In spite of his young age, Frederik Bussler, a German American, chairs the Security Token Alliance, runs the Word Data Forum, is a CEO of an AI company in Japan and is on advisory board for a number of blockchain projects.
Q) You are the Founder of STA, the world’s largest trade association in the industry of digital assets, almost 50 major companies are the STA members, with total capitalization is billions of dollars. And you are 19 years old! To me, this very fact mirrors the current state of the industry, amazingly young and very dynamic. How do you see the tomorrow of the digital assets industry? How do you want it to be?
The tomorrow of the digital assets industry will be dominated by institutions and larger corporations. We’re already seeing it with the entry of ICE, Bakkt, SIX, NASDAQ, and so on. Institutions held back from the crypto industry because of the lack of legal clarity and compliance, but now greater compliance and regulatory-backing are among the main selling points for institutions to enter. I hope there will be a hybrid future, with startups and enterprises collaborating, so we get the vitality, creativity, and fast-execution of startups, and the legal-first approach and power of enterprise.
Q) Current fragmentation is often cited as the major issue to overcome in the industry. Many experts believe the reason to the fragmentation lies in the lack of interoperability between various blockchains. Do you agree with this standpoint? What other reasons there are? What can be done here? What can the STA do?
The lack of interoperability is a contributor to the industry’s fragmentation, but an overall lack of knowledge and regulatory uncertainty are bigger problems. Besides, integration is more important (and more realistic) than true interoperability for blockchains. Many players in the digitized assets space don’t know what the options are to conduct a compliant STO, they don’t know how to run a successful STO (I’ve seen STOs crash and burn with less than $10,000 raised), and they don’t know the options for liquidity and KYC/AML compliance.
During the birth of the industry, I was concerned that startups would enter with the same immaturity as in the crypto industry. It wasn’t quite as bad, but very few digitized asset companies are succeeding, and many are making obvious mistakes like choosing the wrong smart contract standards for their Security Token, launching in difficult legal jurisdictions, not having the right licensing (for instance, for marketing a security), and so on. STA is bringing the right expertise to these players to create successful, compliant security token businesses.
Q) Security tokens is a new concept, it is often considered by outsiders as a new version of utility tokens created to evade regulations. What will be your answer to them? What can the STA do raise awareness of the reality in tokens, backed by real assets?
Security tokens are an improvement to traditional financial instruments. They should be seen through the lens of FinTech, not through the lens of crypto. The entire purpose of Security Tokens is to work closely with regulators and have greater compliance than could ever be achieved with crypto or utility tokens. I don’t think security tokens and utility tokens should even be compared — the only similarity is that they use blockchain.
We’re creating content, like decks and research reports, with the help of our partners to spread the awareness of security tokens, from a traditional finance and legal perspective.
Q) Dr Claus Skaaning of Digishares, the STA member, in his interview with DigitalAsset.Live, said that security tokens are basically blockchain-based capital raises. Will be very interesting to get your definition what security tokens are.
I agree that an STO is essentially a regulated blockchain-based capital raise, which makes security tokens themselves a blockchain-based security. A lot of people in traditional finance prefer the term “digitized security,” because that’s what it really is. It’s taking a security, like equity, debt, or real assets, and digitizing it into a smart contract on the blockchain.
Q) Is STA funded through membership fees? If so, how are they structured? Is that a flat annual fee or a percentage of turnover, project based? Or is it funded through donations?
Basic STA membership, which grants access to shared groups with all other members, as well as opportunities for collaborative research and events, is completely free. We do offer higher tiered, paid memberships that give marketing support, business development assistance, additional press releases, and so on. Our main revenue model, however, will not be paid memberships, but custom research reports.
We accept donations, but hope to strengthen our own revenue streams so as not to make the survival of STA dependent on the goodwill of others.
Q) There are several sections, or committees, in the STA. Will you please describe their responsibilities?
Members in the Donation and Investment Committee manage allocation of internal STA funds to projects, establish investment organization relationships, and work with external funding organizations to source and vet targets. Project Committee members approve ST projects for hosting in STA, report on project process and assist with coordination. Finally, Membership and Partnership Committee members manage the election of Governing & Member organizations, manage member removal, and make criteria suggestions.
Q) What does the STA give to its members? This one is perhaps the central question in our interview, can you give as detailed answer as possible.
Operating a successful Security Token business necessitates business development and partnerships, which we facilitate with 1:1 connections to our nearly 50 member organizations. We’re growing incredibly quickly, so the benefits of partner and client lead generation cannot be overstated.
We also have a massive reach, marketing-wise. For example, I’ve amassed over 4 million post views on my personal LinkedIn alone, which I use to bring awareness to partners. Awareness is critical for Security Token businesses, as without it, failure is guaranteed.
Throughout my business career, I’ve worked with marketing, PR, and blockchain advisory firms. To get the benefits mentioned from typical advisory firms would be incredibly expensive. Let’s take a basic example: An organic LinkedIn post of mine had 12,000 comments and another had 10,000, both with over 1 million views. An average cost-per-mile on LinkedIn is $7.57, which means that a paid post with 1 million views would cost around $7,570. A feature in Forbes can’t be bought, but I’d be happy if a PR firm on $10,000 retainer got me 1 feature in 1 month. STO advisors charge around $20,000-$50,000 per month.
Paid members pay less than one-tenth, potentially one-hundredth of those costs, and we provide research reports the quality and depth of which for the cost cannot be found elsewhere.
Q) What kind of educational initiatives does the STA undertakes and plans to undertake?
A lot of what we’re doing is helping members with very specific content, such as informative social media posts, pitch decks to investors, and their white papers. We find that these member-focused initiatives have the greatest impact.
Q) The STA mission statement seems to focus on democratising finance. Yet, your members are not only fintech. Luc Falempin, Tokeny CEO, also the STA member, mentioned in the interview with DigitalAsset.Live that everything can be tokenized. Does it mean the STA will expand? How do you see the future of the Alliance?
I definitely see the future of the Alliance expanding even further beyond FinTech, but I intend to focus our current efforts on Security Token companies, as well as traditional companies interested in the idea of Security Tokens. After all, if we expand too soon, our resources would wear thin.
10) How do you see the future of the industry of digital assets, near (1-3 year), mid term (3-5 years), long (5+ years)?
I think that in the near-term, many digital assets players will realize that it’s their best bet to look at existing, long-standing regulations on securities rather than to wait for new Security Token legislation. Further, there will be more clarity from regulators, opening up the space for more projects. Many projects will fail without the right guidance, but we’ll also see the first large successes of major players in digitized assets.
In the mid-term, Security Tokens will realize the liquidity dream. Currently, there’s a lack of traction in security token projects and exchanges, so security tokens actually have extremely low liquidity. Once major, consolidated exchanges and projects pop up, so will the liquidity.
I’m most excited for the long term. In 5+ years, Wall Street will enter in a big way, as the technology will be de-risked and the competitive threat will reach a tipping point. The SEC will take an affirmative stance on Security Tokens. Finally, there will be clear winners and losers, including unicorns, that will lead the various segments of the industry, such as exchanges, liquidity providers, and compliance providers.