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Former Morgan Stanley director says tokenization feasible if fully developed

The following is a question and answer session with Patrick Springer, an advisory board member with Polybird Global Exchange, an end to end issuance and exchange platform for tokenized assets. 

Mr. Springer recently completed a 20-plus year career at Morgan Stanley where he was a managing director in their institutional securities business. As a leader in their global equities business, Mr. Springer advised North-American based institutional equity investors and led the distribution of numerous international equity offerings deals, helping raise upwards of $50 billion of capital for global corporations in technology and other industries over the past ten years. He earned an MBA in finance and marketing from the University of Pennsylvania’s Wharton Business school, and degrees in economics and Asian languages from Rutgers University. 

Can you tell us about your background briefly and what you’re doing now.

I have an extensive background working as an investment specialist helping institutional investors make investment decisions in global equity markets. I managed three different regional equity franchises for Morgan Stanley in New York, leading sales teams in US Equities, Pan-Asian equities & emerging markets, and Japanese equities. I have detailed experience evaluating business models and bringing many international and US companies public. I am fluent in Japanese and speak some Mandarin. 

How feasible is the tokenization of publicly traded companies on the Blockchain? 

Patrick Springer

It’s entirely feasible, but the use case for doing it has to be fully developed and thought out. Currently, the equities of public companies in major economies like the US trade and settle very efficiently. Liquidity varies by security but that depends on the underlying interest in the fundamentals of that security. 

Tokenizing a currently existing security does not necessarily mean that there will be sufficient demand and liquidity for it. In the United States markets, there are many overseas ADRs that have very low liquidity. In Japan, for example, there used to be many US companies listed on the Tokyo Stock exchange, but there was very little demand there and eventually, most companies pulled their listings. There needs to be a use case. 

Do you think this will be one of the first mainstream use cases for cryptocurrencies? If not, what will be? 

Digitized or tokenized asset offerings which are done in compliance with local regulators will certainly be a key catalyst for mainstream investors to see the value of blockchain securities. I also think that stable coins that can successfully establish themselves as a means of cross-currency payment with ultra-low fees would also be a major catalyst. 

When do you think that the tokenization of assets/securities will begin? 

Tokenization of assets began last year in my view with the offering by Harbor of South Carolina real estate. The tokens are available on their website. When more tokens and issuers come to market, a market place all need to develop. 

What will 2019 hold for the industry in your opinion? Will Morgan Stanley play a role and/or other institutions?

Despite the crash in cryptocurrency and ICO prices, Blockchain-based securities are here to stay. I say that because there is increasing confidence in stable coins, and there will be new types of Blockchain securities for investors to look at. Tokenized assets, meaning digital tokens of real assets will begin, creating opportunities in many different types of asset markets. 

Institutional and accredited (investors with at least $1 million in net worth) investors will be attracted to an emerging asset class of tokens that provide ownership interests more easily or provide streams of income in a secure manner. Over time, bulge bracket players will look to provide investment solutions for their clients. Fidelity’s commitment and movement in the space is something to keep an eye on. 

You spent more than 20 years at Morgan Stanley, latterly as Managing Director. Morgan Stanley has put out mixed signals about blockchain, at times likening it to the dot-com bust, at times praising it. Can you tell us about that? Do you think they are bullish or bearish on the blockchain?

I no longer work for Morgan Stanley, so I am not representing their views. But I would say that Wall Street companies will adopt aspects of blockchain if: 

1) it is an asset that their core clients want to trade with them, such as Bitcoin futures, and 

2) if Blockchain technology will give them significant cost savings and/or market share opportunities

With regards to the former, the demand for bitcoin futures and ETFs by core institutional investors has still not been determined yet. The damage from the crypto meltdown in 2018 plus the numerous regulatory issues will take time for the market to digest.

On the latter, large incumbents in trading, settlement, and payments already have such large market shares and current systems are reasonably efficient for existing uses that there is not a lot of incentive to be an aggressive first-mover. Blockchain is inherently disruptive, so the Wall Street majors will move into blockchain only when new types of competitors, security concerns, or new products make the investment attractive.  

What made you take the leap into blockchain after years of a “conventional” career?

It’s important for people to challenge themselves at different times of their careers. 

What excites me about Polybird Exchange is that they are pursuing a market opportunity that many don’t yet understand, and it is an opportunity that can bring huge benefits to individual investors, small and large companies, and to the efficiency of the global economy itself.

There is a huge opportunity in the financial markets that goes beyond creating an alternative system of trading and settlement with a much lower cost structure – there are more efficiencies to be wrung out of the current financial settlements system, especially in global payments. Blockchain is an enormous threat to the current system of consumer credit payments and bank transfer fees. Digitizing equities and bonds for major corporations will have its place too.

But there is an enormous white space market opportunity between the world of public companies listed on the leading global exchanges on one side and the world of small entrepreneurs raising money via nascent crowdfunding networks on the other. There is an enormous opportunity to reduce the bid/ask spread between private securities, both private equity, and private credit, that can reduce the costs of entry and exit for retirees and pension holders who invest through their asset manager. 

There is an enormous opportunity to make different types of real estate investments available to more investors – and at the same time to make more financing channels available to real estate developers of all sizes. Tokenizing assets – the process of digitally encrypting titles, licenses, and other rights and governed by smart contracts, will reduce frictions in the market. Listing them on a global marketplace where more investors can evaluate, value, and transact more seamlessly will lead to better capital allocation and a more efficient economy.  

The number of companies publicly listed on the US stock exchanges has halved since the year 2000. There are many reasons for that, but most of them lead to the conclusion that our current capital markets do not address the needs of large swaths of the economy. Digitizing assets can bring benefits to asset markets that are currently private in nature and have a lot of cost frictions. That is why I am excited about Polybird.

Tell us about Polybird. What does the platform do in a nutshell? How does it work and who is it for?

Harish Gupta and I crossed paths briefly at Morgan Stanley, and this past summer we met and discussed my joining as an advisor. Under the leadership of Harish and his co-founders, I found his vision to develop a brand new asset market extremely compelling. 

Polybird Exchange is an end-to-end issuance & exchange platform that will facilitate the buying and selling of tokenized assets. Polybird’s business is to create a marketplace for digitized assets, and the firm is creating a platform, powered by Blockchain, to be flexible such that it can work globally and support multiple assets. Whereas almost all Blockchain exchanges are exclusively for cryptocurrencies and utility tokens, Polybird is focusing on developing a marketplace for tokenized assets, aka Blockchain securities, whose underlying assets are real estate, private equity, private credit, and fixed income securities. 

It’s registered in the US but not open to working with US citizens, is that right?

In 2018, much of the capital raised in the Blockchain and crypto markets were for coins or utility tokens, and many issuers were trying to avoid recognizing their offering as a security offering. But for Polybird, tokenized assets are securities, and we plan to be compliant with resident regulatory agencies. This means that the platform will be more likely to be dealing with accredited and institutional investors, not retail investors. 

It reminded me of Polymath a little in terms of wording, ideas, etc. then I noticed that Trevor Koverko is an advisor, are the two affiliated?

Trevor is on our board and has a very collaborative dialogue with Harish Gupta, Polybird Exchange CEO. Polymath in my view works as an issuance platform, helping companies and entities develop and create digital tokens. Polybird Exchange, which only coincidentally has a name that also uses the Greek term for “many”, is an asset exchange where those tokens can list. At this point, there are very few digital asset tokens, and most of them exist on their originator’s websites. 

For accredited and institutional investors to actively invest in them, they will need to see an independent marketplace where similar tokens can be compared, valued, and transacted in. This is where Polybird Exchange comes in.

What is the significance of the SEC’s stance on the majority of cryptocurrencies as securities? Has this made it harder/easier for you to navigate the waters of crypto?

ICOS and tokens that came to market without the appropriate dialogue with and an understanding from the SEC, FINRA, and other regulators, created a negative branding for all participants in the “crypto” space. The regulatory outlook is indeed very challenging given that everyone, including the regulators, is in new territory. But we see the market for digital assets as an opportunity to make assets more transparent, more tradable, and more efficient, which regulators will ultimately appreciate.

What will 2019 bring in terms of regulation?

I think there is a lot of demand from both the crypto and investment community for the regulators to provide additional guidelines and more clarity on the type of offerings and marketplaces that they will support. But it is hard to say when that will transpire.

Is asset tokenization inevitable?

Economics will drive the inevitability of it. If blockchain can be made to deliver what is required for a more robust and lower friction asset markets, then asset tokenization will occur. The internet has very much delivered on the initial dreams of creating a digital information highway and communications medium. Blockchain is what will allow people to own and control both physical and virtual assets digitally and securely and allow them to transact with them more cheaply and with much lower costs.

Can you give us any hardline predictions? What are the main drivers to look for in 2019? When is the bull market coming for crypto?

A bull market for crypto will come again when all the speculators have exited, i.e. when investors who believe in the greater fool theory of selling the same asset to someone but at a higher price, all leave. It will also come again when there is a great shakeout in the number of cryptocurrencies and utility tokens – there is no value to having an unlimited number of digital currencies sprouting from numerous forks.

However, it is also important to remember that Bitcoin plays a very important function in countries around the world that are bankrupt or have a deep currency crisis. As bitcoin laps time and makes good on its promise to cap the number of coins it can print, mainstream investors may take a renewed look at it again.

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