Openfinance is one of a handful of platforms that are seeking to leverage the digitization of securities to create a comprehensive marketplace for investing and trading in these digital assets. As a regulated alternative trading system (ATS), Openfinance has established a foundation to help lead the charge when it comes to enabling blockchain-powered assets that may boost liquidity while reducing operational friction as well as cost. But Openfinance sees opportunity beyond traditional securities, or security tokens, as the digitization may empower a new world of tradable assets or esoterics that previously were not easily securitized. Openfinance is targeting the $8.8 trillion alternative asset marketplace and is clearly a pioneer in the trading of private and public, non listed securities.
Founded by CEO Juan Hernandez, Openfinance seeks to build a “trusted and trustless capital market” for everyone. In a blog post last year, Hernandez explained his vision as to how blockchain tech can remedy some of the shortcomings of the original investment crowdfunding methods:
“The inherent “trustless” nature of blockchain enables the removal of redundant centralized dependencies that bring forward operational efficiencies and create a more streamlined flow that enables more dynamic capital markets, along with a driving factor of additional trust and transparency.”
Hernandez believes were are at a pivotal point in the evolution of capital markets:
“… we face a once-in-a-generation opportunity to reimagine and modernize capital markets as we know them. Wealth creation should be available to everyone, regardless of economic background, not just the elite few.”
Crowdfund Insider recently reached out to Hernandez for an update on Openfinance’s accomplishments during 2019 and his thoughts on the not so distant future of digital assets.
Our conversation is shared below.
What were your milestone accomplishments for 2019?
Juan Hernandez: Openfinance 2019 Milestones:
- Opened trading of third-party digital securities to U.S. Investors.
- Launched the first tokenized hedge fund – Protos, in July 2019
- Announced the upcoming media token from Current, which rewards its customers for their loyalty and usage of the platform through the $CRNC token
- Launched our Investor Passport (IP): A standardization of the AML/KYC and accreditation process for securities transactions. It serves as a single sign-on button with two-factor authentication (2FA) allowing you to access all of OFN’s partner services.
- Listed 3 security tokens on the platform including BCAP [Blockchain Capital]. Industry Milestones
- More regulatory clarity - Joint SEC and FINRA Statement Aimed at Broker-Dealer Custody
- SEC Proposes Giving More Investors Access to Private Markets
- The Securities and Exchange Commission is weighing in on the topic of custody in a digital securities environment.
- The SEC has recently approved a cluster of Reg A+ offerings; primary issuance broker-dealer licenses for companies including Harbor, Tritaurian and Watchdog; and transfer agent licenses for Securitize, Harbor, Tokensoft, Vertalo, and Block Agent.
- In another promising development, the SEC is reviewing an order it previously rejected that would allow for a Bitcoin exchange-traded fund (ETF). The SEC also is allowing 24 months for Paxos Trust Company to work on a private blockchain – a positive indicator that regulators are willing to at least test on-chain security transfers.
What type of trading volume did you experience in the past year?
Juan Hernandez: We saw material trading volume in 2019 across all of the securities listed on Openfinance. Given the historical lack of liquidity in these types of instruments, we are very pleased to have proven transfers can accurately settle in minutes.
The platform has seen BCAP trading volumes rise steadily since its launch, as interest increases from individual and institutional investors. As of today, securities listed on the Openfinance platform have a combined market cap of more than $50 million.
Predictions for volume in 2020?
Juan Hernandez: There is an opportunity for major volume growth in 2020. More and more, issuers and sponsors of private and public, non-listed securities have recognized the value of secondary market liquidity and that the technology exists to support such a market. We expect a common adoption curve to apply, with more early adopters stepping forward followed by broader market participation, both on the issuer/sponsor and investors sides.
As the SEC and the Financial Industry Regulatory Authority (FINRA) provide more clarity, we expect to see additional growth of digital securities across the financial sector. Look no further than the SEC’s proposed expansion of the accredited investor definition. This rule change would allow millions of investors access to opportunities they have never before had.
Additionally, traditional investment firms, like Franklin Templeton and Fidelity, have shown a willingness to explore how blockchain can enable a streamlined, end-to-end solution in capital markets.
Whether enabled by blockchain or the digitization of existing manual processes, issuers and investors in the alternative asset space see the need for change.
The digital security sector is growing slowly. What needs to happen for it to pick up the pace?
Juan Hernandez: A supportive and clear regulatory environment is essential for the long-term success of digital securities.
At the end of 2019, however, many key regulatory questions remain unanswered. Regulators have historically needed time to understand exactly how the technology powering market evolutions works, making capital markets and their regulators notoriously slow to enact changes.
We expect to see more constructive regulatory clarity in 2020 which will be instrumental to the growth of the industry.
What about quality issuers. What are you seeing in the market?
Juan Hernandez: We are working with issuers and sponsors that represent many facets of the alternative asset space. This ranges from private companies raising seed/Series A capital to multi-billion dollar issuers of institutional-grade offerings.
Do you have any thoughts on esoterics? Non-traditional assets that can now be digitized.
Juan Hernandez: Digitization creates an opportunity for investors to acquire exposure to investments that have never been available before. We believe you will see offerings for fine art and other collectibles, natural resources like oil & gas, loyalty points, and even spirits. The sky is really the limit.
What about blockchain in general? It appears that some iterations are getting more traction in the digital security space.
Juan Hernandez: The blockchain ecosystem grew significantly in 2019, and we’re seeing early indications of continued growth and institutional adoption in 2020. Whether it be Franklin Templeton filing for a money market fund using Stellar, or Alliance Investments working on real estate projects using Tezos, the rapid rate of development is encouraging for all players in the space.
2019 was undeniably the year that made regulators finally take notice of the STO market’s legitimacy. At Openfinance, we’ve been fortunate to play a role in the growth of this new market and the success of many of its users.
As the industry continues to gain momentum, it’s clear that digital securities have the capability to revolutionize the capital markets. While 2019 was about laying the right foundations, 2020 will be the year the industry takes shape to create a lasting legacy.