WBD020 Audio Transcription

Tokenised Securities with Trevor Koverko from Polymath

Interview date: Friday 8th June

Note: the following is a transcription of my interview with Trevor Koverko. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

Polymath is one of a number of projects in the space, looking to integrate Wall Street with Crypto and in this interview, I talk with their CEO, Trevor Koverko about the project, the challenges they face and the opportunity within the market.

“This is even more regulatory friendly than the current scheme which has share certificates collecting dust in a filing cabinet. Tokens are a superior format and a way of owning something, they are programmable and you can do interesting things such as automating back-office functions like proxy voting and dividends.”

— Trevor Koverko

Interview Transcription

Peter McCormack: Hi Trevor, how are you?

Trevor Koverko: Amazing.  Yeah, I got the energy going from this crazy week.  So far it's been a lot of fun.  Thanks for doing this.

Peter McCormack: What've you got out of the conference so far?

Trevor Koverko: You know, it's three, four days of just mayhem.  Everybody is excited, there's a good buzz, good energy in the air, lots of deals getting made, lots of pitches.  This is kind of the mecca of crypto right now.  Everybody who is relevant pretty much is in the building.

Peter McCormack: Right.  I said to you before we started, I'm not going to do the origin stuff because we've got a certain amount of time.

Trevor Koverko: It all started back in…!

Peter McCormack: Well I've got so many questions for you.  I put out a couple of Tweets earlier today.  Beyond Bitcoin, it's the single project I'm most excited about from everything I've looked at because of the use case and the size of the market; also I've put a bold prediction out.  I think you'll be a top-ten 10 market cap coin, which I know is a bold prediction and could even see you taken out of Ethereum.  What gets you so excited about this sector?

Trevor Koverko: It's a very ambitious project, we have made no mistake about that!  But it just started you know, not to get into the origins story, but it's very organic.  It started just with us trying to solve our own problem and we realised that there's just this massive opportunity.  We've been crypto people for six, seven, eight years now from the very beginning, and it just is such a natural use case.  Financial products, Wall Street, function better as tokens and we think the world will be a better place as we continue to distribute this technology.

Peter McCormack: Okay.  So I had a play with the platform this morning.  Various bits of experience and things I liked and things I didn't entirely get my head around.  So I've got a few questions around it, but can you first explain what the ST-20 token is for anybody who won't know or wouldn't have heard of it just yet?

Trevor Koverko: ST-20 is our standard and without getting in too deeply into the mechanics, it's a way for us to kind of tell the world that this is how we think a proper security token should be done.  The core of ST-20 is we built a way that seamlessly excludes and restricts non-accredited and non-authorised investors from holding a token, and this is even more regulatory friendly than the current scheme, which has share certificates collecting dust in a filing cabinet and a lot of times that's what ownership means. 

What we're saying is, "No, tokens are a superior way and format to own something".  Tokens are programmable and you can do interesting things on tokens, like automate certain back-office functions like proxy voting dividends and even KYC.  You can actually put identity in the smart contract itself, and that's something that we've tried to standardise with ST-20.

Peter McCormack: So I'm going to jump forward because that brought up a couple of questions I had.  How do you enforce who can own the token?

Trevor Koverko: Well technically speaking in a literal sense, we programmatically restrict non-authorised investors from trading, but I think the point you were getting at is our network and that's what we're innovating on is taking KYC, Know Your Customer, it's also known in some countries as broker dealership, some kind of gatekeeper for who is who they say they are.  There's a lot of very strict regulations especially in the US about this.  What we're saying is we want to decentralise that.   We want a network of independent KYC providers, some maybe well-known, some not; but they are the gatekeepers that decide which Ethereum address is attached to which identity and that's the key, in my opinion, for security tokens to really become mainstream.

To date no one's been able to solve that problem of restricting unauthorised people from holding tokens, whether that's AML issues like antiterrorism, anti-money laundering things or whether that's just accreditation status.  Are you rich enough to own this token?  That's just a very important legislative fact of global capital markets.  And the reality is a lot of these regulators, even though they're different and they have their own nuances, there's kind of common denominators between all of them and we built the ST-20 standard with those things in mind.

Peter McCormack: Right so if I was to hold an ST-20 token and I tried to transfer it to another Ethereum address, it wouldn't be able to be transferred if they're not accredited?

Trevor Koverko: If you're not on the whitelist that the issuer manages, the person that's raising money launching the token, they're the ones with guidance from their legal counsels with help from their KYC provider, they're the ones who maintain and upkeep this 'whitelist' which lives on a smart contract, which dictates who's allowed to hold the token and who's not.

Peter McCormack: So the ability to transfer isn't there then; it would fail?

Trevor Koverko: Yeah.  Nothing would happen.

Peter McCormack: The other question I had then is also is there any risk here with theft?  It seems like you've got less risk of theft and hacks of tokens as you would have with, say, standard kind of crypto Ethereum Bitcoin. 

Trevor Koverko: Yeah.  I think that's a very interesting discussion.  I mean that's a custody question; who is in control of the private keys?  It's kind of not a debate, it's more like a continuum of, you convenience on one side, so that's like Coinbase holding your private keys, but then you don't have to store them, you don't have to secure them; and on the other side, it's like taking a very deep security protocol of cold storage and private key management and multisig. 

So the bottom line is, it's up to the user, it's up to the issuer how they want to manage that.  We're also looking at insured third-party custodians who can help our bigger institutional clients store their crypto in a secure way, but generally speaking this is kind of an evolving aspect of the security token ecosystem.

Peter McCormack: What is the potential size of the market for this?

Trevor Koverko; Yeah, I'd say pick a number between 1 and 100 and put trillion next to it and that's the size.  Any financial product pretty much top to bottom, in my opinion, functions better as a token than it does in its current legacy state and yeah, stocks, bonds, real estate mortgages, derivatives.  We're talking really an unlimited market cap.  There's no point in me just saying, "quadrillion", it's just kind of meaningless; but big enough for some serious improvements and disruption in the current financial apparatus.

Peter McCormack: It seems like one of the best real use cases in that we have a lot of these utility tokens where we're yet to find out if they're going to be economically profitable or if they're going to work.  One of the things I was chatting to somebody about recently was with the dawn of the internet, everyone just thought it was e-commerce and people did not foresee search and social being the thing to actually drive the internet forward.  It feels like with this, you've actually found an actual use case where you can save people money, you can make things more efficient.

Trevor Koverko: Yeah, no, absolutely.  To kind of add to that, there's a few different things going on.  There's efficiencies, you know there's running your business more efficiently, saving money, automating your back office; like I said, smart contracts are a lot better than other financial infrastructure things like settlements and clearing and KYC even.  But at the end of the day, what we've noticed is that there's a couple of main reasons why an entrepreneur or business or an issuer would want to tokenise an asset or launch a token in exchange for capital.

Actually let me just make another point on that, is there's two types of use cases that we're seeing.  There's I already have an asset, I have a house, I have a real estate fund, I have artwork, I have whatever and I want to tokenise it in its existing form and then enjoy the benefits tokens have over the current share structure.  The other way, and this is the way we're kind of focussing on to start is you have an idea.  You have maybe an existing business or maybe you have a structure for a fund that you want to launch.  You would come to Polymath, launch your token and then issue it in exchange for capital. 

So you would use it as a way to fundraise and that kind of ties back to my earlier point is that the real go-to market strategy that we've learned by talking to people for the last two years every day is they like money, they like capital, they want a new way to fundraise.  Right now fundraising is a pain in the ass and with crypto, you know, the market I admit is a little frothy; but at the end of the day, the issuers are looking for the lowest cost of capital and this is a brand new way for them to access today $500 billion of new wealth that has been created and we see that number only growing, especially as kind of big institutions come into the market.

Peter McCormack: Right.  So could you see that this would then also potentially be a competitor to the likes of Kickstarter and GoFundMe in that you can fund any kind of project; because it seems like yes, you've got the real estate covered and you've got share structures for businesses, but actually could you raise money for anything on this?

Trevor Koverko: You know, look at Ethereum as a great example.  People compare us to kind of Goldman Sachs and sometimes like an exchange a lot, but I like to be compared more with Ethereum.  Ethereum we're very inspired by.  They are from our hometown and they did an amazing job kind of launching this new revolution.

What Ethereum did is that they made it easy.  This is not what they pitched it as; it was pitched as, I don't know if you remember back in the day, they were wearing T-shirts that said, "Decentralised Uber", on the front and then one line of code on the back which would kind of indicate you could easily decentralise Uber.  Now I'm not saying that that's not still going to happen but what's interesting to me is that the go-to market use case of Ethereum has been money.  It's been a way for new ideas to fundraise, and Ethereum essentially is an open-source white labelable technology.  So you can take ERC-20 and you can label a brand around it and tweak it maybe in a few ways to have some kind of novel innovation and then go to market.

I think that strategy is actually even more applicable in the securities realm, because securities is all about fundraising; that's Wall Street, all these buildings.  It's all about the flow of money, about investment bankers raising from institutions, taking companies public and I think the blockchain in and of itself is just a new way for programmable money to circulate through the system. 

Peter McCormack: It kind of makes money more fluid.

Trevor Koverko: Absolutely, yeah.

Peter McCormack: One thing I noted that's probably quite good for what you're doing is that there's a lot of pressures on scaling at the moment.  We've seen that with Bitcoin and we've seen now with Ethereum, they've got issues on scaling with building dapps; but I guess for you, you don't have to worry about transactions per second so much really?

Trevor Koverko: No that's a good point.  Yeah, and a lot of people don't understand that.  I do have some opinions on scaling.  I actually just had a lunch with a guy named Jeffrey Sprecher of the New York Stock Exchange and scaling's a big thing for him, because he's thinking, "If we're going to leverage blockchain, we got to do thousands if not tens of thousands of transactions per, and Bitcoin does like five or ten or something".  So yeah, I get it.  For high frequency stuff, for payments, it's definitely a consideration.

I honestly think it's going to be solved.  For me it's a matter of if not when.  Take Ethereum, it's got by far the biggest network of developers volunteering their time.  These are some of the smartest people in the world thinking about this problem and look at all the solutions and proposals out there with Raiden and Lightning with Bitcoin, sharding.  There's literally dozens of new proposals out there. 

So for me it's going to happen and if anyone's going to do it, I think Ethereum has the best chance.  They have the first-mover advantage in a way, and they have this kind of network effect and moat in a sense.  Like Etherscan, all these OTC markets, all these wallets, they already have ERC-20 and Ethereum baked in, and I think it's going to be hard for even a slightly faster technology to get that same kind of traction.

Peter McCormack: But it's not going to hold back what you do, the scaling?

Trevor Koverko: No, and my kind of vision for this is always going to be blockchain agnostic.  Now, we're seeing a lot of other exciting kind of interoperability layers coming out like Aon and Polkadot and Rootstock and they're kind of tying a lot of these chains together.  So, it might become a moot point in the future where the chain is kind of irrelevant; but at the end of the day, we'll do what's best for the community.  In a lot of ways the community drives the decisions of Polymath and also our users, so our issuers, our investors our KYC providers, our legal professionals.  Everyone within the network is going to have a say on what chain to use and what chain not to use.

Peter McCormack: Okay.  So I had a go this morning.  I'm going to talk you through my experience and then some thoughts I had.  So the overriding feeling I had is that there's probably businesses that can be spun off this who can actually help companies set up and use the system, because even using something like MetaMask is going to be quite complicated for some people who want to issue tokens from it.  Do you foresee companies becoming almost consultancies or service providers or are you intending Polymath to have a professional services section?

Trevor Koverko: Yeah, so just a couple of things on that note is, when we launched earlier this year, we launched the protocol, we launched the backend.  It was live, it was out in the wild and the token was powering the network.  So, back in those days it was hard to use, there was no interface.  It was kind of the way ERC-20 is, you just get a depository and you go from there.  So for us, we thought it was important to build interfaces, we call it an application layer, on top of the base layer that makes it easy for people to interact with the backend.

So just a very obvious analogy is iOS.  It's a very elegant way that your grandma can use the software.  She can just point and click and then the thing does what you'd expect it to do.  So we take pride in that we want to be known as the best UX innovators and distributors in blockchain, because we know guys and girls on Wall Street are not necessarily developers and they're not going to know how to learn Solidity or learn Python or Node.js; they're going to have to use a layer like the ones we're building to interact with blockchain.  So we're very big on distributing our technology through really elegant interfaces.

Peter McCormack: Okay. 

Trevor Koverko: And I should also say that this interface you used today, we literally launched in time for Consensus for the announcement on stage.  We got it out the door.  This is the first iteration of what our front-end interface will look like, so it all works, it all interacts with blockchain.  There's still necessary things like using MetaMask, which is you know a browser extension to communicate with the blockchain, and those things over time I think will get smoothed out, but right now it's a reality.

Peter McCormack: Yeah, I'm assuming there's a lot more to come.  So, I'm not sure that really answered my point.  What I was saying is, say a fund wants to use Polymath, they want to create a security token on there.  They may come to it and think, "Right, this is quite complicated in terms of setting up and using it".  They might not be tech people, they might not be crypto.  Is that a service that you might provide as a professional service, or do you see businesses actually providing professional services.

Trevor Koverko: No, I totally understand.  So, one quick point before that is we know the hard way.  Without something like this, it's even harder to do a token launch.  You have to do all the legal, you have to do all the tech, you have to do all the biz dev and all the marketing.  So the alternative to using an interface like the one we released today is saving time and money and headaches by using this kind of wizard, this step-by-step guide; but absolutely to cut to the chase of your question, we're encouraging partnering. 

We have signed deals with I'd say dozens of partners at this point.  Some are agencies, some are advisory businesses, some are exchanges, some are marketing firms, and part of our interface is building a dashboard.  You might not have got to that part in the process, where you can actually apply with one click to some of our partners that can help with various aspects of that.

Peter McCormack: Yeah, I saw that.  I was almost thinking it's the step before that, the person that guides you through the whole process; because they could sit in their office and set it up, but they might want someone to do it for them and manage it for them, almost like you get a web development company to build your website.  What I saw was potential agencies or consultants who actually help them run the process, almost like you've got companies that help run ICOs now.

Trevor Koverko: Yeah, to be clear on that we call them quarterbacks internally.  So they kind of quarterback the deal and you're absolutely right; that's a very crucial aspect of doing a successful sale.  It's finding some that exist today; Element Group we're close with, they're great.  DNA group.  They're both out of LA and those are the people that kind of say, "Come to us and we'll quarterback, we'll oversee your sale", and that's exactly what we intend to do is have, as one of the first steps, apply to some of the reputable advisory businesses, launch, here's your pitch deck, try get approved.

Then once they do, the advisory business holds the issuer's hand throughout the process.  But I should also say, we have our own internal advisory doing just that as well, called Matador.  This is an arms-length business whose sole job is to help high-profile issuers.  It's like training wheels getting them through the process, because they might get a little intimidated with some of the decentralised parts.

Peter McCormack: One of the things, I don't know why, I imagined the interface would have legal frameworks for what you're doing baked into it, but actually it's a platform for the token, but you actually have to choose the partners to work with.  So for someone like me who doesn't understand, is that because you can't create a wizard for the legal structure of a token?  Does everything have to have full documentation and lawyers?

Trevor Koverko: You can.  It's something we're definitely working on, the community is working on.  Lawyers have been kind of anointed as gatekeepers by government, and you need counsel and you need privilege and you need all these things to do pretty much anything in finance.  So what we're doing is we're actually working with law firms to streamline that process even more and to create templates, this is all in our whitepaper, and making it so that our native token, Poly, incentivises all these independent third parties to take action towards a common goal; so, whether that's the KYC provider, the issuer, the investor, the legal professional.

So we want to decentralise that as well, and some top-tier law firms have already indicated they're willing to work with us in fleshing out these templates and it's good for them too because it's another revenue stream, they can potentially service more clients.  It's very inefficient when they have to have all these ten-hour long meetings for every single client, whereas if you just have a very streamlined process, maybe on a platform like Polymath, they can get a lot more clients as well.

Peter McCormack: Yeah.  So one of the things I thought also would be quite interesting is, obviously there's a lot of documentation around the legal side if somebody wants to issue a token; do you envisage a scenario where the people investing in the token would also have an interface to log in to access documentation, almost like an old-school extranet?

Trevor Koverko: No, the investor portal is absolutely something -- we're working with some really qualified people to build out our investor portal.  I should point out, there's a lot going on on Polymath, but there's kind of two aspects of our organisation.  We have the core protocol team, which is working on the base layer at the backend and making this whitelisting concept we have commercialised and stable, and that's all they do.  

Then, we have another side to the business, which is building interfaces on top of that.  So that's the investor portal, integrating with service providers, launching the token, point and click.  That's not really decentralised tech, that's interfaces, that's building stuff on top of the blockchain.  So a lot of the stuff we're talking about today is the latter, is our Toronto team that's building all these interfaces that interact with the protocol.  But absolutely we intend to be rolling out a lot of portals. 

We have a lot of different stakeholders in our ecosystem, so all of them need their own kind of custom tools and software and one by one we're creating it for them. 

Peter McCormack: I guess my questions are just pointing to areas of your road map!  So when I created my Petecoin, I noticed there is a network of providers; that's very cool.  How is that working out?  Are people coming to you or are you marketing out to them; is there a lot of interest?

Trevor Koverko: You know, I should say part of the inspiration behind this wizard or dashboard as we call it that you did, is we have just this pent-up line up of really high-quality demand and we don't know what to do with it.  We've had thousands and tens of thousands of businesses in issue or sign-up saying they want to launch a token.  So what we had to do is figure out, how can we create a scalable way in an automated way for people to create a token in a self-serve way?

We do not want to become a Goldman Sachs, we don't want become a service business, we want to become a decentralised technology company.  So, that means we have to find ways to service all these people in an efficient way.  So, everything we do is around, how can we launch as many security tokens as we can?

We have three main metrics at the firm internally, one is how many ST-20 tokens have we launched; two is how many dollars' worth of crypto have we raised on those tokens; and three is what is the daily volume of all of the tokens within the Polymath network?  So those are the three keys to our success and look, we're not the issuer per se, we're just the technology layer, but this is kind of how we track the health of the ecosystem, just like someone looking whether to invest in or purchase an Ethereum token might look at how robust is the ICO on Ethereum, and that's a data point they would use to help make their decision.

Peter McCormack: Have any actually been launched yet on the platform?

Trevor Koverko: No, just the token wizard that you looked at today is kind of us launching our official testnet and we're also working concurrently with a lot of issuers through the process through our advisory business.  So you can expect a batch of them to be released in the near future.

Peter McCormack: And when do you think you'll go live with your mainnet?

Trevor Koverko: We don't have an exact date right now, but because we have the protocol layer baked out and working well, it's not going to take a super long time.  So I'll get back to you with an official date when we're ready to announce it.

Peter McCormack: Brilliant.  I mean people can keep an eye on that anyway.  Okay, so the next question I had is when I created my token, I had my options to raise in ETH and Poly.  So, is there any plan to make that wider to allow other -- could you raise in Bitcoin on it?

Trevor Koverko: Yeah, we want to really remove friction whenever we can, and the issuer is the one that we're obsessed with serving.  I think ultimately, we want our native token, Poly, to become a currency within the ecosystem and just like when people raise Ether for their sale and they have to go buy it on the open market to participate, that's something that we're looking at potentially encouraging our issuers and our investors on the network to use, and we think we have a few tweaks of how raising around in Poly makes more sense than raising it in Ether.

Peter McCormack: Why is that?

Trevor Koverko: Well if you look at what ERC-20 is, it's a set of six functions and it wasn't really proposed by the Ethereum Foundation directly, it was a community-driven thing.  A guy named Fabian Vogelsteller out of Germany said, "Hey, we should probably agree on some set standards that we can agree on" and then sure enough, the community adopted it.  What we've done is we've taken those six core functions and added several others of our own that are more amenable to security tokens. 

If you look at Vitalik, the genius that he is, he didn't necessarily create Ethereum to help businesses to raise cash.  That could have been one use case, but that's exactly what we're focussed on is the B2B use case, and that means we had to modify a bit of the smart contract that tokens launch on top of.  So for us, we think that those additional functions that we've created mesh well with securities regulations globally, the ability to restrict who can hold the token, and that's one of the reasons I think people will consider raising with Poly.

Peter McCormack: Interesting.  One of the things that came to mind when I was looking at it is actually, as it's moved into a more regulated market, one thing I think some people might struggle with is the volatility in crypto, which we haven't got away from yet.  I could see some people potentially wanting a stablecoin as a way to raise, just so they've got a bit more accuracy around what they're raising; because if they want to raise say ten million and they do so in ETH and then something happens in the market and there's a 30% drop, they've raised less and I think a stablecoin is a de-risk.

Trevor Koverko: Yeah, I can't argue with that.  Part of my argument was that when Ethereum launched, no one wanted Ether.  No one knew what it was and why would I force my investor or purchaser to buy Ether when they could just buy Bitcoin, which is a lot more stable and widespread?  But over time as it becomes bigger, I think the volatility settles down a little bit and Ethereum became eventually an ICO currency and people are happy with it as it is, but you're absolutely right; the volatility is very stressful for both the buy side and the sell side. 

It'll be interesting to see if the stablecoins really become the glue that kind of -- and if that does happen, then you can be sure that Polymath will adopt the most reputable ones.

Peter McCormack: Yeah, it's funny because some of the companies I've met have really not even considered treasury management.  I've met companies that, back in 2016, raised $1 million and by mid-2017 had like $60 million; but the opposite has occurred for some people who've raised $30 million and at some point they've got $15 million.  Treasury management is something that I mean I'd never heard of it until I got into the sector, but a lot of these people aren't aware of and I think that's one of the big risks here for anybody raising funds.  I don't think there's a question in that!

Trevor Koverko: Yeah.  No, it's a very poignant thing to talk about that, because what do you do?  Do you diversify?  Do you arbitrarily just invest in other funds that diversified?  Do you liquidate to fiat?  I think a lot of people rightfully see crypto as really the currency that other things fluctuate against; but in reality, when there's tens of millions of dollars on the line evaporating in a day, that's no way to run a business and that's scaring away institutional money.

I think that's one of the things we want to do with Poly is that if you raise your fundraise in Poly, we are encouraging you to be able to liquidate that to fiat right away.  We're not going to lock you into Poly.  We're going to say, "This is a way for you to fundraise and now you can get US dollars and go on a shopping spree.  Go invest in start-ups, go buy real estate, whatever it is you want to do". 

So again, we don't want to create friction where it's unnecessary.  If you want to liquidate it right away, then volatility is not a big deal.  As soon as it comes in, you can liquidate it in real time and then you've taken that kind of uncertainty off the table. 

Peter McCormack: I've looked also very briefly at tZERO.  I know you're fans of those and that's going to be an exchange for security tokens as I believe, but will those exchanges also support wider crypto?  I've not looked enough into it.  If you were selling your security token on tZERO, will you be doing it for fiat, or would it be for crypto; do we know that?

Trevor Koverko: Yeah, it's going to be a case-by-case basis.  We're on the frontlines here so we see literally, I don't want to say dozens, but quite a few emerging security token exchanges and all that means is that they're a normal crypto exchange, but they also have a licence, specifically an ATS licence, which the SEC hands out.

So, it's just a matter of time again that these become functioning and these become widespread, but it's true that right now there's not a lot of liquidity in the security token ecosystem and that's a huge problem, because once you issue all these tokens to investors and you accept their cash, what are they going to do with it, right?  It's just sitting there in an address doing nothing. 

So once these exchanges come online, you'll be able to trade them potentially, and one thing that we're trying to do at Polymath is have our tech integrate directly into the top upcoming security token exchanges, and that way anyone who launches on Polymath will have the ability to instantly get listed on some of the top exchanges, pending their approval of course.

Peter McCormack: I guess it depends on the type of token though, because if you're buying, I don't know, a tokenised share of a piece of art, you're holding it as an investment; whereas if you owned a tokenised share in a business where there's a dividend structure, the liquidity's less important, because there's a potential return anyway.  With those, how are dividends expected to be returned; are they expected to be returned in crypto?

Trevor Koverko: You know that's an evolving question and the answer to that question is how do you think about those things?  Do you buy something and just wait ten years for it to go up like a piece of art or even a venture capital fund?  Do you have a hybrid where you have a trading tokenised venture fund where your LPs can get liquidity early on and it gives access to not well-connected people?

I think in terms of dividends though, we're keeping it simple at the beginning.  So for the very first security tokens, it's going to be one token equals one share and then it's up to the management job to make sure that they're legally compliant, to make sure that they're paying their dividends correctly.  We don't take any onus on the management of what they do. 

They could take their dollars by real estate, the real estate pays cashflow and then the cashflow buys crypto and pays the token holders crypto dividend; that's up to the management.  Or, they could also accept a crypto, leave it in crypto and then treat it as kind of a fund and then return it based on the performance of the fund.  So there's lots of different ways you can think about disbursements to investors and we're excited to see all the different use cases as this thing evolves.

Peter McCormack: Most of this has come about because of the pressure from the SEC and the oversight from the SEC.  In terms of other markets, are you having to go country by country, market by market or is it a case of you just focus on what happens in the US?  So for example, I don't pass the SEC requirements as an accredited investor, but I'm based in the UK, so how do you work in terms of international borders?

Trevor Koverko: Yeah, it's case by case.  Again the onus on that would rest on the entrepreneur, the issuer launching a token and it's up to them to figure out kind of two main things, (a) where are you domiciled, what jurisdiction are you in as a company; and (b) where are your investors from?  Because, that's what the regulators care about.  It's protecting their own native unaccredited retail investors.  They want people who are not sophisticated to be protected from unscrupulous issuers.

So, to answer your question, I think the SEC is the leader.  When I say there's a common denominator between all major regulators, it's the SEC leading the charge and a lot of people follow, including Canada.  They also have the toughest, so it's a great place to start just to be safe to comply with the SEC, and then there's a good chance you're compliant in other countries as well. 

But with that said, if you are an issuer and you want to raise money in a certain jurisdiction, you have to get custom local legal advice on how to do that, because there's a lot of variables involved.  Does your token have to be locked up or can it trade instantly?  Are you doing a Reg D or a Reg A or a Reg S?  Are you going to do just a complete full-blown token IPO?  So all these different permutations have different regulatory implications, and you need to get custom legal advice for that.

Peter McCormack: I'm conscious we're going to be running out of time soon.  I had so many questions.  I mean we can do it again.  I do them all in person, so I'll come to, is it Barbados?

Trevor Koverko: Barbados, Toronto, we have lots of options I think you wouldn't hate.

Peter McCormack: I just want to finish up on one thing, which is a comment.  I don't know if you'll comment on it back, but the thing I like most about this is that I've raised capital before for businesses and you have lots of meetings and essentially you raise in lumps, because you don't have meetings to raise small amounts; yet here, you can have fractional investors.  You can have people investing -- you could have, I don't know, someone in Vietnam invest $500, which is the world to them; but it's opening up, I think, investment to lots of people and opportunities they wouldn't normally have, and I expect this will be an opportunity for traditional venture capital, but also scary.

Trevor Koverko: I absolutely agree.  I think, why should only the most connected kind of old boys' club on Sand Hill Road in Silicon Valley have proprietary access to all the best deal flows?  It's unfair.  We should have a democratised way for anybody to get access to early-stage deals, and part of the challenge with that is the regulations don't sync with that, because the government doesn't want unaccredited people to have access to early-stage deals.  They don't want you to invest in Facebook early on. 

Look at Ethereum.  If it ever becomes a security retroactively, there's a lot of people who made a lot of money who are just average people, and if they were deemed unaccredited investors in an unregistered security offering, they would illegitimately have made all that money and we wouldn't have this kind of ecosystem buzzing like we do.

So not to get political at all, but I think it's interesting to think should we prevent people who just aren't worth $1 million from making their own investment decisions?  Obviously, you have to follow the rules and obviously too, there's a lot of scammers out there and the rules do protect people who aren't sophisticated; that's the whole point.  So, as I say it's an interesting debate, I don't think we'll solve it.

Peter McCormack: I've met people with more than $1 million who aren't the most intelligent and I've met some really intelligent people who haven't got a lot of money, and it feels like they're very archaic rules.  Did they have something to do with the, was it 1920s…?

Trevor Koverko: The Securities Act was 1933.

Peter McCormack: Was it following the 1929 crash, I can't remember?  I've read about it.

Trevor Koverko: Yeah, it was after that as far as I know.

Peter McCormack: So coming up to 100 years old.

Trevor Koverko: Yeah, and you know I've kind of softened a bit.  I think, to be honest, the regulators have done an amazing job so far.  People complain and stuff, but they've let the dust settle, they've let this ecosystem flourish, there's been an unprecedented amount of innovation and we have nothing to complain about.  The only projects they've shut down have been clear and outright scams and frauds and that's good and that's what we need.  We need referees on the side lines, I'm not saying we should ever get rid of that.  I think they're open minded to light-touch regulation, self-regulation.  It's going to be very interesting to see.

The problem is there's so many competing regulatory agencies, the CFTC, the SEC; is this a currency?  Is this a commodity?  What is it exactly?  It doesn't fit in a box.  I used to be very -- my eyes would glaze over about regulation, but it does get kind of interesting once you see how crypto interfaces with it and we're right at the heart of it.

I'll make one more point.  A lot of people say, "You're launching a security token.  What are the regulators going to say?"  Well in my experience, they're very open and encouraging of it.  They're like, "Oh you guys are innovative.  You're crypto, but you're also respecting the integrity of our existing legislation", and I think that's an important point; because the regulators, not only do they want to protect retail investors, but they also don't want to stifle innovation.  It's kind of like a dual mandate that they have, and this is great way for them to walk the middle line by allowing security tokens, encouraging them.  On the one hand it's respecting existing legislation and protecting investors, and on the other hand it's still allowing some innovation to flourish.

So I think this year is going to be the catalyst to when security tokens really take off.  The market, $500 billion is nothing, or whatever it is today, I think that's just the tip of the iceberg.  If one New York hedge fund on this street that we're sitting on right now decided to tokenise, it would double the crypto market overnight.

Peter McCormack: It's incredible.

Trevor Koverko: This is still just a little sliver of even just the US banking system, so I can't wait to see where we go from here.

Peter McCormack: Great.  Well look I'm conscious you've got a lot on.  If people want to find out more, where should they go and who do you want to hear from and how should they get hold of you?

Trevor Koverko: Polymath.network, we have different channels depending if you're an issuer looking to raise a security token or you're a regulator or a legal profession or a KYC provider.  So that's the home page.  My email is on there too for whatever reason.  I appreciate your audience and your time.

Peter McCormack: Brilliant, thank you. Great to meet you.