Coinbase, the $8 billion crypto exchange giant, is one of a bevy of big-name crypto investors backing a project aimed to revolutionize the U.S. securities industry using blockchain technology.
Brian Armstrong, Coinbase CEO, told the audience at TechCrunch’s Disrupt event in San Francisco this past September that his company intends to be the de facto marketplace for buying and trading crypto securities. Now Coinbase Ventures — its VC arm — has backed a startup that intends to help create demand in the market for such a security product.
Securitize offers a range of services to help companies create blockchain-based security tokens. Today it said it has raised a $12.75 million Series A round led by Blockchain Capital with participation from investors that include Japan’s Global Brain, Ripple’s Xpring fund and Coinbase Ventures.
The investment is primarily fiat currency with “a small percentage” of tokens; the latter will be converted to fiat currency or held in stablecoin, the company confirmed.
A former CEO of Telefonica’s R&D division, Securitize CEO and founder Carlos Domingo got into the blockchain space when he co-founded the “tokenized” VC firm Spice. He later spun out Securitize as a way to disrupt the U.S. securities industry, which he pegs at some $7 billion per year.
The goal of Securitize is to essentially tokenize shares to provide additional transparency, increased trading/liquidity and more efficient processes, Domingo told TechCrunch. So, for example, investors are able to buy and sell equity more easily and transparently, while tracking cap tables — traditionally a messy business — can be more process driven and clear.
The startup doesn’t intend to involve itself in trading — that explains why it has taken on a number of exchanges as investors — but it will instead provide the framework to tokenize companies. That includes developing the token itself, as well as processes like regulatory management, services for investors, smart contacts and more; all of which allows companies to launch security tokens through a process that it calls a “Digital Security Offering,” or DSO.
Pushing back on the idea of “decentralizing all the things,” Domingo said that “blockchain just happens to be a better way to deal with securities.”
Domingo said that Securitize has worked with compliance lawyers across the U.S. to offer services in a range of states. He’s further buoyed by an SEC announcement this month seemed to endorse the idea of security tokens, which are regulated like regular securities, although he is optimistic that the use case goes beyond cryptocurrency that fail the Howey Test.
“The opportunity is not just to work with blockchain companies,” he explained in an interview. “These are first movers, but the big opportunity is in digitizing private and public shares.”
Domingo is also looking at overseas growth opportunities in the future, although a more pressing item is the launch of Securitize’s own security token next year, once the business has stabilized further. That said, Domingo claims it is already profitable.
He believes the “pivotal moment” for digital securities will be when exchanges begin to offer them to the public. Coinbase has already taken steps to do that, but its timetable for launch is unclear. Domingo, the Securitize founder and CEO, believes that the first launches will come before the end of this year.
“2019 will be the year that you see 10-15 exchanges trading securities in a legal way,” he predicted.
Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.