During the StartEngine Summit in LA, Tory is the Co-founder and head of partnerships and development at Trust Token which is a platform to create asset-backed tokens that you can easily buy and sell around the world. They launched the TrueUSD Stablecoin in March 2018, one of the largest Stablecoins found in the market today with an almost 160M USD market cap.
Discussion about topics and events occurring in crypto, including the state of regulations, different types of Stablecoins, Security Tokens, and how Trust Token has been able to stand out from its competitors.
The bear market has helped us since our product is counter-cyclical
We’ve seen the ups and downs this year with the big crypto bull market and the bear market.
What do you feel is the general sentiment of the StartEngine Summit conference so far?
It’s interesting. I think it’s been a good thing in a sense that a lot of people that were drawn to the hype and the noise have found something else to capture their attention or something else to work on. We’ve been heads down, focused on what we’re working on. The bear market has helped us since our product is counter-cyclical, which means that when prices are falling, more people want to use a Stablecoin. It’s a safe store of value that you’re not going to lose money with.
Regarding your stable token, is there a particular target group that you’re focusing? Such as institutional investors, traders, and exchanges or is it open for everyone?
Initially, we were catering towards the larger institutional players and larger traders because we think that if we can serve them well, then it’ll be easy to add functionality over time so we can help the entire retail investor base.
Trust Token relies on a third-party escrow account, to verify when users wire funds, to the trust company and then you print out an equal amount of Trust Tokens and USD tokens. So my question is how does Trust Token deal with the potential security issues that come with using a centralized escrow? And will it eventually be possible to open accounts and transfer funds that aren’t purely smart contracts?
Today, we work with a handful of fiduciary partners, and we’re adding new partners every quarter. We would love to move to the point where a fiduciary interacts only with a smart contract. We were the first company in the world to open an account that was beneficially owned by token holders and received instructions from the smart contracts. We think there will eventually be a world where we can essentially create a connection between smart contracts and the APIs of most major banks to open and close accounts and shift funds and do all of those types of things. However, that’s still years away because banks are very slow to open their infrastructure, but we’re definitely moving in that direction.
We see Stablecoins as a necessary building block for the security token market
A common question people ask about Stablecoin companies is, how do you guys make money?
It’s a common misconception that we are just a Stablecoin company. Everything that we’re building is a means to an end. Our ultimate goal is more along the lines of security tokens, so we’re registering as a broker-dealer, and we’re going to be selling securities, doing issuances, and things like that. We see Stablecoins as a necessary building block for the security token market. If you invest in a real estate security token, you need to be able to receive dividends on a chain, because you do not own it in a brokerage account. So, we would send you TrueUSD every quarter as your dividends. If we didn’t have a Stablecoin, and we couldn’t build that into the smart contract, then we wouldn’t be able to offer security tokens.
You’re really building the foundation with the Stablecoin.
Exactly. In the past, companies tried to issue real estate dividends as Ethereum. Now imagine if they did that over the past few months while the price of Ethereum went from $1,000 to $100.
What do you see as the main advantage you have over Stablecoin projects like Carbon?
We’re addressing two different audiences. Algorithmic Stablecoins like Carbon is trying to appeal to those who don’t want any trusted entity involved. Whether that’s a government or a banker or a company like ours, they want to believe the code, and so they’re more on the libertarian spectrum of people who love Bitcoin for that reason. We’re appealing to different audiences. We talk to traders, hedge funds, and CFOs of companies who will hold TrueUSD on their balance sheet because it’s just US dollars. Whereas a CFO is not going to hold an algorithmic Stablecoin on their balance sheet.
I’m a big fan of algorithmic Stablecoins, so I don’t want my comments to make you think otherwise. It’s just that they’re fundamentally meant for different purposes and different audiences. There are different use cases.
I’m sure you’re very familiar with the Tether controversy. I just wanted to get your thoughts on that and how True USD provides transparency to token holders as well as the regulatory compliance that Tether currently lacks.
We publish attestations which are done by a third-party accounting firm, and they view the tokens on a chain, and the US dollars in the account and ensure that there’s a one to one parity and always has been. We publish those reports every month. I think Tether’s issue is that it’s less a question of whether or not they have the funds in their bank account right now, because I think there’s a good chance they do. It’s whether or not that’s always been the case, because you can look at the blockchain, and you can see at a bank record, and if there was ever a point in time where those don’t match up, you’ve fundamentally violated your users’ trust.
I think it was merely the way they constructed their system, and I don’t think they had ill intent, but they did it in a way that doesn’t offer any legal protections to token holders. That allowed for a lot of these kinds of accidents to play out. Because it was just all held in an account, where they can, legally, do whatever they want with that money. We can’t. The way we’ve architected our system, legally we can’t touch that money. We can’t move it around. It belongs, in the eyes of the government, to the TrueUSD token holders.
So, in a way, we’ve even protected token holders from us. Even though we’re a good actor, we still put protections in place. Tether never had those protections in place.
There will always be a conflict of interest between the centralized exchanges and the traders
On the other end of the spectrum, we have GUSD, Gemini’s Token, which came out recently. I think that’s an excellent initiative. One controversial thing about them is that they can inflict censorship, sort of cut off funds, and that’s something that’s a big concern to some people.
I think the bigger issue with Gemini, Circle or Paxos, is that centralized exchanges issue them. There will always be a conflict of interest between the centralized exchanges and the traders because they want to do what’s in their best interest. They want to maximize revenue and compete with other exchanges, which can often lead to shady business practices. For example, some exchanges will offer market makers the ability to buy their Stablecoin at less than a dollar, which gives them an advantage over traders who are paying a dollar. We, on the other hand, are exchange-agnostic. We can work with all exchanges, but we have the traders’ best interest in mind, and I think that’s a big advantage for us.
Do you see TrustToken helping countries establish their national cryptocurrency?
We’re talking to a couple of governments right now, and we have to decide whether or not it’s the right way to allocate resources, but it’s inspiring.
What are your thoughts on limited security tokens to only accredited investors?
The challenge is that all the exemptions that were created by the Jobs Act in 2013 allowed for a lot of these direct to consumer, private registered securities offerings, and that’s a good thing. However, they were imperfect. I believe the Government is overstepping their bounds in the sense that people need to be able to make their own investment decisions, and the unintended consequence is that all of these fantastic investments that are being brought to the market are restricted to accredited investors.
This is ultimately a policy issue, and it’s something that we need to be more forward thinking towards by continuing to innovate from a legislative perspective.