Recently, our CMO Brian Mehta visited tZERO in New York and sat down with tZERO CEO Saum Noursalehi to learn more about the company’s history and philosophy on blockchain technology. In Blockchain Beyond Crypto: A Conversation with tZERO’s CEO Saum Noursalehi, they discussed the company’s founding, the challenges it has faced, and its relationship with Overstock.com and Medici Ventures. For part 2 of their talk, which focuses on tZERO’s goals and vision for the future, read on.
Brian: This is probably going to be one of your favorite questions. What excites you about the prospects of tZERO’s vision?
Saum: I’m a strong subscriber to the belief that most assets that are out there today—equities, bonds, real estate, music, all sorts of different assets—can be tokenized in digital form and be opened up to the world where investors around the globe will be able to access them. These investments can be structured in innovative ways that give more flexibility and features than traditional static equity or debt instruments, as well as bring the back-end efficiency, transparency of blockchain-based issuance and trading. Today, only investors who meet certain criteria are able to invest in funds, such as venture capital funds, or invest in large real estate projects, or have access to some of the most innovative private companies. I believe tZERO can be a catalyst that will revolutionize capital markets and level the playing field to allow more investors to participate in these types of investments.
Brian: Further democratizing access to participation.
Saum: Yes, that’s right. Democratizing access globally for what are currently privileged investment opportunities.
Brian: Cool. So in many ways, tZERO has the first mover’s advantage. So how do you keep ahead of what seems to be a growing base of competition to get in various aspects of the blockchain or facilitating capital markets through the blockchain?
Saum: We have to execute well, keep innovating, and be flexible. Part of why I’ve grown the development team to its current size—I believe it has more than quadrupled since I joined—is to accelerate the roadmap that we’ve set out. And we also need to be able to cast a wide enough net without spreading ourselves too thin to see what areas this technology really takes off—is it commercial real estate, is it equities, bonds, etc.—and to be able to explore all of these areas where we may be able to add value. Because the core tech is the same across of these assets. We want to be able to tackle as much of this as we can, and we think it’s a massive opportunity. We’re going all in.
Brian: Great. Again going back to the news, we were researching tZERO and the announcement of tZERO partnering with Box Digital Markets. Can you talk to me a little bit about that?
Saum: That was a big milestone. It is going to be the first national, fully regulated exchange to trade security tokens. As far as we know, no one is really trying to tackle it from an exchange perspective. Both tZERO and our competitors are leveraging an alternate trading system (ATS), which we used to demonstrate trading of the first digital security with Overstock preferred shares back in 2016. Now we would like to be the first SEC-registered exchange to offer trading of security tokens and that brings a lot of advantages. One priority for the joint venture is to work with the SEC to approve a rulebook that will support this new asset class of security tokens and trading ecosystem. By being able to communicate and work directly with the SEC, the JV will create an environment where these new asset classes can trade, safely and securely. A national exchange will also allow companies who wish to offer their tokens to the retail public in an SEC-registered offering to provide secondary trading and liquidity on a national exchange. As an exchange, you can also generate more revenue streams. You can charge listing fees, get transaction fees and look to derive revenues from market data. So, there are many benefits to being a registered exchange versus just operating an ATS.
Brian: And of course, then tZERO, you are going to be the underlying technology as well as the front end for this exchange?
Saum: Right. We’re building all of the front-end tech. We actually want to expand the reach of security token trading into many broker dealers, not just our own broker dealer experience. We can accomplish this through our integrations with approximately 150 broker dealers, via a smart order routing company we acquired named SpeedRoute.
In addition, our partner, BOX Digital Markets, has a really good reputation and they bring a lot of expertise on the regulatory side. We bring our tech expertise, and they provide the regulatory expertise. We look at this as a truly fulsome partnership.
Brian: Do you—and I don’t know if you could share this, but—do you have a timeline for when this exchange will launch?
Saum: We have a draft of this rulebook I described and we’re in conversations with the SEC about it. We are tentatively targeting as early as Q3 of this year, but these things are difficult to estimate.
Brian: The launch name, the branding, the rebranding—anything in the works there?
Saum: We’re working on it. We have brainstormed several names and will be making an official announcement once we’ve made a final decision.
Brian: I know, as a marketer, establishing your brand and your name is a really important first step. And you need to be happy with it. You also need to make sure it’s resonating with the target audience.
Saum: Of course. We’re working hard to ensure that it’s a name that fits the vision and mission of the exchange. Lisa Fall, who’s the CEO of the new exchange JV, will be making that announcement.
Brian: Sure, understood. So, another piece of news, as you mentioned, you closed your own security token offering this summer. I think our readers might be interested in the process of getting that off the ground, launched and closed? It seems like there was a lot to that, right?
Saum: Yeah, it was certainly a challenge, but well worth it. Our view has always been that we want a regulated market. We don’t want it to be the wild west, which is where the initial coin offering (ICO) world seemed to be headed. A lot of our resources were spent on legal, and consultants making sure we structured these tokens right. This was to make sure the accreditation and KYC/AML was done properly so it was in accordance with all of the securities laws and other requirements. That was probably the most challenging aspect. On the bright side, having done one, we believe it has the potential to be a more efficient way for companies to raise capital. At the end of the day, we learned a great deal by going through it and now we can fine tune that process for other companies that want to do these types of offerings.
Brian: Has it met your expectations, the offering itself?
Saum: Definitely. We raised $134 million in capital that we have been using to invest in technology, hire talent and further build and expand our capabilities.
Brian: Obviously all of us in capital markets who had some interest in, or even just observed the crypto or cryptocurrency space, have seen, not only just a decline, but also a paring back of activity and trading volumes. From where you sit, what are your thoughts on that? Can you share your perspective on how that might be impacting your business, if at all?
Saum: Well it does. It is definitely impacting token offerings in general. And it’s partly what is happening with ICOs, as well as the SEC focusing on the nefarious players, which we are in favor of. But we believe that people need to separate cryptocurrencies from the underlying technology of blockchain and the benefits blockchain brings to structuring and issuance of security tokens and the secondary trading. Regardless of the price of Bitcoin, or Bitcoin altogether, we believe blockchain technology brings substantial improvements to the capital markets world.
Brian: Yep. So this takes me to our last question. Obviously our audience is the high-end professional trader. Are there any other words or ideas you want to share with that audience regarding tZERO or your philosophy on the work that you guys are doing?
Saum: I think initially we focused more on retail trading, but we definitely see expansion into the institutional and professional trading on the horizon. I think you will see tZERO changing the way companies raise capital, while providing all investors with access to new and innovative assets.
Thank you again to Saum for sharing his insights with us. To learn more about tZERO, visit their website at https://www.tzero.com/.