Hyperlink Technology utilizes blockchain in order to create a tokenized global asset ecosystem by introducing protocol standards upon which everyone can build. Unlike a centralized ledger employed by central authorities such as banks and institutions, the database placed on the blockchain is distributed on a network of computers all around the world.
The firm believes that blockchain technology has the potential to radically alter the shape of modern finance, business, and government. It envisions a world where security tokens can trade freely across many markets in varying jurisdictions, opening investment opportunities for unexplored investor classes and geographical regions that were previously hindered by bureaucracy, lack of understanding how to participate, cultural or language barriers.
‘Benjamin Hauser, CEO- Hyperlink Technology”
STOupdates got in touch with Benjamin Hauser, Chief Executive Officer (CEO) at Hyperlink Technology to discuss in detail about how they are aiming to build a tokenized market which is efficiently accessible to everyone.
Tell us about Hyperlink Technology and its ecosystem briefly and the main vision behind starting this project.
We’re a tech-driven company focused on developing innovative products for the Ethereum ecosystem. We support the core principles of the DeFi movement – particularly interoperability, accessibility and transparency. All our products are open sourced, available on Github to be forked and played with. If you have questions about how something works we’re happy to help.
Our goal isn’t to push anything we do as the right or only way, but simply to offer our perspective and add our voice as this space grows and evolves. Ultimately the protocols that will see the most adoption are the ones that encourage participation from many and minimize barriers to entry. Trying to build products and services for this new age of finance by erecting walls and limiting access isn’t innovative, it’s just another version of the current system. On a short timeline this might make sense, but our vision extends far beyond tomorrow.
While we share the DeFi vision of a future where financial markets are available to everyone, we also recognize that it’s a bit hubristic to think that we can build solutions that don’t work around today’s rules, and expect regulators to bend simply because “this will work”. Growing this space happens one step at a time. We’re building for today while looking at tomorrow, finding ways to meet the regulatory needs while exploring ways we can innovate and disrupt.
“Building for Today, Looking at Tomorrow”
Explain in brief about the development of SFT protocol, what makes it stand apart from the other competitors in the market?
SFT has been developed for the issuance and management of private equity on the Ethereum blockchain. It’s open sourced, has no native utility token, and exists on a public chain. Above all we value transparency, auditability and accountability – we handle as much logic on-chain as possible. The design is robust and highly modular, enabling it to adhere to the regulatory requirements of a wide range of jurisdictions and to not only meet the needs of issuance, but also lifecycle management and liquidity events.
We favor public chains and the transparency they provide. Using a permissioned blockchain like Corda or Hyperledger means greater scalability and increased privacy, but it doesn’t decrease the need for trust (arguably it increases the need in some aspects). We’re shifting our trust from legacy systems to a closed set of nodes that we need to trust will perform their job consistently, and continue to have financial incentive for doing so. Increasing efficiency for the existing power structures isn’t what we’re interested in.
Tackling the limitations of a Public Chain –
Of course, we understand the limitations inherent in a public chain. Privately held companies and their investors have confidentiality rights, obligations and sensitivities relating to their securities that must be respected. Publicly visible secondary transfers could disrupt the company’s corporate strategy, or tie them to what may be an inaccurate implied valuation. In addition, regulations such as GDPR enforce protection of data security and privacy of financial transactions and I’ve seen it argued that this makes public chains legally incompatible with the task at hand.
To counter these issues, we’re taking advantage of new technologies that allow for confidential transactions on the Ethereum blockchain. SFT utilizes zero knowledge range proofs via the AZTEC Protocol to keep investor balances and transfers confidential while still preserving on-chain verifiability. By ensuring that the details of transactions effected on the blockchain remain private, except among the issuer and the transaction participants, we eliminate existing concerns. In doing so, we align the SFT Protocol with the real world needs of companies and institutional investors.
In addition, along with the typical uncertificated “book-entry” approach used by most in the industry, SFT allows the issuance of digital securities in certificated form. This model provides full non-fungibility while still allowing for token transfers at scale. We’ve designed the system to ensure easy verification of the complete chain of custody on the blockchain; enabling on-chain enforceable lending agreements and significantly easing the legal burden upon issuers who desire to allow secondary trading.
SFT is designed to handle the entire corporate lifecycle and can be easily adapted for any jurisdiction. It was created with consideration for real world needs, and based on today’s existing markets and deep M&A experience. Best of all, it is open sourced and free for everyone to use and expand upon.
SFT protocol allows to issue tokenized securities on Ethereum blockchain, does Hyperlink in future have any plans of expanding or exploring other blockchains like Stellar etc.
We’re open to expansion on other turing-complete blockchains where we wouldn’t have to sacrifice the functionality of our platform, but frankly there’s far too much hype around being “blockchain-agnostic” and not nearly enough thought put into what that actually means for a product. Given the limited functionality available on Stellar, compromises to the token’s programmatic abilities would need to be made when porting from Ethereum. We’d be building for the lowest common denominator which would mean deleting the majority of our existing code base.
I’ve heard many claims from other platforms about how their system will work on any blockchain, always without any answers of when or why. Creating a system of contracts that works on Ethereum and maintains equivalent functionality on a completely separate but also turing-complete chain is an exercise in over-engineering; no customer is asking for tokens that can cross chains. Let’s start by creating digital securities that are sought after by traditional investors on ONE chain, and then concern ourselves with portability to future blockchains. I’d contend that most companies touting cross-chain compatibility are pitching vapourware at this point.
“Do Firms Really Need Security Tokens?”
Everyone is focused on the advantages of tokenization. Can you identify any disadvantages security tokens might have for the industry?
This might seem counterintuitive, but I think one of the largest disadvantages at this point is having to convince investors that a security on the blockchain is desirable. We live in an echo chamber and to us, the benefits of tokenization seem so obvious, but most people aren’t as knowledgeable about this topic. When an issuer goes to raise capital, it ends up being another thing they have to explain and sell to their potential investors.
To that end – in order to succeed, the benefits that tokenization brings have to outweigh the obstacles inherent in selling investors on “why blockchain”. This is a huge issue in the industry right now; any platform where the main selling feature is compliance is basically saying “our USP is getting you to where you already were without blockchain”, so why would anyone raise money with a security token if they can do it just as easily without?
A few weeks back you launched the Brownie framework, tell us in short how it works and how it makes more efficient to deploy smart contracts?
Brownie is similar to Truffle, Waffles, or half a dozen other dev frameworks (all of which are JS based). It’s great for debugging and unit testing, and it’s console provides a simple way to perform on-the-fly testing and contract interaction. We have an aggressive roadmap planned, with our goal to rival Truffle as a complete development environment by 2020. As Vyper, the Python-esque replacement for Solidity, increases adoption among Ethereum developers, we hope the Python-based Brownie will follow suit.
What is your major target market? Are there any specific countries you are majorly focusing initially? Any firms you are looking to partner with, describe your expansion plans for the future.
Our primary focus to date has been the USA as it has the largest private equity market by a wide margin. By ensuring we can meet the technical requirements for reg D, S, A+ or CF exemptions, we’re confident we also have the ability to meet similar requirements in other jurisdictions.
In particular we’ve been very excited about everything happening in Wyoming. The recent passing of bill HB185 that allows for blockchain native certificated securities was, in mind, the missing piece of the legal puzzle that we needed to be able to tokenize much more attractive investments. The ability to differentiate between record and beneficial ownership shifts the legal burden away from the issuer significantly, and I predict we’ll see many issuers exploring tokenization via this route in the near future.
On the other side of the world we’re exploring opportunities in the GCC, looking at how SFT lends itself to the needs of islamic finance. Shariah compliant finance means eliminating ambiguity within deals, and strict adherence to specific rules around where and how profit is generated. It’s a perfect fit for a public chain protocol and on-chain governance. This is a 2 trillion dollar industry that has seen 10-12% annual growth over the past two decades. We see a lot of untapped opportunity here.
“ICO/STO, Not Competitors But a Melded System”
As the craze for ICOs is going down, what expectations do you have for the growth of security tokens or STO industry?
A common misconception is that STOs are ICOs 2.0. This could not be farther from the truth.
Utility tokens are a relatively new concept, meant to capture the value of a network and exist in some quasi-legal unregulated neverland. A security token on the other hand is simply a security that exists on the blockchain. It is a well-defined, highly-regulated financial instrument. Unlike the abstract idea of the value of a network, security tokens represent real-world value. A simple analogy is that a utility token represents hotel reward points and airline reward miles, while a security token represents the hotel or the airline itself. They are entirely different beasts.
The utility token industry is fueled by a great cognitive dissonance. These are absolutely not investments, they confer no rights or protections and are purported to be bought and sold by those who hope to one day use whatever currently undeveloped platform may eventually require them as payment. At the same time they’re extremely speculative, traded in great volumes with massive price movements, making and destroying fortunes overnight. I find it difficult to believe anyone needs 5 million software licences for an AI-supported cloud service expected to be operational sometime in the 2020s. This market is a casino where anyone can sit down and spin the roulette wheel – and unfortunately that wheel is sometimes rigged.
Security tokens on the other hand, by their highly-regulated nature, are often not even available to the vast majority of investors. Accreditation requirements are very real and companies who eschew them face serious consequences. The target investor demographic for these tokens is simply not the same as that of ICO mania, and projects that are marketing to that audience typically range from very bad investments to outright scams.
As the security token market matures, where do you see Hyperlink Technology in next 5 years? What impact do you aim to create?
I think as the regulatory landscape evolves and the technical implementations improve, we’ll reach a point where the perceived rewards outweigh the risks and there will be a significant increase in both the quality and quantity of tokenized offerings. The fabled institutional investors will finally enter the space. My hope is that in five years, at least for private equity, we’ll have hit a point where tokenization has become the norm rather than the exception and we’re no longer saying “security token” we’re just saying “security”.
Public markets will take more time. We’ll see a lot of media encouraging use of permissioned rather than public chains, and this is where the first serious technical development will happen. There are very powerful, deeply embedded interests in public markets, and they will not be made obsolete overnight. I’d love to think that in 5 years we’re in a place where true p2p trading of public companies is possible, but that seems optimistic.
And where does HyperLink fit into this picture? We’ll be there building and raising awareness, demonstrating the merits of a non-permissioned on-chain approach, helping to further the growth of the industry and hopefully leaving our mark in the process.
Anything you would like to add for the community?
We’ve been head down building for over half a year now and we’re almost ready to showcase some exciting stuff. 2019 and 2020 are going to be the formative years for the development of the security token space and Ethereum in general, and we are very glad we can participate and contribute.
I invite anyone in the space who’s interested to reach out to us via Twitter, Website or Telegram. Most of all, I’d like to encourage other developers to take a look at (and interact with) our code on GitHub and see our technical documentation for a detailed breakdown of the SFT protocol’s functionality. If you like what you see and you want to build on it, feel free to reach out. We’re happy to answer any questions.