Beginning a saga with an anecdote is not exactly customary, but we will do it anyway because the Equity Token Workshop in Brussels of which, we’re proud to say, we were a part, in just two days has grown into Digital Assets Standards Association. The Association, in turn, will most definitely continue to mutate and with time morph into something else entirely, promising us a never-ending saga of hatching a plan to create a single globally accepted standard for equity tokens. We called this plan “finding a marshmallow,” and here’s why.
There’s a social experiment when kids and adults are given some fusilli and a marshmallow with a task to build a castle. Kids build erratically for the sake of indiscriminate building because making a mess is fun. Their castles are always way too high but structurally unsound; there’s no way to install a marshmallow on top. Adults act differently. They build a foundation to support the marshmallow, so their castles are not as fun and futuristic as the kids’, but there’s always a supporting structure for the marshmallow.
And that was the whole point of the workshop: to get enough adults in the room to start on the supporting structure for the future marshmallow. The combined experience of lawyers, technologists, government contractors, digital entrepreneurs, and angel investors present would easily surpass a hundred years mark, so questions like what that structure would consist of, and what is our marshmallow were mostly answered. Well, sort of.
For example, we’re looking at massive discrepancies in ownership rights in different countries and jurisdictions. It may seem that ownership is defined in no uncertain terms in the common law, but the definition falls apart when what you own is code that supposedly represents an equity share. Consider that if a married Swiss couple can collectively own their house while the husband and the wife are also thought to be individual owners by the Swiss law, just imagine how that little circumstance would extrapolate to the future world of interoperable equity tokens.
A few more examples like that and we realize that one of the hardest parts of our quest will be to sell our new token standard to the ever so colorful world. Especially given that a fully interoperable equity token encoded with all proper regulatory reporting mechanisms and traded on a regulated exchange is not going to be as profitable. Wait a minute. Fewer clients? Less money? We seem to remember Jerry Maguire getting canned for this heresy!
Day two of the workshop and we began to see the bottom of the rabbit hole. The concept of tokenizing a share took a severe hit. We couldn’t reach consensus on how to dismantle a share and put it back together as a fully compliant digital bundle of joy of which a shareholder would have full control. The legal nightmare we’re invoking with equity token defined by some as a technologically enhanced readily tradable quasi-share is of truly biblical proportions, especially when premature scaling is something, we all agreed, we wanted to avoid.
Several equity token standards are in development right now, and some are fairly close to addressing every issue raised at the workshop. Some standards claim to cover all US offerings legally, some standards developed by the Swiss are turning heads, but essentially every standard is flawed by only addressing issuance and trading, but not control or rights. Virtually everyone is an ERC20 derivative and is limited by jurisdiction, exemptions, and none solves the issue of legal all-encompassing equity representation which would overpower the current canvas of restricting trading to eligible investors only.
To sum up, the Equity Token Workshop was a clear case of “it gets worse before it gets better.” But get better it will because the wheel is spun, and the brain power behind the newly born Digital Assets Standards Association (we voted for Global Token Standards Cooperative but who’s listening) is fierce: Pillar Project, QPQ, Smartlands Platform, Globacap, MME, aGenium, 20|30, Neufund, to name a few. The work ahead of us is immense, but as a founding member of DASA, we are very much looking forward to the upcoming challenges.