Issuing and Trading Security Tokens With STOKR
Arnab Naskar is the co-founder and business lead at STOKR, a securities token issuance platform. He spoke with host Paul Gordon for the Coinscrum Meet the Founders Series to discuss the latest developments at the company and the current state of the industry. STOKR was…
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Arnab Naskar is the co-founder and business lead at STOKR, a securities token issuance platform. He spoke with host Paul Gordon for the Coinscrum Meet the Founders Series to discuss the latest developments at the company and the current state of the industry.
STOKR was founded in 2018 by a team of four co-founders and the platform launched in 2019. Arnab is managing the business side of things including strategy and relationships for the company. Tobias Seidl is the product lead. After meeting at a Munich conference, they realized they shared a common vision and started the company four months later. Lukas Cremer is the technology lead based out of Poland. And Lennart Ante is the economics lead based out of Hamburg.
Before getting into crypto, Arnab was practicing law in India. In 2015, he moved to Germany and that is where he went down the rabbit hole of crypto — and stayed there. He was drawn into crypto by bitcoin, which he still believes in heavily. But coming from India, the INR is facing inflation risk and the banking system is not perfect. What really intrigued him about bitcoin was the element of the peer-to-peer transfer.
(2:11) “I was actually using bitcoin to buy gaming equipment…That’s why I got into bitcoin because at that point, I didn’t have access to get a credit card, I didn’t have access to get PayPal, but I had access to get bitcoin. And I was buying it,” said Arnab.
Arnab and his co-founders were intrigued with the idea of programmable money. There has not been this kind of innovation in the capital markets system. Their inspiration came from wanting to make the capital markets more accessible and frictionless. The Robinhood investment app saga in which the company restricted certain stocks that were squeezing shareholders is a good example of what happens when there is a middle-man in the process.
(3:36) “We need to have a capital market where you have a limited number of middlemen, not so many layers. And that’s where STOKR becomes relevant is to create a capital market which is more accessible, which is more open. And you have limited middlemen in the process,” said Arnab.
STOKR Marketplace
STOKR is positioned as a marketplace where users can bring any kind of alternative financial assets in tokenized form to the marketplace, where investors and issuers can both interact.
While the capital markets have primary and secondary layers, STOKR is much more focused on primary issuance. Their mission is to make the financial asset accessible with a limited amount of restrictions and allow the user to be their own broker, which is very key, said Arnab.
(6:20) “The capital market innovation that STOKR or security tokens can bring is the element of the philosophies — you hold your own bitcoin in your own wallet the same way you have to have the sovereign right to hold the stocks in your own account. You don’t require a broker-dealer, you don’t require a custodian, you don’t require a transfer agent. And that’s what STOKR is achieving here in this space,” said Arnab.
Regulation
STOKR only approaches regulators for licenses where they see that a specific license suits the company’s needs and can help them to provide services to their customers. The STOKR team went to Luxembourg regulators and analyzed the landscape in 2018, after which they realized that financial rights can be issued on the blockchain. Under Luxembourg law, many things are possible and STOKR wanted to make use of this to issue these kinds of instruments. Also, Luxembourg is a member state, so any offering that is approved there gets passported to other member states, which is an advantage.
STOKR is obligated to enforce KYC and AML on any investor, so that gives support to their customers, who are the companies raising financing on the platform. These standards are also important on the payments side considering that when an investor is buying or getting a payout, they require a seamless flow. STOKR is regulated as an agent of payment institutions in France, and that allows them to process euros as well as crypto on the platform.
(10:22) “You see a lot of other security token platforms, they are much more like white-glove services, where you get the bare tech and then you have to provide all the services on your own and negotiate on your own. But on STOKR, as an issuer…you get all end-to-end support and we make it a seamless experience for you for the issuance of any kind of financial instruments like securities,” said Arnab.
Self-Custodying Assets
When XRP got delisted from a number of exchanges, it was because most crypto exchanges don’t have the necessary license to list tradable securities of financial instruments under European law. In order to have security tokens on an exchange, the exchange needs to have a specific MiFID license to hold those securities. And as of today, there aren’t many security token exchange players in the market, which presents a challenge to the industry.
The first step to this is enabling platforms like Ledger and MetaMask, which are non-custodial in nature, to hold securities fundamentally. Ultimately the investors or the companies are holding these securities. Under the current regulatory structure in Luxembourg, this is possible and that is what STOKR is doing. They currently have around USD 70 million worth of assets under their management structures and these are all self-custodied.
(13:03) “Retail investors are much more risk-conscious than a lot of family offices and high net worth individuals and institutions,” said Arnab.
Tech Talk
On the blockchain side, STOKR, whose product is proof-of-concept (POC), started with Ethereum. The company was quick to realize Ethereum’s limitations, however, including gas fees, which is one of the biggest pain points. So they integrated Liquid Network’s Blockstream AMP, which is a sidechain of the existing Bitcoin layer. The settlement time is very fast and transaction fees are never more than USD 1.
The STOKR team was motivated to integrate Blockstream AMP due to the element of confidential transactions. They also integrated Algorand, which will allow them to reach their targeted market segment.
(18:49) “On the blockchain side, we have a number of integrations and I think we are one of only a few platforms which have so many integrations live,” said Arnab.
KYC has been one of the biggest hurdles to a scalable and frictionless experience. If a project does KYC on its own, an investor must jump through the hoops multiple times a year. So STOKR created an Amazon marketplace of sorts with one account, giving users the ability to complete KYC one time and invest in as many projects as possible without having to repeat the same process. This creates scalable opportunities for STOKR.
In terms of interoperability, making KYC data a shareable structure should be a goal to achieve between the secondary markets and primary issuance markets. It will be difficult from a regulatory perspective, but there should at least be the will, said Arnab. Secondly, there should be a focus on assets, in particular, the transfer documents that assets are giving and how the interaction between the issuers and the company is happening.
(21:17) “These two layers are very important if you want this market to grow,” said Arnab.
STOKR Roadmap
STOKR currently has seven projects on the platform, and volume is increasing, with a bitcoin mining project set to join in the coming months. STOKR is diversifying its assets because its main goal is to create a marketplace for the diversification of assets.
STOKR started from SME financing. They are heading toward getting other kinds of financial assets on the platform. They have partnered with Nordic-based Utopia to tokenize music rights, for example. Project financing is coming to the platform, and STOKR has partnered with a company to tokenize real estate in the German market. They support hybrid equity and hybrid debt instruments. This year they are looking to team up with a strong exchange partner and they are looking into both the decentralized and centralized exchange models.
More than three-quarters of the investors on STOKR are retail investors, including high-net-worth individuals and family offices as well as angel and seed investors. Institutions like insurance companies and banks are not too prevalent yet. In the past couple of months, they’ve experienced an uptick in the French market and different European markets.
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