Hyperion Exchange CEO Mike Zavet discusses the company’s plans to list securities or STOs (Security Token Offering) on the Blockchain. The pair discuss the possibility of STOs one day replacing IPOs. Zavet states that Hyperion might become a public entity and that the company is hoping to go live in approximately 100 days. Zavat sees the potential for cryptocurrencies to “break down border and geographical limitations.” Zavat addresses the volatility of the cryptocurrency market and stresses stability is entering the space.
James West: We’ve got Mike Zavet. He’s the CEO of Hyperion Exchange, a new crypto exchange that is part of the new crypto economy, and he’s one of the most knowledgeable guys in the space.
Also, we’re going to wrap up the market with Stevie Misener, formerly one of Canada’s best known small-cap fund managers. He’s probably one of the most colourful characters in the Bay Street mix; he’ll join us about halfway through the show. And then, at 4:20, we’ll have Alan Brockstein, who was the first chartered financial analyst to cover the cannabis space in the United States. He’ll be here at 4:20 Eastern – that is guaranteed to be an extremely enlightening conversation.
Right now, I’m joined with Mike Zavet, CEO of Hyperion. Mike, thanks for joining me.
Michael Zavet: Thank you for having me on the show.
James West: Well Mike, let’s talk about Hyperion a bit. What exactly is the exchange all about?
Michael Zavet: So Hyperion is a very unique exchange offering in that it’s not only classical utilities cryptocurrency exchange; it actually is a hybridized exchange that includes the plan to list securities on the Blockchain. This is a space that’s been evolving over the last few months, or even years, but more so it’s accelerated now that the SEC has begun to take steps to recognize securities and securities on the Blockchain – in other words, digital securities.
James West: So are you securitizing, like, fractionalizing securities?
Michael Zavet: Well, what we’re actually doing is hosting a security token. So there are a number of companies now that are beginning to do issuance for securities, and what they’re doing is, instead of doing what classically is a note, like, you know, paper securities, they are doing a digital security. And this is much like equities or, possibly, revenue streams or other financial products, except –
James West: An ICO?
Michael Zavet: They are ICOs, but they’re security ICOs. So we like to call them STOs, and perhaps that name will evolve as well.
James West: Okay, great. That’s all we need, is another anagram.
Michael Zavet: That’s right.
James West: And so STO: Securitized, Security Token –
Michael Zavet: Offering, that’s right.
James West: Offering, okay. So how does that comply with securities laws currently?
Michael Zavet: So there are a number of ways of going about an STO, but essentially what we’re looking to do is work with the regulators to find a way to be completely compliant while still offering these new and unique vehicles. So we’re seeing is, in the States, a lot of Reg D offerings coming out as STOs, people are working on Reg A+ offerings, Reg S1…so there’s going to be very unique offerings coming out, and a lot of them are sort of based on traditional securities offerings with, you know, the added bonus of them being on the Blockchain, being in an immutable ledger, and being very dynamic.
James West: Yeah, no doubt. Okay, so does this mean that, or I should say, do you see these securitized token offerings replacing ICOs or replacing IPOs?
Michael Zavet: One day, I think that that’s the dream, is that we are kind of gunning for the IPOs. Now, with the classic ICOs, the utility tokens, so to speak, I think that a lot of those companies are hoping that they can remain as just that: utilities. Because with the added securities aspect, you’re talking about more regulation, it’s much more scrutinized and stringent. So hopefully there will be a world where all three of those products exist.
James West: Right. Okay, so then, how do you guys make money, and are you planning to become a public entity? Is this an investment play for Canadian investors?
Michael Zavet: That could be a possibility. We did do a financing round, just a seed round to start, where we raised about $8 million. Right now we are building out the company and the software, hoping to go live in about 100 days. Now, our business model makes between subscription fees from the tokenized offerings as well as from the users’ transaction fees, much like any other exchange that exists today.
James West: Okay. So at this point, there’s no risk – you’re not running the gray zone, where it’s like, you’re not offering securities?
Michael Zavet: We are not, ourselves, offering securities, but we are actually licensed to sell securities. So in the United States, we’ve just locked down a broker/dealer and the ATS license, which is an Alternative Trading System license. Now in Canada, we just applied for our MSB, which will lead us into our ATS and broker/dealer here, as well.
James West: Wow, that’s very cool. So then, does this – I’m trying to wrap my head around. I mean, if you’re on both sides of the border, does this kind of dissolve the border, between, you know – it used to be, if you were going to raise money from Canadian investors, you had to have a glide path onto a Canadian exchange and you had to specifically not offer securities in the US, and vice versa. Is this going to kind of change all that, and make it sort of more globalized?
Michael Zavet: To be honest, that’s what we’re hoping. We’re hoping the cryptocurrencies will start to break down border and geographical limitations, and allow investors from across the pond, even, invest at one point or another. We are targeting, eventually, Asian markets, and kind of have our sights set on the entire world. Right now, of course, we have to follow current securities laws, so we are limited by geography, but we are hoping that cryptocurrencies will change that.
James West: No kidding. The cryptocurrencies are sort of in a state of, you know, they’re in a state of flux, I guess, for want of a better word. There’s a lot of sort of skepticism as to its ability to be representative of a currency when volatility is so rampant within the space. Do you think that that volatility is going to sort of narrow down over time and settle out?
Michael Zavet: I do think it will taper off, and I think that even now, with the volatility that we’re seeing, it’s not as bad as the early days. If you were around five years ago watching bitcoin fluctuations, they were quite a bit more severe. So I think it’s starting to happen, and as the institutions get involved, there’s even more stability be entering the space. I was just at Consensus very recently, and you know, in the early days of going to conferences, there was a number of enthusiasts showing their products and new ideas; well now, we have Microsoft, IBM, Fidelity, CitiBank – all of them were present, and they were making it very clear that they are taking interest in the space.
James West: Wow. No kidding, eh? So then, if you were to become a – like I mean, so how soon till we could actually participate in one of the offerings?
Michael Zavet: That’s hard to comment on right now, because we’re still waiting on some guidance from the OSC and from the SEC on the other side of the border. That being said, we’re hoping to launch with utility tokens as soon as three months from now.
James West: Really?
Michael Zavet: Yeah. Got about a 100-day timeline.
James West: Yeah? No kidding. So now, the ICOs that I’ve seen, guys are raising other cryptocurrencies instead of cash.
Michael Zavet: That’s right.
James West: And so, as a enterprise raising capital to launch a business, there’s a lot that you can do with crypto reserves right now, but there’s a lot you can’t do without cash. So how do those companies access cash, if they’ve raised, you know, a ton of Ether or a ton of bitcoin?
Michael Zavet: Well nowadays, with the sheer size of the cryptocurrency market, there’s a lot of liquidity with bitcoin and Ethereum. So the truth is that a lot of these companies, even when they’re raising substantial amounts – and I’ve seen companies raise upwards of 100 million in Ethereum or bitcoin – it’s very easy for them to liquidate. It’s not like it was in the early days.
James West: Okay. So it’s not so – so, for example, could you sell $15 million worth of bitcoin in a day without moving the price?
Michael Zavet: Absolutely. I can see more than that.
James West: Really? Okay.
Michael Zavet: Yeah.
James West: Huh. Very interesting. So from where you sit, is the future of securities and capital-raising all about the crypto economy?
Michael Zavet: I believe it will be, to be honest. I mean, this is an immutable ledger; it’s programmable, it’s just a more efficient way of doing business. And the truth is that the technology is in its infancy, relatively, but it’s growing, and I think everyone is starting to take notice.
James West: Okay. Do you think that the OSC is, you know, is up to speed on all of this, and is, you know, I’ve heard that they’re doing all kinds of things to accommodate the crypto economy and moving to, you know, embrace it as much as they can. From where you sit, are they up to speed? Are they executing on that?
Michael Zavet: So far, I have seen – they’ve been pretty responsive with us. To be honest, I think that everyone is still learning, and regulators are very diligent, as they have to be. So it’ll take some time. But there’s an effort, and that’s positive.
James West: Yeah, wow. All right. Let’s leave it there for now. That’s great, Mike.
Michael Zavet: Thanks so much for having me on.
James West: Yeah, we’ll come back to you in due course and follow up. Thanks again.
Michael Zavet: Pleasure. Thank you.
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