Alternative asset classes in the form of security tokens

Tobias Seidl and Arnab Naskar founded the peer-to-peer investment marketplace STOKR in 2018. The reason for the foundation was the observation that very few SMEs have access to capital markets and at the same time private investors have little access to investing in alternative assets. We had the opportunity to speak with Tobias Seidl, co-founder of STOKR.
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Business model of STOKR

Unlike traditional companies that are involved in risk capital, STOKR offers a participatory investment platform based on blockchain technology. The platform issues debt and equity instruments through Security Token Offerings (STOs) that allow investors access to the performance of alternative assets such as alternative investment funds, music rights or participation in the development of Bitcoin mining activities.

Tobias Seidl, co-founder of STOKR
Tobias Seidl, co-founder of STOKR

Hello Mr. Seidl, in the media, you hear about a wide variety of more or less trustworthy concepts such as ICOs, SPOCs, NFTs, etc. How does STOKR’s offering position itself?

When I met my co-founder Arnab Naskar at a blockchain conference in Munich in spring 2017, it was the time of ICOs. We quickly noticed that the so-called utility token sales could not offer any real added value other than the network effect. The idea was that the price of the tokens would increase with the utility of the tokens. The only problem was that most of the tokens that were issued had no real utility, only a promised one.

As we know now, most of them never developed any real utility either, so apart from a few exceptions they are completely meaningless today.

The idea behind establishing a direct link between the issuer and the investor or user through blockchain technology still seemed very interesting to us though. So we started wondering about the possibility of mapping financial instruments on blockchain that give investors profit or revenue-sharing rights in the issuer. Against this background, I looked at the various legal systems in Europe and identified Luxembourg company law as the most suitable for issuing such financial instruments.

Luxembourg company law allows companies to keep their own register of investors. And so the idea was born.

We enable investors to identify themselves on a platform through a whitelisting process and to store their blockchain address. Linking the two allows an issuer to know who holds their shares at all times, as the register of investors will then be automatically updated with the blockchain 24/7. Ultimately, in addition to reducing many of the risks associated with issuing shares in the traditional securities trading system, this technology enables a direct connection to investors. An added value that should not be underestimated, as this gives you a lot of control over the investor base, making future fundraising easier and much cheaper. At the same time, investors benefit from the possibility to specifically determine their risks, as there are no intermediary risks.

You are a trained lawyer and have worked in various law firms in Germany and Luxembourg prior to STOKR. What are the advantages and possibly the disadvantages of starting a tech company as a lawyer?

Working as a lawyer and investment structurer at various asset management and law firms has given me the foundation to be able to think outside the box.

The crucial difference to working in a clearly defined profession is that as the founder of a very innovative company, every day confronts you with a task that you have never been confronted with before in the same way. Running a business without a blueprint requires many different skill sets. What helped me most was that I worked as an industrial designer for a few years before I started my law degree, for example, and that I was employed in both media companies and financial firms afterwards.

Vision of STOKR

STOKR’s vision is to create the leading marketplace where everyone has the opportunity to invest in alternative assets. As a private investor, why should I invest in such alternative investments, which tend to be risky?

As many studies and the practice of successful asset managers, such as the Yale Investments Office, show that classification into risky and less risky asset classes is not particularly helpful for successful asset management. The key to successful asset management is always the ability to diversify one’s risks and achieve a balance in different market scenarios.

Private investors generally have very limited access to alternative asset classes such as venture capital, private equity, real estate, art, and music rights. These are largely reserved for professional investors.

Private investors primarily have the chance to invest in listed companies and funds which in turn invest in listed companies. This raises the question: how much can investors diversify their investments in a meaningful way?

Stock markets are highly correlated. This means that if the market goes down, the assets of private investors also go down. Additional less correlated asset classes, such as music rights, allow private investors to better manage their risks. It doesn’t make any sense that the main feature of successful asset managers – namely the possibility of diversification – should be denied to private investors. In my opinion, private investors are thus needlessly exposed to higher risks than professional investors.

Target group of STOKR

Can any interested party invest through your platform? Are there any restrictions, e.g. with regard to a minimum volume or prior knowledge of the investors? What happens when a company files for bankruptcy?

STOKR is of course governed by existing financial market rules, with various thresholds or geographic restrictions to consider. For example, we have set the minimum investment amount for the Blockstream Mining Note at EUR 125,000 for regulatory reasons, or in other projects we have refused investors from certain countries access to invest. It’s a case-by-case decision, where obviously we always try to reach a larger group of investors. Of course, the prospectus regulation and specific legislation in the jurisdiction of the investors must also be observed.

What does the typical STOKR investor look like today? Do you focus on specific customer groups?

Investors on our platform are primarily individuals who have a lot of experience with crypto and want to use their crypto assets to diversify starting from a large exposure to crypto. However, we also see interest from institutional investors, as STOKR also creates asset classes that have not been available even to institutional investors before.

What options do I have as an investor to perform due diligence on the company? Do you offer a standardized interface or is this the company’s responsibility?

All companies on STOKR undergo a very thorough due diligence process, and we also have pre-developed requirements. However, the company itself is always responsible for the accuracy of the information.

Can you give us examples of companies in which customers can invest through your platform? Do you also offer ways to spread risk if I don’t want to invest in just one company?

Yes, absolutely. For example, we are now opening up the possibility of investing in music rights and soon real estate. We are always on the lookout for new investment opportunities.

For issuers, the obvious added value is that they gain access to capital (possibly even smart capital), but this added value can quickly evaporate if the administrative and legal burden is too high. How can STOKR relieve the burden on companies?

STOKR is a one-stop shop for raising capital. We have an eye on all the “pain points” that traditional investment platforms have to deal with every day. This allows us to offer a solution that handles everything from KYC/AML integration to whitelisting.

We give companies and asset managers the ability to leverage our investment structures, our digital KYC/AML portal, our regulatory disclosure portals and our investment flows to make the issuance of complex financial instruments run smoothly.

What kind of companies tend to turn to STOKR? Do you focus on a specific target group?

The companies we feature on our platform are essentially familiar with the technology and have no fear of blockchain. However, over the past few months, we have noticed that asset tokenization is becoming more mainstream every day. That means we’re open to any new type of company considering the possibility. We believe that sooner or later the entire capital market will be tokenized.

Building a two-sided marketplace is a long and difficult process. What is your approach to attracting both investors and issuers?

Our issuers are traditionally from the crypto space. However, since we became operational, the situation has changed dramatically. Today, we see many traditional financial firms like JP Morgan, Goldman Sachs, Nasdaq and many others showing strong interest in tokenization. Our hope is that in the future Luxembourg companies will also be using our technology.

Future of STOKR

Where do you see STOKR in the next five years? Where do you see opportunities to expand for product range and for internationalization?

We aim to be the leading alternative investment marketplace in Europe and the US in five years’ time. We see a lot of potential in sustainable investments, which in our view can be structured much more directly and transparently if they are not offered to investors as UCITS funds.

Thank you very much for the interview. We wish you and STOKR all the best for the future.

How do you see the future of security tokens as alternative asset classes?

Feel free to contact us!

Joel Theisen / author BankingHub

Joël Theisen

Manager Office Luxembourg
Niklas Pallien / author BankingHub

Niklas Pallien

Analyst Office Vienna

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