Elevated Returns’ De Baets: “Real estate token will be a successful emerging digital asset”

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Elevated Returns founder and president Stephane de Baets discussed the tokenisation of real estate and securities, as well as the regulatory framework for digital assets in Thailand.

Tokenising real estate and securities assets was the centre of discussion between Elevated Returns founder-president Stephane de Baets and Emmanuel Daniel.

The Belgian entrepreneur shared his journey in the financial industry that began in Thailand where he worked as an agency broker, moving up to become an investment banker. He eventually set up his own investment banking firm OptAsia Capital, after which he founded the digital asset management firm, Elevated Returns.

In 2018, De Baets successfully tokenised 20% of one of his properties, the St. Regis Aspen Resort in Colorado. This proved that a digital security representing direct ownership of a privately-held asset can be created, he told Daniel. He expanded his business to Southeast Asia in 2019 with the acquisition of securities brokerage Seamico Securities, and later renamed XSpring Capital in 2021.

The following key points were discussed:

The following is the edited transcript of the interview:

Emmanuel Daniel (ED): In a world where there are a lot of things happening in non-fungible tokens (NFTS), securities tokens, and the whole evolution of the securities industry – from markets and exchanges, the players in the markets, the securities companies themselves – are going tokenised. I'm really happy that I'm able to speak with an entrepreneur who is right up there in the front, exploring all that the technology is making possible and almost by his bootstraps, having put together his first asset in the US, tokenising that and then bringing it back to Thailand where he started his career and then buying into a securities company and turning that into a tokenised securities company, and hoping to succeed in tokenising securities assets. I'm having this conversation at a time when non-fungible tokens are just the rage. And it is in this conversation with Stephane de Baets, who was born in Belgium, spent his early career in Thailand and then became a property owner in the US, and used that as the platform for taking it forward into the world that we know today. There are a lot of questions to ask, a lot of issues to dig into his mind in terms of his reaction to regulation, old-style securities companies, and new style tokenisation and what it's likely to mean in terms of real business benefit. 

Stephane, thank you very much for joining me from where you are in Aspen, Colorado. It's a beautiful part of the world. I've been there a long time ago. I love the territory. I love it in winter. And you just told me that it's really beautiful in summer as well. 

Stephane de Baets (SDB): Why thank you, Emmanuel. That's true. The locals say people come and visit in the winter and they move in forever in the summer. You should come back and see the scenery in the summer. It’s absolutely beautiful here.

ED: What are you doing in summer in Aspen, go horse riding and mountain trekking?

SDB: Yes. So, you do hiking, fly fishing, mountain biking, whitewater rafting, horseback riding, you enjoy amazing food, and there's plenty of cultural activities. It’s just heaven on earth and it’s just beautiful. It's blue sky every single day. And it's not too hot in the nighttime so you get to cool off and it's just beautiful. 

ED: Give us a sense of your career. You are Belgian and then you moved to Thailand, you worked there. Give us a quick sense of your career and how it moved over time to the point where you are right now so that the people viewing this interview, this conversation, will get a sense of context. And then we'll build our conversation from there. 

SDB: I was extremely fortunate in my career path. I was born and raised in Europe, in Belgium but I was also always attracted in discovering the rest of the world. I was fortunate enough to be matched by my university through an exchange program to a company in Thailand, right after a year of working in Belgium. I moved there with a one-way ticket, with my suitcase, my skateboard, and my guitar. Soon enough, I got into the institutional financial industry. It was the boom years of the Asian Tiger economies. So, every single fund manager in Europe or in North America was trying to get exposure to the Asian economies. Therefore, they needed a lot of staff working with the local brokerage firm talking to those foreign clients and executing their order books. So that's what I did. It was called being an agency broker. I had clients like the Salomon Brothers, George Soros, the Securities and Exchange Commission (SEC), Daiwa Securities. Those were party days because there was so much money flowing into the Asian Tigers. Then came 1997, the party ended abruptly with the devaluation of the Asian currencies, starting with the Thai baht, thanks to Mr. George Soros. We went from being boom to being bust. That meant you needed to reinvent yourself. So having a strong network of both local cooperation and foreign funds, it was natural for me to become a restructuring specialist. I did that with Grant Thornton in the early 2000 and worked through the restructuring of all the non-performing loans for about five years. 

I then set up my own hospitality investment banking firm called OptAsia Capital, and came 2007-2008, we saw a very strong parallel to what happened in Asia 10 years earlier, but it was happening in North America this time. We were lucky enough to have recapitalised our balance sheet in 2008-2009. We had the capital to come to North America and buy some of the hospitality assets. At the time, we bought St. Regis in Aspen. That was a trophy property that today everybody wants to buy. But in 2010, there was so much doom and gloom in North America that nobody would touch a quality asset with a bargepole. So, it was very opportunistic. It turned out to be a great trade. Naturally, I had to spend more time in the US because of the asset portfolio we were building here. So, I decided after my divorce to relocate in New York in 2012. 

I spent about eight years in New York and started paying really close attention to the crypto space in 2014-2016. I then decided to see whether or not there was a use case of applying digital asset technology to real estate. After a failed single asset IPO of the St. Regis Aspen, we used digital asset technology and we were successful in tokenising 20% of the property in 2018. Last year, that was being traded on what we call alternative trading system, T zero. Subsequently to tokenising the property, we bought 25% of a listed broker dealer in Thailand, which brought me back to Thailand. We have since then acquired all the new world digital licences. We've recapitalised the company and we are now the only player in Asia, if not globally, that really acts as a bridge between the old world and the new world. And we'll be able to offer all types of financial products to the Asian community under one single roof. I call it the amassing of financial products. The company is called XSpring Capital.

ED: Wonderful, because I'm talking to you from The St. Regis in Beijing. But I'd rather be in Aspen where it's so much more beautiful in terms of nature and outdoor. Just to get a sense of your choice of tokenising, you said you have tokenised 20% of your Aspen property on a token as opposed to issuing a real estate investment trust (REIT). Was that a choice or were there weaknesses in terms of issuing a REIT? What were the cost benefit analysis of a REIT versus a token?

SDB: We tried to do a listed REIT. We actually went through the headache of finding an S1 and an A1 with the SEC going on the roadshow. But it failed and it failed for two reasons. In the REIT world in North America, you’re either super big or you don't succeed. So size matters. So a single asset REIT at the time, I think the capital raising was circa $50 million, there is no market in the public listed for REIT for a $50-million deal. The other thing that did not materialise as expected is that we had gone into the exercise believing that we could control the filing cost. But the filing costs with the SEC completely ballooned up. When you look at the total cost of going to a public REIT exercise in the US versus a single asset capital raising, it’s just completely disproportionate, so it doesn't work.

ED: What has worked for you in tokenising the Aspen REIT? Because I noticed that the valuation is a little higher in terms of what you would have achieved on a REIT – liquidity, valuation and scaling – so, how's that turned out for you? Tokenising your Aspen property?

SDB: It turned out great for three reasons. First, we proved the point that we can create a digital security that represents direct ownership into a privately-held asset, and for people to give access to the opportunity to buy and sell those securities seamlessly. That completely ticked the box. Secondly, what we've realised as well is that there are people who have a partnership with BlockFi who are willing to lend against the securities holding into the Aspen coin. So that is quite amazing because you receive a dividend yield from the property but you can also pledge your security with a crypto lender that gives you a loan-to-value (LTV) against your securities holding. That means that not only do you own shares, but you can leverage your shares, so that's great. Third, what we've also explored and I think we are pioneering that space as well, is we are attaching what I call perks benefit to the ownership. In other words, if you own a certain amount of Aspen coin and you stay on property, you're going to receive a special VIP ownership amenity package. Second, you will also receive a cash back on your stay simply by being an owner. So we are touching the perks of ownership of trophy assets to the actual digital securities which is great because people come and stay on property and they own, I don't know, 10,000 Aspen coins, it’ll cost them like $12,000 but they're being treated as an owner when they stay with us. And that feeling brings a smile to all those people and they say I cannot believe that I'm having these dividends, capital appreciation, but I also feel great. 

ED: Oh no! You're bringing back timeshare.

SDB: It’s not timeshare, because it is liquid, it is tradable, and it has ownership. Timeshare is the right to use. Here it is real ownership into the property. So you're a shareholder into the property. But maybe I will bring back a new version of timeshare in a tokenised form now that you brought in the subject, I think there's something to do in that space.

ED: I was listening to you speak and I went right there because it seems that the token is also a marketing weapon. Talk to us a little bit about fractionalisation and how's that possible on tokens and not possible on REITs? I guess it's not possible on REITS because in REITs, you own a security. Where else on a token, you can actually specify what exactly you own. Is that what it is? And does it work? 

The future of digital securities

SDB: Yes and no, actually. The token is nothing but a digitised representation of a shared ownership into the property. So I could take the view that a REIT or a tokenised REIT is the same thing. The only difference is today, you have two types of REITs, you either have a public REIT – we’ve already established in this conversation that for a single asset, there’s no market for it, so we can forget about it – or it’s a private REIT. The problem of a private REIT is it’s illiquid, it’s opaque, and is very difficult to understand what goes in, what comes out. So people going into private REIT who may want to exit may have to pay a hefty discount just to get liquidity. 

The beauty of having a digitised version of a REIT is that you have a marketplace where you can go on the beach, you can sell just like a listed security, but it’s not the listed security. The other beauty is it’s just a matter of time before people can figure out how you can use those income-generating tokens to do all this stuff. I’m sure you’ve learned a lot about the decentralised finance (DeFi) marketplace in crypto. The problem with DeFi today is you take something, which is highly speculative and watertight, and you create something else that is even more speculative and volatile. I think that the DeFi of tomorrow will take real-life economic assets with the yield and they’re going to create additional products on top of something which is tangible. The problem is if you have REIT shares in a private REIT, you cannot do anything with it. It sits in a custodian, it’s locked in, you cannot touch it. What you can do with the digital securities is you can download it in your wallet and you can do many things. So the flexibility aspect of what will be possible to do with digital securities, it’s really where innovation is. What we are doing right now is really a bit like when Steve Jobs created the App Store. He knew that the marketplace will have hundreds of applications, but he didn't know what those applications will be. It's the same with digital securities. We know that the technology will enable flexibility beyond what you and I can imagine today. We just don't know what they're going to be in the future.

ED: But therefore, all these are points for clarification. Your Aspen REIT is actually a private REIT? A private token. 

SDB: We don’t qualify as a REIT. REIT is a definition for tax purposes and one of the qualifications to be REIT is you need to have less than five people holding more than 50% of the economic interests or concentration does not qualify to be a REIT because we have very large holders. So REIT is purely a tax definition in the US. But it’s a single purpose vehicle owning one asset so it’s equivalent to REIT. 

ED: So it's a special purpose vehicle (SPV) owning a REIT. What currency is it? Well what crypto is it denominated in? Does it have to be denominated in any crypto?

SDB: No. It’s denominated in US dollar. The protocol we’ve used for the smart contract is the Tezos protocol, simply because we think Tezos is the only chain that makes sense to develop financial products on for reasons such as it’s a proof of stake protocol as opposed to a proof of work. It also has formal verification of the smart contract. It is self-upgradeable and it’s really been built by an engineer that comes from the financial industry. 

ED: There are several tokenised assets like this in the US but are you the only one on Tezos? 

SDB: I can give you some examples, the Central Bank of France is using Tezos to do their digital euro. The Casino Group, which is France's largest retailer is using the Tezos protocol. BTG, the largest Brazilian investment bank is building everything on Tezos. The UAE is super big on Tezos. I would say most institutional people that are serious about developing a blockchain ecosystem will look at a chain like Tezos. ERC-20 Ethereum is great for a startup that wants to create something overnight. But when you understand the limitation of ERC-20 Ethereum and you’re a big institution, you would probably take another option. 

ED: When you give away only 20%, the role of the dominant shareholder becomes very important. At the same time, you're saying that the token can be leveraged against securities, against crypto. So what is the profile of your investors at the moment? How many of them are at leverage? And I would imagine leverage would make it a high-risk investment, as a result. It takes us into the high-risk territory. Give us a sense who's holding your tokens at the moment? 

SDB: It's early days. Thanks to people like you, the more people will hear about it, the more they ask questions about this, and the greater the number of token holders will become. Unlike most of the cryptocurrencies that are extremely volatile, Aspen Coin has been trading in range, even throughout the pandemic. We have a strong capital base that is very stable. That's what's going to make the adoption into security token successful. It’s funny for Elon Musk to talk day in, day out about cryptocurrency and create volatile movement but it’s not sustainable. We believe that digital asset and digital securities is an asset class on its own, and it should be regulated, and it should be stable, and it should offer a viable financial instrument to everyone. I will never put my daughter's money — she’s four years old — into something that could go up a thousand times that could go down to zero, simply because I think she's going to have to pay for university, buy a home, but I will totally buy a piece of real estate asset that I know will only appreciate over time. Who are our investors? You have crypto fanatics that are looking for something more tangible. Then you have people who want to be in the crypto digital asset world, but they also want to buy something that they can relate to. We see ourselves as a bridge between what I call the old world and the new world. I don't think that tomorrow you need to be 100% crypto or 100% legacy market. You need to be invested across the spectrum.

ED: Now let's take a flight and fly all the way to Thailand. That's how this conversation came about because I took notice of the fact that you bought into a securities company to make it into a tokenised securities company and all of these are happening at an amazing time. NFTs are becoming incredibly hot and popular. And the Thailand SEC has just introduced legislation to allow crypto exchanges and it will be opening a crypto market soon. So take us through your buying of that securities company. Seamico, is that the place where you worked for before?

SDB: We changed the name about three weeks ago. It has been renamed XSpring Capital, the ticker is XPG, but yes, it was formerly known as Seamico. And as you correctly pointed out, I used to work there about 30 years ago. Life throws a curveball back at you from time to time.

ED: Very Nirvana. You go around in a circle; life goes in a circle. So now you found yourself back in Thailand and then you injected $25 million in capital and you were just explaining to me that you now have other investors as well. So just talk us through this investment. 

A single destination 

SDB: It was actually $15 million. So if we talk US dollars, it was $15 million, that was in 2019. We bought into the company because we took the view that in order to be successful in digital and crypto, you need to add the digital and crypto dimension to an existing financial platform. What most people are doing, they are usually smart, tech guys that create a digital platform from scratch. But then they need to spend millions and millions acquiring and migrating people into their platform. We thought that we would do the reverse, we would actually acquire a marketplace that is already very active into the traditional finance industry and we would layer a digital dimension on top of it so that you can act as a bridge. And your client will only ever have one single relationship. Because I don't know how you feel, but I don't want to have an account with Bank of America for traditional securities, then Wells Fargo for mortgage and then Coinbase for crypto, then tZERO for digital securities. It’s too complicated. I think there should be one entry point that manage all your financial instrument relationships. So that's the bet we took. That was about two years ago. 

As you correctly pointed out, the company had a market cap of $60 million dollars at the time we bought in. We announced a capital increase of $250 million and we brought in three major strategic partners that are collectively injecting about $165 million into the company. One of these partners is property developer Sansiri. They have a huge marketplace and a huge development portfolio and they already know that the property developer of tomorrow is going to have to be a proptech-type financial instrument conveyor. They are extremely visionary and they said let's go into that space very early. Since they announced their stakes into XSpring Capital, their share price has gone up 35%. So, the market is validating their position, an extremely visionary company. The same thing with Viera Insurance. That is a large insurance company with millions of subscribers. They already look at insurance as a financial product. And they said how do I go into the digital world? Lastly, we have the major shareholder of Krungthai Card, which is backing us up. That's great because again, payment, credit card, we all know that's going to converge with digital instruments. So once the full capital increase will be completed in September, we'd be at a market capitalisation somewhere between half a billion to a billion US dollars. It just goes to show how much capital is looking for that financial transformation.  

ED: Have you got your licence for being a digital securities company?

Proof of concept 

SDB: Yes. There are several licences that you need to contemplate in order to be full spectrum. The first one is called initial coin offering (ICO) portal. I don't like the term ICO, but unfortunately, that's the official term of the licence that allows you to do primary issuance of tokens. So that is 100% subsidiary of XSpring and we just got all the filings accepted by the Thailand SEC and we will be marketing in about 45 to 60 days. The first public offering of a real estate-backed token in Thailand, with simultaneous listing on a private exchange. The total deal size is about $80 million. I think globally, that is going to be a first as well. I don't think anybody has done a security token of $80 million regulated and without restriction on the public offering. So that's going to be a big first. I think it's going to do extremely well. It has been rightly designed and we already see interest basically knocking at the door.

The second licence, because you issue those tokens, they have to be traded somewhere. So we have to create a digital asset exchange if you want a digital version of the Thai Stock Exchange. That is a privately owned company, which is a subsidiary of my holding group in the US. It’s called ERX and we already have a licence there. We will launch the ERX marketplace next month. The first token to be traded will be the Tezos token, the XTZ token, which is powering the entire ecosystem. Then the second token trading there will be our own native token called ERX token, which is effectively a discount on trading fees, a little bit like Binance token. The third token will be the security token of $80 million that we will be placing in July. The marketplace will be activated, the primary issuance will be activated and then we are also applying and we should receive a broker dealer licence for trading crypto, as well as a digital asset management licence that we will layer on top of our existing asset management business. Then you can do everything. You can do managing fund, broker dealing, international cryptocurrencies, issuing your own and trading your own token into the marketplace.  

ED: The Thai exchange regulation, the SEC regulation in Thailand, they only allow up to securities-backed tokens, right? They don’t allow crypto at the moment. So that sort of crypto business has to be run separately from the exchange that you’re creating.

SDB: Yes and no. You're right in a sense that the Thailand Digital Asset Act and Securities Act classify four types of digital assets or cryptocurrencies. You first have five accepted cryptocurrencies. They call it cryptocurrencies, then you have what they call investment token, they are effectively security tokens. These are digitised securities. Then you have utility tokens that are subdivided in two classes, utility tokens that have an immediate utility, which means you can use it from the day of it being issued. These don't require filing with the SEC. Then you have utility tokens that will be a utility in the future. These ones require filing. In terms of exchange, you are once again right on the dot. It is a different supply sense in order to trade cryptocurrencies and investment token and utility token. But you can today, if you know how to assemble your licence the right way, and it takes months, if not years to do it the right way. You can actually offer all kinds of products to your customer.

ED: These are exciting times. What platform will you be on? You’ve got Liquefy, Blocksquare. Are you creating your platform? Or would you be using an existing platform? 

SBD: We built our own tech for everything which is frontend. We’re building a core banking system in the backend. We've retained BCG to be our advisor there. In terms of providing liquidity in marketplace like crypto, we are linking ourselves to the biggest exchange in the US. I can't name them. But effectively we trade with an established marketplace on a transparent pricing type of philosophy. It's going to be highly institutionalised, very “white glove” approach. Somebody like you who doesn't know or may know a lot about crypto is just going to pick up and call, and say ‘Listen, Stephane, I want to buy 10 bitcoins, I don't want to do my custody, can you give me a white glove concierge service for my crypto exposure?’ And that's what we do. We're going to target traditional market players, institutions, high-net-worth individuals, but also normal people that also want the white glove approach to crypto. We think that there's a lot of market share to be taken there. 

ED: Another interesting aspect of the Thai regulation that’s now come into light is know your client (KYC). They practically require you to be present in order to start a relationship. Would that limit your market? Can you become regional from where you are in Thailand?  

SDB: It’s actually true. We’re the only player today that has its own KYC procedure vetted by what is called the AMLO office, the Anti-Money Laundering Office of Thailand that have vetted all procedures so that if you onboard with us, you don’t need to be present or in person. I don’t know about the rest of the players but I was told that we’re definitely the only one or one of the few that match the protocol. So again, our approach is the approach of an institution that works with the regulator and have the regulator vetting every step of the way, as opposed to being a tech guy that says, let’s create a marketplace. I’m an old man, so I’ve taken the conservative legacy approach to be friends with the regulator because you’re going to have to work with them eventually. 

ED: Yes but at the same time, you need to create a market for what you're doing. That market has to be distinguished from the existing REITS marketplace, which is highly structured, predictable, and we know who the players are. And also in Thailand, in all likelihood, your exchange and your asset is going to be more publicly owned, as opposed to your Aspen asset, which is essentially privately owned, with a little bit of exposure to public investors. What are you afraid of or what do you think are some of the concerns for someone who's starting what is effectively going to be a public property? You would be exposed to a lot more than you are in Aspen. 

SDB: So managing expectation, a lot of people believe that just because you're going to brand your property crypto digital, you're going to get a premium. I always tell those clients if that's the reason that you’ve come and talked to us, then don't talk to us, because I do not want crypto to be branded as making the impossible, possible. That is not what technology does. What technology does, it allows you to do what you were doing in the past and to add infinite layers of flexibility on top. For instance, with a digital token on someone that would want to tokenise a property, let's say a hotel, you could use a utility function as a dividend. You could pay your dividend through a utility token that has its own life and allows you fungibility. You can pay dividends in kind, which you can do as a typical REIT. That is just one application that we may will develop. I always tell people, the digitalisation of a financial product is nothing different from going from a fax communication to an email communication. People were using fax in the old days but no one would ever say ‘Hey, let's go for a drink Emmanuel,’ to a fax communication. We do that every day on email. So what email has done, it allows more form of communication to take place. What the digitisation of financial product will do, is again, more application on the basis that hasn't changed, which is ownership of a property.

So managing expectation is what concerns me the most but at the end of the day, we live in a world that has been disturbed through the unfortunate pandemic COVID-19. The response of global government has been printing infinite amounts of money. I remember my first economic equation, MV = PQ. I predict we're going to see hyperinflation all over the world. And guess what? Real estate is one of the best ways to protect yourself against inflation. So, the fact that suddenly you allow people to get exposure to real estate in a liquid form without having to worry about buying it or selling it, I think it's going to be a highly successful asset class.

ED: So what assets are you putting into your Thai token. How many assets? What is the valuation that is excess to your Aspen asset? You were quoted somewhere saying that you expect it to be about a billion dollars in size eventually. But what are we expecting to see?

SDB: That was the portfolio we intended to tokenise at first. That number has grown a lot since then, simply because people say, ‘Stephane, I love this, can you please create a token for me?’ So I think that the pipeline is now multiple of that original estimate. The first thing we’re doing in Thailand is an office-backed single tenant tokenisation. There will be two classes of token. The first token will be a highly protected, like a AAA trench-type of 4.5% return but highly protected. The second one will be more of a mezzanine piece with a higher upside and higher yield, then again, when was the last time as an individual investor that you’ve had access to a liquid form of investing into a mezzanine piece of a real estate asset?If you're a private equity guy and you have a few billion under your pocket, you see those kinds of deals. But as a single investor, you don't see them. So again, I call it equal access to financial product. And I think that's what we do. 

ED: What do you mean by equal access? Equal access to the proceeds? Equal access to the income? Yes, it's made out average but proceeds or specific investments, specific projects?  

SDB: It’s equal access to the whole process. So whether you are somebody who wants to invest $1,000 or $10 million, your access to the product is the same, your access to the cash flow is the same, and your access to the exit is the same. It puts everyone on an equal playing field. Because you and I know that the finance industry has been very incestuous in giving more flexibility to the big guys than the smaller guys. I think what we create here is a harmonisation of the marketplace and treating everyone equally. 

ED: Are you allowed by law to dictate the payouts, the currency, the token? Or is it just cash? You said just now that the dividends for example, you can pay it out in Tezos, bitcoin. Is that an advantage to you as a business or to the to the investor?

SDB: You are allowed by law to do anything that you disclose in your prospectus. So the beauty about those security tokens, they are regulated. So as an investor, you download the prospectus and you know what the manager can and can’t do. Not only that, the SEC is actually vetting the prospectus, saying, we review these and it’s good to go. We like innovation. So when we did the Aspen coin in the US, we actually created the flexibility to pay dividends either on Fiat or cryptocurrency at the election of the investor. Some of our investors wants to be paid their dividend in bitcoin, others, they want traditional cash and I think we are, again, the first tokenisation company that has successfully paid dividend in bitcoins. 

ED: The risk of this business is, at this point in time, so high because of the sheer volatility of crypto. And even as crypto gets larger, it sort of fluctuates on perception, on nuances. A small change in perception can have huge fluctuations. So the liquidity works for you. And it also is your one largest enemy, in a sense. What sort of checks and balances would you need to have in order to protect against fluctuations? 

Cryptocurrency price volatility

SDB: Again, I think it depends on what do we call crypto and where does the volatility come? Crypto has three big pockets today. One is cryptocurrencies that is an alternative form of storage, that would be Bitcoin. That means what you have is a trust system into what is the expectation of Bitcoin. People call it the digital gold. there is nothing but trust to support valuation. It's only as worse or as good as what the next person is willing to pay for it. Then you have a second type of crypto pocket, which is the smart contract platform. These are very similar to infrastructure play, like expressway, like telecom networks. They've created an infrastructure network of nodes, giving you the ability to administrate smart contract into the cloud. These are people like Ethereum, Cardano, EOS, Tezos. So their valuation is a straight function of usage of the network. You can track that. Then you have two sub-pockets which are security tokens. Security tokens are backed up by real tangible asset, just like a security. This one, by definition, will be a lot less volatile because they are backed by something that has a value that you can estimate. If it's a property, you can have an appraisal. If it's a cash flow stream, you can do a net present value of your cash flow stream. So these ones will be very stable types of coins. These will appeal to institutions. 

ED: But just the whole idea of what's different from a traditional REIT to a securities-backed tokenised REIT, and now that you are going to be putting assets onto it, will you be issuing tokens against third party assets?

SDB: We do that. We do talk about third party assets, we’ll do a mix of tokens. We have a string of offerings, but as long as someone understands that the token gives you the same advantage of a REIT and a lot more in terms of future flexibility, I predict that within five years, nobody will issue paper securities anymore. Everything will be digital.

ED: How do you see the secondary market for what you're creating in Thailand going to evolve?  

SDB: Our secondary market will be highly liquid and successful, because the offering itself is unrestricted. So when you do a public offering, you can actually have a wide distribution of your tokens. A wide distribution of the token makes the stepping stone for liquid secondary market. The problem in the US on security token is that everybody’s using the private placement regulatory window that limit who you can sell those tokens to. You need to be accredited, but also, they need to be locked up for a year, which means only long-term investors are buying those tokens. And because the long-term investors don’t want to sell it, so the secondary market is not liquid in the US, but I think it will be liquid in Thailand simply because it’s unrestricted public offering of the token. I have a great expectation that we’re going to see some form of decent liquidity in the secondary market.

ED: If the same regulation was already applicable in the US, would you have set up the securities business in the US instead of in Thailand? 

SDB: It’s funny you asked. We are currently in the process of acquiring all the licences in the US because we think the regulator in the US will soon enough create real licences for exchange. Similarly to what happened in Singapore, Thailand and Hong Kong, I think you’re going to see a lot of very positive, forward-looking regulatory announcements in the US in the very short term, and we want to be a player in the US. Absolutely. 

ED: I kept mentioning non-fungible tokens. Why are you issuing a fungible version of a of a token for something as specific as a REIT, when you could have made it non-fungible? Or am I wrong? Is the token non-fungible? And I noticed there’s a lot of activity in the virtual space. In fact, in Singapore, there was this guy who bought over the Beeple painting, Metakovan is his name. He's setting up the Metaverse, which is a virtual reality setting where you can buy real estate and some of that real estate can reflect actual real estate and you can subdivide it, you can be an owner. Are you dreaming so far? 

Regulatory clarity 

SDB: We’re looking at the space. There are great and smart people who are really innovating into that space. That space is booming right now. But we’ll have to go through a regulatory overview. If you follow the news, there is a lawsuit that took place in the US last week against Dapper Labs. Dapper Labs was selling Top Shots NBA NFTs and people are questioning whether an NFT is a security or not. And it goes back to the same question, where is the line? At the rate, we cannot guess where the line is because it’s a function of interpretation. The regulator’s going to have to drive forward regulatory framework for NFTs or DeFis simply because innovation is pushing the boundaries of what we can rule based on existing regulations today. So people like the ones you mentioned that are crazy innovators, we love them. Because the more we have those crazy people thinking about what the world of tomorrow looks like, the more we’re going to progress as a society. So very interesting space.

ED: Stephane, you're in frontier territory. Everything you say is a promise to be delivered. Those who are in traditional securities, traditional REITS businesses would be watching you very carefully. There are pitfalls, we need to figure out where these might be. Of course, you have the promise of a token.

I want to thank you for explaining to us, to me, what you’re doing. This conversation adds to my own understanding of what’s building and that final push away from traditional finance into DeFi. The tokens themselves, like the utility tokens that you mentioned, these are not only assets, these are applications that the user can use to do every day work. That’s where the DeFi takes place. That’s where the breakdown of the intermediary business comes into play. So we’re in frontier territory. I’m very excited for you. I hope that we’ll be able to do another conversation once you’ve got everything up and running and the Thai exchange is up.  Thank you very much, and have a good rest of the day. 

SDB: Thank you for having me, Emmanuel. Have a good night.

Keywords: NFTs, DeFi, Asian Tiger Economies, Reits, Blockfi, Timeshare, Tezos, Erc-20 Ethereum, Xtz Token, Erx, KYC, Topshot, Decentralised Finance


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