Pat LaVecchia on digital securities regulation and institutional adoption

0:01i'm ashton addison from eventchain for investmentpitch media in the crypto coin show and today on blockchain interviews we have pat lavecchia the co-chairman and ceo of oasis pro markets pat welcome to the show and thanks for taking the time to be here today great hi ashton thank you very much for inviting us and uh big fan of the show well thank you very

0:22much i'm really excited to dive into digital securities today i know there is a lot going on in the industry and we have a lot to talk about and i want to hear a little bit more about oasis pro markets as well and if we could just kick it off for the viewers by starting with an overview of oasis pro markets and how that fits into the industry then we can dive into

0:39the details okay great um so oasis pro markets is a broker dealer so we're regulated by both finra and the sec we're also approved to run an ats which is like an exchange light ultra alternative trading system but the uniqueness of oasis pro markets is that we allow digital cash for digital securities so digital securities are nation right now

1:06i would say the market is basically where crypto was three four years ago but it will take off so digital securities we can do fixed income we can do equities exempt which means private securities we can do otc over the counter public securities we can do sec registered mutual funds and interval funds which allow redemption features so we can do a broad array of different

1:34corporate issuers and the the way we describe it is we're the bridge between traditional finance and defy if you think about us that way and digital securities are basically a token representation of underlying stock certificates or fixed income certificates and i can get more into detail on that but it's very exciting it's a huge market coinbase

2:00going public yesterday is a validation of this entire market i equate it to when facebook went public and what happened from an internet uh for the internet and the growth of the internet that's where we are we're just on the cusp of tremendous growth definitely great intro pat and it is a very exciting time and i've been following the space as well

2:21for for many years and i first heard of digital securities and security tokens back in 2018 and it was supposedly you know right around the corner and that seemed like that was sort of like the 2013-14 for for bitcoin it was early on but now in this next phase of what seems of the bull market with the coinbase listing and all of this other uh great news that's coming out it seems

2:42like now is sort of the time to shine and you know all these traditional financial industries getting involved into d5 as well it seems like there's a lot of institutional backing that we can talk about and i haven't heard as much in the crypto space of you know alternative trading systems or these broker dealers getting involved in the crypto space

3:02could you talk about what sets oasis pro markets apart in the ats market sure um well first and foremost um i'll answer two two parts to that question 2018 we're late to the game in a way meaning oasis pro markets because others came earlier than us t 0 being the obvious example right and they were early and we i think our timing is about right

3:29because over the last year or so while we were going through the approval process and we were approved in early december now we didn't make an announcement until the end of january we were in stealth mode but two significant sec comment letters came out during the uh as we were going through the process one was in september of 2020 which was a what's called a three-step

3:55model with custodians i'm not going to go into detail on that it's too granular for this but um but it was a big movement forward with custodians like bank of new york uh anchorage prime trust those groups and secondarily in december another uh letter came out where they basically were offering a safe harbor to digital banks so digital security banks with the

4:21opportunity to custody as well there's a comment period going on with that right now there's a couple of nuances that need to be taken care of but um but that's just huge movement forwards from the regulators so we were lucky you know i'd like to say you know it had to do with our team which a lot of it was but we were just lucky as we were going through the

4:42process that the regulators were really getting up to speed and seeing that this market is coming in regards to what sets us apart beyond you know the areas that i mentioned to you that uh we're a lot we're approved to do um our subscriber base our broker dealers so other broker deals with retail clients we will be able to trade on our ats like a robin hood for example if

5:07we had a relationship with robin hood our order book can be on on a retail uh client's uh mobile phone that's just one example uh institutions so everything from a qualified purchaser all the way to uh what's called a quib qualified institutional buyer and uh lastly accredited investors as defined by the sec so so they're so that's a broad array what sets us

5:35apart ashton is digital cash so we define digital cash as stable coins and as cbdc's cbdcs are coming australia china are coming along we will be able to have that transacted on our ats for digital securities no one else can do that so that that's a that's a big step forward that the regulators allowed that to happen so let's talk about d5 very quickly so

6:03d5 ashton you own bitcoin right you you you don't want to sell it but you're interested in buying into this particular xyz issuer on the oasis pro platform so what do you do you collateralize it through one of the uh collateralization ecosystems in d5 you convert it into stablecoin you take that stablecoin you go into our

6:30system and you buy xyz token so you're diversifying and there are a lot of other benefits to being on our ats because you know um you know we'll talk about that in in a bit of time but that's very exciting for issuers right so bitcoin holders eath holders um maker whole you know whoever you are at the end of the day collateralize your position convert it to stable coin now you can

6:56trade it in a um alternative trading system it's kind of cool yeah the collateralization and all the different platforms that are enabling this is just expanding the industry so much and i think it is very cool and and you mentioned there uh stable coins but as well as cbdc's in australia um and but i'm curious about the united states you know from your

7:22research what what do you know about what's happening right now with the regulation of digital securities uh overall just in in the us so um the reagan well there are two areas here right so we're working very closely with the regulators at the sec and finra that'll grow into the cftc nfa other regulated regulation entities but they're laser focused right now on

7:48this area in the last two years the level of education and knowledge at the regulators has grown exponentially they've brought in industry experts it's but they're the guardians of our financial system right but that being said you know the analogy i use is we're uh we uh we're a tricycle with training whales with ferrari brakes so the regulators are all over us so we

8:12have to be very very careful about what we do at the end of the day but it's moving forward um so that's digital security so cbdc's are slightly different that's the treasury and that's um at the end of the day congress which as we all know is very dysfunctional right now there's a lot of movement on cbdc's here in the u.s i've been part of panels in regards to

8:38cbdc's we've done research white papers etc but at the end of the day ashton i think the us is at least one or two years away china is coming out this year i think that's definitive and i i believe that the general view of cbdc's which is democratization the unbanked there are so many benefits that many of you know in the us can can take advantage of but there's also a

9:07reserve currency aspect to it and china by moving into uh digital as cbdc sooner than the u.s there is a concern that china can become the reserve currency uh the juan could become the reserve currency of the world so you know what you know we're about to hit 20 percent uh debt tied to gdp the highest it's ever been here in the us since i think world war ii

9:34that's concerning uh but the the other side of the coin is hey we're the reserve currency of the world let's not be too concerned about it well if that changes it's going to be a big problem for the u.s so uh we're pushing hard uh through our lobbyists etc but i think it's at least a year or two away and next year's an election year so how much are you going to actually see

10:00come out of congress definitely it's quite an interesting time and yeah that that reserve currency of the world is obviously going to be important and that's something that i think the us should be thinking about uh you know as they're building this out um and just overall institutions looking to preserve capital as you mentioned the debt to gdp is really high uh money printing is high

10:22how strong of institutional interest do you think as more digital securities are getting approved and will move into the market you know how strong do you think the institutional interest will be in getting into these digital securities markets uh as quickly as they can uh great question so jamie dimon the other day um came out with a 65 page uh review of their performance but he

10:46specifically identified fintech as a um as an issue of concern to the major banks in the world and we're part of that so uh the big banks are seeing it now that being said jp morgan invested in consensus and was the lead investment so so they're playing both sides right they're starting to see that and they're moving in that area the large firms have been very

11:09inflexible in regards to moving into this area but you're sort of seeing it very slowly um they're going to move into digital securities in a big way again i think it's probably three to five years away similar to what occurred with coinbase look at coinbase right now every i mean we and you i'm sure and your listeners all felt three years ago that crypto was

11:32coming right it's just a question of not if boat went and time period none of the big banks got involved none of the large financial institutions got involved now let's let's jump ahead look at coinbase's valuation yeah it's equating to a lot of these large financial institutions we think the same thing is going to happen in digital securities and the key for us there are three areas

11:59it's education regulation implementation education is this is nothing different than your typical security that's very important to understand regulation making sure the regulators approve digital securities on the same path as they approve specs today you know which is very quick eventually it'll get there and then implementation having some marquee names on the issuer front

12:30will bring the institutions and we're working hard on that and the biggest issue with digital securities right now and the platforms that preceded us has been has been liquidity and volume we think we're we are solving that by incorporating d5 and traditional market makers into the system when we launch that's our game plan we're all about liquidity

12:54and volume and that'll draw the institutions but those three areas education regulation implementation those are our focuses and what we think will grow the industry definitely all great points and i i i totally understand you know these institutions waiting for the big names to get in and when coinbase dropped uh into the uh and into its listing yesterday you

13:18know the market cap is higher than almost all the other stock exchanges combined and it's crazy to you know it's almost like tesla just coming out of nowhere um coming from a low market cap to all of a sudden you've encapsulated the whole market and i i could definitely see you know as digital security start moving in i i like what you mentioned about you know

13:36liquidity because when i was looking at t 0 back in 2018 and some of these crypto companies that i want i want to mention uh in a short while here that are looking at doing digital security offerings i'm looking at an exchange that doesn't have a lot of trading pairs you know is liquidity going to be a problem you know and how do we get past that initial point where there's there's only

13:56a few digital securities on the exchange to getting the liquidity getting the volume and having a lot of trading going on there um so it's interesting how it's going to play out and i'm curious pat what are you most excited about for the digital security space right now um whether you've been hearing about the regulation or the institutional interest

14:14what's corroborating the most excitement for you well it um it's all all of the above we are having discussions with all the major financial institutions big banks major custodians uh dtcc um all the major transfer agents so remember everything's tied to the 34 act for digital securities and what the regulators are doing and what they have been

14:40doing is what they they're focused on 34 act how do we fit digital securities into the 34 act so you have transfer agents you have custodians you have uh clearance and settlement right now if you believe in the blockchain which is immutable right why do you need a transfer agent well that's a good question well but from the regulator's standpoint

15:07their focus is well it's got to fit into the 34 act so that's what we're working through but all the major players to your question in all those buckets that have been around for 50 70 100 years are speaking to us the institutions they're all speaking to us now it all started with bitcoin and e primarily and the other tokens now they're starting to see the benefits so

15:32let me let let's talk about gamestop if i may yeah and what are there that can't happen when the evolution to the blockchain occurs because settlement times will be seconds we can actually do that right now in our demos and when we launch so is that really needed today uh yes you know it is it'll be available on our uh ats immediately so that's one aspect so

16:03you sell your stock you have access to your um currency immediately to buy something else or transfer it out whatever it may be there's zero counterparty risk that's very very important we have a permission blockchain so we have kyc and i know this is against everything from blockchain or anonymity etc but you know and as as traditional finance is uh is is embracing crypto

16:32you you do have to go down the kycaml um aspect for taxes governments et cetera it's unfortunate but that's that has to happen but there's zero counterparty risk you do a trade there's a match you have no issue regarding um whether the other party will actually deliver and let me uh just give you one more example which i think is really critical for digital

16:57securities so with bitcoin we've all heard the stories bitcoin in the eth you lose your uh you your uh 20 you know uh 20 words or your um your ledger hard um i'm sorry i'm just skipping over this but uh uh your you know your ledger cold wallet you lose it you lose the 20. you just lost five million dollars in bitcoin and it's gone forever now with digital

17:22securities that doesn't happen so if there's fraud of some type there's a uh cap table that's real time that the issuer will have that particular cap table if for whatever reason my name or my wallet is tied to it and someone else has stolen it they won't be able to sell it and what the issuer can do is burn that particular digital security and then

17:49reissue it to me so there's a level of safety with digital securities that is not in place in you know typical crypto and that's very important to the regulators that was one of their concerns one other aspect just to give you a sense of what we saw during the approval process you must have gotten the question about what is a minor and how does a minor

18:13impact a transaction and you and i will sit there and go well that's not a big deal you know that's that's just how the blockchain works but for the regulators it was a big deal because their concern was can a miner stop transactions have an impact on transactions so uh you know we answered the question we answered the question we kept answering the question eventually they

18:39they understood what how we viewed it and uh again uh you know i i you know the seeing the regulators move in such a positive way now they're not as quick as anybody would like but i'd probably put that at the top of the list um in two years uh we've just seen a tidal wave from our perspective not only of interest but also just education at the regulators which

19:08you know is a big positive definitely and a lot of great points there pat and we we are short on time but i do want to ask you some final questions in terms of the near-term success of digital securities and taking the next step what do you think will some of be some of the key factors to the success of digital securities in the next 12 months okay fantastic question

19:33implementation having quality issuers liquidity volume on the ats's this is a broad ecosystem you know there are several players in this particular market all uh focus on slightly different areas but a rising tide lifts all boats we want to see honestly everybody succeed whether you know our ats there'll be other ats's as well uh so from our perspective we need some

20:01quality issuers volume it'll draw in the institutions and with that i think this market will take off and it'll be faster than what occurred with crypto because traditional finance understands securities already we're just moving it over to the digital uh blockchain world so you know i again i i'm saying three to five years i'm sandbagging a little i

20:29think it'll be a lot sooner i think in the next 12 months uh you know there will be a couple of hundred issuers across ats's and there'll be an ample enough volume that uh the large players will start getting involved it's definitely an exciting time and for the viewers and institutions or anybody else that's interested in just learning more about digital securities uh the work that

20:53you're following and about oasis pro markets what's the best way for them to learn more great well we launch in june july time frame we have a website uh oasispromarkets.com uh it's going to be updated within the next two weeks but there is a subscriber link so i would encourage your your viewers to subscribe uh we will have a lot of information coming out in

21:19the next couple of months we're going to have defy investors we're doing a strategic round right now we're going to have some defy investors traditional investors which we're really really excited about who believe in our vision and our view and what we've talked about today so please subscribe and ash and i'd love to come back after we launch and talk about you know what we've learned

21:43definitely and i would love that too pat i will leave uh the link to that in the description box below for the viewers as well all the best with oasis pro markets leading up to that and let's follow up in the near future fantastic thank you ashton you