The Jay Kim Show #61: Valentin Preobrazhenskiy (Transcript)
This week we have a special guest by the name of Valentin Preobrazhenskiy who is the CEO of a company called LAToken, which is the first multi-asset tokenization platform in the world. Crypto is all the rage these days, I’m sure all of you listeners know. I myself am not a crypto expert by any means, nor am I invested in any of the currencies, mainly due to the highly speculative natural of the asset class, if you can even call it that. LAToken was the very first crypto company I heard of that actually excited me because it’s an exchange that allows anyone to tokenize real assets to be traded like any other of the currencies. So tokens can be backed by anything ranging from precious metals to rare and fine arts to even blue-chip companies such as Apple, Google, and Tesla.
One of my hesitations to investing in something like Bitcoin was the fact that there was no fundamental basis for price discovery, and the future of it as a currency relied solely on the transaction volumes acceptability. LAToken, on the other hand, provides asset-backed tokenization, which is actually quite revolutionary. Valentin will also be hosting the LAT blockchain economic forum in New York on October 31st on this month featuring many of the industry players, the major players in the crypto-currency world. For any of you US-based listeners that are close by to New York, we’ll include all the information in the show notes for you guys to go and check out that conference. Let’s get on to the show.
Jay: Hi, Valentin.
Valentin: Hi, Jay.
Jay: Thank you so much for joining us. Welcome to the show, and we really appreciate having you on. For our audience listening in, perhaps you could give us a quick introduction, a background of who you are and how you got into cryptocurrencies.
Valentin: Thanks a lot. I am founder of Liquid Asset Token protocol and platform. In short, it’s LAToken. We tokenize and make tradable assets encrypted. Assets are ranging from currencies to equities, commodities, real estate and so on, from liquid to less liquid. And our protocol helps to connect token issued on our platform or with the usage of our protocol, compliant with this protocol, ease, connected to these underlying assets. And this link is enforceable.
So we launched trading in test mode of 12 instruments. A token can link to IPO shares prices. A token link to gold and link it to commodities, to oil, to real estate. And we have an obligation to pay a settlement date, cash to the price of underlying assets. So, now it works.
When I say that this means that this link is our obligation. It’s not done in a completely independent way. It’s not like the smart contract working directly with independent custody. We will plan to create this in the future. And then there will be no in terms of LAToken risk. There will be a custodian of big bank, which is regulated, which has capital, and there will be smart contracts which make sure that sufficient amount of shares are reserved and that they will be sold and cash will be delivered to token holders. And this will be very robust, automated, superior, cost-efficient, and fast.
This allows crypto investors to diversify their crypto portfolio into real assets without the exchange of crypto to fiat, sending money to bank, then to broker, to custodian, the vice versa when they reverse the trade. So it’s high time and money cost which is erased with these tokens.
By the way, these tokens in some jurisdictions are not available until we make proper legal for these jurisdictions. First of all, it is about USA. They have very advanced regulations for securities and assets link, not tokens. Make clear that asset linked tokens should be regulated as securities. That’s why these tokens are not available for US investors. Now I am saying, investors, because they actually invest in this token. Do not confuse it with contributors who buy utility tokens. It’s very different.
So these investors will provide information about this. We use a KYC before we allow trading to make sure that only eligible investors can trade. So we are very, very careful about regulation. We think the industry will have some form of self-regulation and also some regulations which will help the industry. And we wanted to kind of spread best practices there.
These asset-backed tokens are very different from a LAT, which is utility tokens. Utility tokens do not represent any potential future cash flow, no dividends, no linkage to any assets. It’s like a pre-paid card for services. So it’s similar to what Gil Penchina mentioned in his TechCrunch article.
So utility tokens is a payment for potential future services or for platform. There is no linkage to any assets or any cash flows. Utilities tokens are not scrutinized by SEC. SEC is very robust and consistent. They scrutinized five tokens, which were linked to assets. They didn’t move to others. They didn’t make any statement regarding our utility tokens. However, the is not clear. Most of ICOs, most of token sales, are no closing access for US contributors. I think this is a reaction, a sentiment from China, from South Korea. We follow this trend. So we don’t want to be the last token, which is still open for US contributors. So we also closed offering for new US contributors. This doesn’t change anything for those who contributed before. They have their own terms when they purchased LAT.
So this token allows to pay for our utility service like of assets when we will set up proper legal framework to be able to do so. And for transaction piece, this can be also exchanged to asset tokens as utility tokens, like Ethereum.
Jay: So I think that, first of all, Valentin, thank you for the very detailed introduction. I want to, before we continue, because I know that your company is something quite novel. And I think that if you follow this space, it’s definitely something very exciting, and it’s unlike any of the other technologies out there or company out there in this space. But before we take a step down there, why don’t we take a step back. Perhaps you can talk to us a little bit about your background and how you came up with this concept of creating a liquid asset token platform, infrastructure, exchange, if you will.
Valentin: I traded equities for 15 years, and I worked at hedge funds for seven years. I was director of research at Swiss hedge fund for portfolio $200 million, and then I founded my own hedge funds. I capital. So I know in detail how crypto markets work. I love this. Investors make very important things. They facilitate movement of money from those who have money to those who can make the most of out this. So they predict the future of countries, of industries, of technologies, of companies, and they try to predict who will create more value and bring resources to these very creative hands to companies which will be more productive in the future. These companies get capital to hire more people. So people get more which is more productive, and they live their lives more productively. This spurs economic growth.
So capital markets delivering of money, in a smart way, in an efficient way, is very important for everybody. I love this. So I see that cryptocurrencies, blockchain are transforming financial systems. Now, in order to create a new currency, you just need smart contracts and blockchain, which is all operational, and you make it in a few minutes and replace infrastructure which was built for centuries and includes hundreds of thousands of people, including central banks, the Federal Reserve, including bank infrastructure which counting who owns money. Now you can just issue tokens which has built-in property rights for this token. And this works fast. This was very cost efficient. And this is tremendous progress. This works for capital markets.
Jay: So essentially, the way I see the parallel between LAToken, the platform that you’re building, it’s essentially like an exchange, like a stock exchange if you want to drop parallels that way. You’re using real assets as the basis and the backing. And I think that’s an important move and distinction to make because… With something like Bitcoin, I think people are on other opposite ends. It’s almost like religion or politics. People get very involved in the discussion around Bitcoin. And many people say that Bitcoin, the arguments against it is that there is no underlying asset, no mechanism for price discovery, and it’s all speculation, which I actually, as an investor myself, Valentin, I tend to agree because I cannot figure out a way… You used to work at a hedge fund. You traded capital markets. You know that there has to be some basis for us to analyze and value a security for us to be comfortable trading it.
How did you come up with this idea of using liquid assets to back tokens, basically?
Valentin: Assets became liquid after they recognize it and became tradable, encrypted on our platform. This is application to assets that are already liquid, such as stock, and liquid assets such as real estate and perhaps works of art. And by the way, when you make them liquid, you not only decrease transaction costs which are 30% for works of art and five to 20% for real estate. You also provide liquidity premium, which is 10 to 40% for equities, which moves from private to public. This is the liquidity premium applicable for illiquid assets when we make them liquid with tokens.
So how I came to this idea… Actually, I was thinking about Bitcoin. I agree that it’s a bit volatile. It’s difficult to make price discovery because it’s most of all based on expectations of future usage of this Bitcoin. This is a problem for currency. It is important to have a stable user case. So many people use it. Often they have current account balances in cryptocurrency, and some of these balances are like a demand for this currency. So more people have their wallets, the more they store on those wallets, the more demand for these coins. And they have just wallets in their store balances because they need it for transactions. And there is a competition between Bitcoin and fiat currencies. There is big scale effects which is the advantage of fiat currencies. And Bitcoin is kind of used in the niches where parties have problems with fiat currencies. But these niches are not big, and they are sometimes risky and so on. That’s why Bitcoin is volatile.
If you have a more steady growth of user cases, they will be more steady and comprised growth. We believe that the biggest user case for cryptocurrencies is to start trading real assets in crypto. So not only niche transactions, but we want to make a big user case where Ethereum, Bitcoin, and LAT are used to trade trillions of dollars of value in real assets. And this is a very clear user case because we save huge transaction costs.
We provide liquidity premium when we real estate and illiquid assets. We save costs when we tokenize stock and commodities. These costs are not… In fiat markets, it’s something like 0.05% if you trade via electronic trading. However, there are problems with settlement date. It’s . So a few days needed to settle a trade. And also, which may be costly, is leverage. Leverage costs something like 3 the 7% in dollars. If you want to make leverage for some of the instruments, there are cheaper ways to do the leverages for less expensive.
What is most important is that we start from providing opportunity for crypto investors, to diversify their portfolio. So they can, when they think the market becomes too volatile, the crypto market, they just buy tokens liked to real assets, and they get out of risk of cryptocurrencies, and they do this without cost of transferring funds to fiat, sending it to bank, to broker, to custody. And then also, all of this is time consuming, of course, as I said at the beginning.
Also, a big opportunity in decreasing OTC costs. OTC costs in field markets are done with 0.20%. There are a lot of big office work to settle them. They are done via phone. These trades can be done on the blockchain far more effectively.
These are just a few user cases, and there is also a scale effect user case. We can provide access to trade in 24/7 to all asset classes, to all regions, in one place. So you can have comparable instruments which are built on the same protocol which have built by different assets, owners, and they are transparent. It’s very easy to diversify across multiple asset classes to make your strategies, execute them effectively, follow other strategies.
By the way, we are launching today, and you are the first outside… This is the first announcement of our company, the outside world, that we are launching LAT crypto 50 index, which will work like Dow Jones. So traders and funds will be able to use this as a benchmark to measure their performance, to measure their alpha. And this will include 50 crypto tokens, top. This index will be balanced, automatically very transparent, very smart. So we introduce a benchmark, which is very important for comparing funds’ performance.
And also, this index can be followed by those who just need passive exposure to entire market, not just to Bitcoin or Ethereum. You can follow index. So I believe this will be a very big story, and it will outperform in terms of to know or so.
Our LAT crypto research team of four McKenzie and graduates estimated that capitalizations of crypto tokens will exceed five trillion 2025. And will exceed $30 trillion. Most of this valuation will be driven by asset-backed tokens.
Jay: That makes sense. A few thing, Valentin. First of all, I’m honored to be the first to hear about your index of 50 different coins that we can use as a benchmark and index to measure performance. I think that’s a fantastic idea. By the time this episode is produced early next week, that news will already be out. So congratulations of that.
Secondly, just going back to a little bit of what you were explaining, essentially, you’re taking… You’re giving me an opportunity for any asset — liquid or illiquid — to be tokenized, and then investors can then invest in it through the token with the backing of that asset. I’m curious because you mentioned some asset classes, even as illiquid and obscure as, say, fine art or real estate. So I wonder if perhaps we can go through an example using either a piece of art or a house as an example. And maybe you can explain, just walk us through the process on…
So there’s two sides here. There’s the investor’s side, and then there’s also the person that wants to tokenize their assets. Correct?
Valentin: Yes. We establish a link between them. Let’s take an example of Mona Lisa, for example. If owners of Mona Lisa decides to tokenize it to make it liquid and by fractions, they will apply with our site, and we will make a preliminary sale of tokens, link it to Mona Lisa. And then after investors express sufficient interest, we start the process. This includes…
Jay: Now the Mona Lisa must be appraised by a third party or something before you come up with a value. Correct?
Valentin: Yeah. Our protocol allows making a proposal or not. Normally, it’s more attractive for investors. We estimate that it’s a little bit more attractive if there will be an appraisal. However, the price will be a market price. So their can put a minimum price and put an auction and contributors that participate in the bidding for pieces of Mona Lisa. There will bear several types of auctions available for initial Mona Lisa token offering. And then there will be secondary markets, so they can just sell the tokens, link it to Mona Lisa.
What is interesting is how this link works. It works like a that on a settlement date, the token holders will get the cash equal to their share in this asset, in Mona Lisa.
I remind this is not a utility token. This is available only for those regions where it is appropriately or do not contradict local regulations, really unlike utility token.
So this token is linked by settlement date when this token owner gets cash. Alternatively, a token owner cannot claim for cash. He can just roll up this token and get a second token which is replacing the previous one. In case there is no sufficient demand for secondary token offering, this object shall be sold at auction and then cash received shall be distributed between asset owners. There is a custodian who is responsible for this. This custodian in some jurisdictions is a trustee, owns part of this asset and has control over this asset in terms of selling this asset.
At the same time, owner of this asset is still owner of some part, not less than 20%, can use it. So this is an value. He can still use this Mona Lisa. And then of the settlement date, either there is a roll over new token issued and sold and previous tokens are earned, or this Mona Lisa goes to auction, and cash received from this auction is distributed between token owners. And there is a sequence of smart contracts which shall ensure that this works mostly without any intervention of platform.
So there is a big custodian which is regulated, which has capital, which has a very long history, and it is also insured. And there is a sequence of smart contracts of each, open sourced, and automatic. And this sequence of smart contract is called liquid asset token protocol.
Jay: So that’s a good example. So let’s say, Valentin, let’s say I’m the owner of this Mona Lisa. It gets appraised at $100 million, and I decide to tokenize 20% of that. First of all, how long is the settlement date from the initial beginning of the process? Is that varied based on… Is it customizable?
Valentin: Yes. It is flexible. So asset owners, as they try to create token attractive for investors. This will. So if timing is shorter, there will be less deviation from underlying prices. And they will be perhaps a less time discount. So this settlement date can range from a few months to decades.
Jay: I see. So let’s say I decide to do it from just six months. I want to tokenize 20% of my prized Mona Lisa. At the end of that six months when the settlement date arrives, you said that a number of things can happen. Do I have an opportunity now, let’s say in the six months that I had tokenized my 20%, I said, actually, I want to own this 100% again. Do I have an opportunity now, as the majority owner, to buy back that 20% that was tokenized?
Valentin: That could be an option to buy back at a fixed price or at market price. Or you can order trustee to start to buy back from the market when he collected sufficient shares, and he can make an obligatory buy back. This is all customizable. There will be market forces which will determine best practices. And there will be one new option which is very simple.
Jay: So then on the other side, let’s say I’m an investor, and I bought into this Mona Lisa. So each one of these assets, when they go through this process, it’s almost like a mini ICO that they’re doing. Right? They’re raising their own token for that very individual, specific asset in the hopes that the investors, in the hopes that it will appreciate in the future. And then is, I believe, the distinction that you made earlier, that it’s not a utility token which LAT is. Right? That’s what your company has for working capital, almost. But this is actually a financial instrument, basically.
Valentin: Yes. It looks like a securities or, these asset backed tokens. And it just depends on jurisdictions. However, not everything is appropriately defined. And we are contributing toward development of self-regulation rules for blockchain, industry for crypto economy, and we invite regulators to our work groups. We will have a work group at Blockchain Economic Forum which we will hold from the 31st of October to the 1st of November in New York. There will be 50 participants ranging from large investors, entrepreneurs to academics and central bank officials. They will have a discussion, how to help the cryptic economy to be sustainable, to be more self-regulated, and to use existing legislation in favor of cryptic economy.
Jay: This is actually quite interesting, Valentin. In my mind, it makes a lot of sense, especially for some of these alternative investments are maybe not as liquid now. My other question then on the flip side is you had mentioned earlier that your platform tokenizes even things such as Apple shares, which is one of the most liquid publicly-traded companies in the world. So what benefits would an investor have to buy a tokenized version of, say, Apple, Facebook, what have you, as opposed to the actual equity in the markets?
Valentin: At the moment, is for crypto investors. They do not need to change their crypto into fiat, send money to bank, then to broker, and to custody, buy fees to brokers and to everybody, then in reverse order when they want to get the crypto back. So it’s too costly and too complicated, time-consuming process. What we provide is just in a few seconds, they can make a trade to diversify their crypto. They exchange it to token, link it to IPO. So they escape volatility cryptocurrencies. So, very fast, almost for zero cost. That’s our proposition for the first phase of development.
In the future, we believe that our fiat trades, all capital markets will work in the same way. It will provide even less transaction costs to provide free leverage, almost free leverage, settlement in a few minutes, not 24/7 trading, multiple asset classes in one place. And also, trading in a similar way, like it works for public stocks, liquid public stocks.
Jay: It’s pretty fascinating. I actually think that the potential is so huge here because I just think of it as… Let’s say I had the majority of my assets in blockchain or cryptocurrency. I just think about if I could literally mimic my PA, personal account trading, but with very little slippage and very fast across different asset classes, all on your platform, it would be incredible. For example, let’s say there’s a market crash. Then different asset classes behave differently. Some correct your quickly and others are more stable. So I could see myself maybe selling out of some Apple shares or some of these more liquid, reactive, and then I could roll it into, say, buying gold or something like that. Right?
Valentin: Yes. Yes. It’s just click to commodity section and sell it or token which you want to buy and select your holdings. You can exchange directly. This is another. You can exchange directly any token into another token.
Jay: Incredible. What is LAToken’s business model? It acts like an exchange, and it collects a fee off of all the transactions?
Valentin: Yes. This could be introduced, and there are also potential fees for leverage and for services like, KYC, like creation of funds, like, following. So it any trader can prove his performance and get followers who follow his investment portfolio, and he gets commissions. He gets a performance fee or management fee. And we also can take our part of this.
Jay: Yeah. And we see that social following aspect in liquid marketing trading, in equity markets and this sort of thing. There’s a lot of platforms out there now doing that.
It sounds so fascinating, Valentin. I think that crypto is often misunderstood, but it’s very hyped about. Your company is one of the first ones that I actually understand, and because being an investor myself, an equity investor, I kind of understand the basis for it. To me, it’s akin to setting up an exchange. It goes back to the old story of the guys who made money during the gold rush where the guys who were selling the picks and shovels — not necessarily the guys that were actually mining the gold. So the opportunity seems incredible. You mentioned some stats before that your research team had come up with as far as total crypto market capitalization that you estimate in the next five to 10 years. What does the future have in store for LAToken, for crypto in general? I think everyone is trying to fig this one out.
Valentin: Sorry. Could you repeat the last question? I’m sorry.
Jay: What do you think that the future is for cryptocurrencies. You obviously are betting pretty large on the fact that there’s going to be a market for these asset-backed tokenization of assets, liquid asset tokenization. What do you see as the eventual goal for LAToken?
Valentin: Our goal is to help to breach crypto and real economies. So tokens are used very widely in transactions, first of all in capital markets, in creating instruments which become more liquid. I’m not saying about goods, like coffee. We are focusing on assets which live at least a few years. Tokenize it and trade it for tokens. It could expand not only to public and private equity and assets like real estate. It could go further because the transaction costs to issue a token and to make fraction of assets now are becoming very low. It’s a huge, dramatic decline in price. If you make an ICO, you can pay 3 to 7% to an investment bank for your entire company. If you do, I mean, IPO. If you do token sale of your private company or of your house, they will be pretty small transaction fee. This can be done very fast. You don’t need a year to structure this process. You can do it. You will be able to do it in a few days. So this will create a very new user cases, new opportunities. And I believe that not only are entire capital markets and real estate and public and private equity, which in total is $600 trillion, the many assets will also be tradable. So it’s a vast opportunity. It’s fundamentally based on the fact that many middle men can be replaced with technologies that work better and faster.
Jay: A follow up to that, Valentin, do you see that there will still be room or space for non-asset backed cryptocurrencies in the future?
Valentin: Yes. The difference is that they are currencies. Their valuation is not linked to us. It’s correlated with the amount for this based on projections. So how many transactions are done in these currencies. So for them, many people who use this currencies for buying other stocks or coffee, this will increase the account balances. So any person who uses this for transactions, they have account balances, which ns total, is something like demand for this cryptocurrency.
I think that there should be less volatile currencies to make it more widely used. I think LAT could become a stable coin sometime. First of all, there should be a very big user case, very huge and sustainable. So it’s not speculation about future. It’s the fact that it is now very widely used. Then there will be an opportunity to decrease volatility, to make it stable and reliable for regular transactions. And this will make it competitive to existing fiat currencies.
Jay: Absolutely. Well, Valentin, thank you so much for your time. It was extremely, extremely insightful and exciting to hear about the amazing company you’re building in this highly sought-after and talked about space. I know that you guys have some offerings and this sort of thing. I don’t want to get anyone in trouble. But maybe you could just direct us to the website or where we can find some more information about your company that the audience listening in could follow up and do some more research about LAToken.
Valentin: It’s Sale.LAToken.com. Please hurry up because token sale will end on the 10th of October, and then it will be listed on the crypto exchanges. And I think it’s better to jump in before because this liquidity could change.
Jay: So, fortunately, we made the cut off so this is going to come out before the deadlines, so hopefully some of the listeners will get excited about what we had to talk about and head on over to your website to find out more about your offering. Thanks again, Valentin. It was such a pleasure to catch up with you and hear about your progress there. And we wish you the best of luck.
Valentin: Thank you, Jay. Thanks to everybody. I’m very happy that I can, with our community, with this entire blockchain involved, I’m very happy that we can do together a big change in the global economy and how people spend their time, how they can be more productive and efficient with blockchain. That’s very exciting. I wish everybody to use this opportunity to bring new technology to the real economy. Have big energy for this and just spread this. But do it in a sustainable way.
Jay: Absolutely. Thanks so much. Thanks again. Take care.
Valentin: Thank you. Have a nice day. Bye.
Asia's latest investing trends and on-the-ground field research delivered directly to your inbox