. It's just, we're not going to find anything.

• 45:07Speaker 01

  Yeah. I feel like you're right. I mean, there's, there's certain pockets down there that we don't know much about, but we're not going to uncover something that's like, oh, hey, there's a whole nother world down here. So.

• 45:17Anthony Pompliano?

  All right. That's fair. Uh, what one question do you have for me to end it?

• 45:23Anthony Pompliano?

  Does everyone call you Pom? Like, does anyone ever call you just like, hey, Anthony, aside from your mom? Does your mom call you Anthony? Or does your mom call you? My mom actually doesn't even call me Anthony. So, growing up, I think I was in like kindergarten or something and I couldn't write my name. Like dumbass me, literally couldn't figure out how to write A N T H O N Y. And, uh, and so my mom, uh, was like, oh, just write your initials. So my name is Anthony John Pompliano. And, uh, so she was like, just write AJ. And I was like, phew, went from, you know, a bunch of letters to just two. This is, this is fantastic. And like, if you think of Anthony or AJ, A and the J are actually just like straight lines. You just have to connect them. Like, it's like pretty easy letters to write.

• 46:03Anthony Pompliano?

  And so I started writing it and literally through high school, uh, pretty much all of my friends called me AJ. And, uh, and, uh, my, my mother, my father, everyone, all my brothers, AJ. And Anthony only came out when I was in trouble. And, uh, and so when I got to college, um, a little bit in high school, people had called me Pop. But really in college, people started calling me that. And the reason why it was hard through high school was I have four younger brothers. And so usually there was two of us, whether we were playing sports, we were doing, like, we were all together at some point. And we rarely did things alone. So if you yelled out Pom. Yeah. You'd get like two or three people to turn around. And that doesn't really work for names.

• 46:45Anthony Pompliano?

  And, and so, uh, when I hit the college, uh, for, for a couple of years, I was, uh, there by myself without any of my brothers. And, um, and so Pop started to take hold and I literally couldn't lose the nickname at this point if I tried. Like, people get mad at me at conferences, um, or an event or something if I introduce myself as Anthony. Yeah. And then somebody else will say like, hey, Pop. And the first person will be like, dude, what the hell? Like, nobody knows you as Anthony. You have to introduce yourself as Pop because that's how everyone knows you. And so, uh, it's weird. Like. Yeah. It's like the first time I wrote you an email, I was like. Do you say Anthony or Pomp? I was like, do I, you know, you start with the name, comma, and then you write your messages. Like, do I write Pomp? Or I think I may have said,

• 47:27Anthony Pompliano?

  I think I may have used Anthony, just because I was like, I didn't really know you back then. I was like, is that presumption? So just like, just jump in on the nickname and just start calling him Pomp? And so

• 47:36Speaker 01

  Yeah, I realized everyone calls you Pomp.

• 47:38Anthony Pompliano?

  Literally to the point where my mother even laughs about it now, right? Like, she's just like, well, how the heck did this happen? And I think my brothers are the funniest, right? They're just like, you know, how did we go from Anthony Pomp, which is like one of the most Italian, you know, long names you can have, to just four letters, right? And so we get a good laugh out of it. But names are weird because in crypto specifically, like if you think of even Twitter, like how many, like, I literally see at conferences, people will put their first name on like a name badge, and then they'll put like at, and then whatever their Twitter handle is. Or people will come up to me and they'll introduce themselves and they're like, hey, um, and whatever the Twitter handles, like, you didn't even tell me your name. You literally told me your Twitter handle.

• 48:22Anthony Pompliano?

  And it's like, that becomes such an idea.

• 48:24Speaker 01

  Seg2020?

• 48:25Anthony Pompliano?

  Yeah, well, it just, it just becomes this like identifier. Because if you're on Twitter a lot, like, that's what you engage with. You actually don't engage with the person as a name, you engage with their Twitter handle.

• 48:35Speaker 01

  Your Twitter handle is not Pomp.

• 48:36Anthony Pompliano?

  It is not.

• 48:37Speaker 01

  It's like A Pomp or something.

• 48:38Anthony Pompliano?

  I tried to get it one time, uh, big issues. There's a guy, I think he

• 48:44Speaker 01

  You can call it Jack and just have

• 48:45Anthony Pompliano?

  No, listen, I think there's this guy, if I remember correctly, he's like a DJ in Texas or something. I actually think he blocked me at this point. Well, because everyone kept, like, you know, accidentally tags him. They just play at Pomp and they, they tag him. And so I messaged him one time, I was like, hey, man, like, would you give it up? And he was just like, he basically kick rocks, right? Like, he was like, no way.

• 49:06Speaker 01

  Is he even using it?

• 49:06Anthony Pompliano?

  So he is, he's like a radio DJ. So like, and I think his name is like DJ Pomp or something. And I was like, oh, man, you're stealing my thunder, like my DJ career.

• 49:16Speaker 01

  He's a great, you know, full joke somewhere in there. You guys switch Twitter handles for a day?

• 49:21Anthony Pompliano?

  Yeah, yeah. No, if we switch, I'm not giving it back. So I'll warn him right now. Don't give me that Twitter handle. You're not getting it back. All right, man. Listen, thank you so much for doing this. This is awesome. I think people really appreciate hearing kind of a state of digital securities and I'll have to do it again in a few months.

• 49:35Speaker 02

  Absolutely.

• 49:36Anthony Pompliano?

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.