Swiss start-up STOverse is building a bridge between security tokens and DeFi
The convergence of traditional and blockchain-based financial markets is now a given. But it still takes people and businesses to make it happen. The proportion of FinTechs seeking regulatory licences is one measure of who is doing what. Now a regulated Swiss security token start-up, STOverse, has hit upon an idea that the Peter Thiel of Zero to One would recognise instantly as an unsuspected secret hidden in plain sight: DeFi can be a source of capital and liquidity for securities tokens. In terms of Total Value Locked (TVL), DeFi has grown ten-fold since the beginning of 2020, clearing US$100 billion in November 2021. Staking is now an US$18 billion market, providing investors in security tokens with an obvious source of yield. By building a security token issuance and trading market based on liquidity pools operated by smart contracts that balance supply and demand algorithmically, STOverse aims to build a bridge to DeFi market-making exchanges, starting with SushiSwap. Its target audience is SME issuers and investors and DeFi investors familiar with liquidity pools. If it works as intended, STOverse could help the security token markets move from latent to actual growth. Dominic Hobson, co-founder of Future of Finance, spoke to Francesco Biviano, founder of STOverse, and Florian Ducommon, a partner at Bonnard Lawson, a law firm specialising in Fintech and Blockchain in Switzerland.
Questions being asked
1. What are the principal problems that need solving in the capital raising and capital trading markets – especially for SMEs?
2. How will STOverse help to solve those problems?
3. Are there any limits to the type of securities STOverse can accommodate (i.e. equity, debt, asset-backed, NFTs etc.)?
4. What’s the difference between IPOs, STOs, ICOs and crowd-funding -and why does it matter?
5. Your USP is linking security tokens to DeFi trading platforms (liquidity pools), bringing together STOs and DeFi. What is the advantage for (a) issuers and (b) investors (e.g. lending and staking)?
6. How will the link help STOs and STO markets to grow?
7. To what uses do you expect STOverse tokens to be put by users of DeFi platforms?
8. Which DeFi platforms do you intend to link to?
9. How will STOverse and the DeFi liquidity pools inter-operate technically?
10. DeFi trading platforms have a particular character: they rely on liquidity pools operated by smart contracts that balance supply and demand algorithmically. Will STOverse do the same?
11. Will STOverse tokens have to comply to a standard to be available in DeFi (e. g. ERC-20)?
12. Are proliferating blockchain protocols (Algorand, Solana, Cardano, Polkadot etc.) a problem or an opportunity for STOverse?
13. Do you believe a process of convergence between traditional finance (CeFi?) and DeFi is taking place, or just between security tokens and DeFi?
14. Do you want (and are you allowed, by Swiss law) to recruit retail investors?
15. STOverse is regulated under Swiss securities law and has a licence supervised by FINMA. How hard was it to obtain a Swiss securities licence?
16. What are the benefits of a Swiss securities licence?
17. Does Swiss securities law place any limits on investors you can access (e. g. institutional rather than retail investors for tokens only)?
18. Is Swiss securities law more protective of domestic than of foreign investors?
19. What do Swiss regulators think of the link to DeFi?
20-. The most interesting think about DeFi is not just that it dispenses with intermediaries but that it dispenses with the distinction between customers, employees, issuers and investors. Users are not just customers but shareholders (taking a cut of the profits) and managers (voting on policy decisions) and often employees (collecting a salary) as well. Does that make it easier or harder to recruit issuers?
21. How will you recruit issuers?
22. Is your real target SMEs – and, if so, what is your strategy for recruiting them as issuers?
23. How will you recruit investors?
24. Do you think STOs will attract a different or new type of investor?
25. How comprehensive are the services you provide to issuers (e.g. token creation, legal documents, prospectus, issuing into digital wallets, broking etc.)?
26. How comprehensive are the services you provide to investors (e.g. on-boarding KYC tests, broking, digital wallets, asset servicing etc.)?
27. How will you generate secondary market liquidity – do you envisage market-makers or lead-brokers?
28. What is your commercial model – how will STOverse get paid?
29. Will you be using STOverse to raise capital yourselves?
30. At what stage of development is the STOverse platform?
31. Securities tokens at this point are virtually all potential, not reality. What do you think is going to provide the tipping point?