From ICO to STO — Lessons learned!?

Stefan Perlebach - We are pleased to welcome Grant Gulovsen for our weekly Interview on Security Tokens. Grant is a licensed U.S.-based intellectual property attorney with over 20 years’ of transactional and litigation experience. He has been actively involved in cryptocurrency and blockchain since 2013, and has advised dozens of blockchain and cryptocurrency startups, guiding them through successful ICOs, airdrops, exchange listings and Reg D exempt digital security offerings. Source:

Enjoy the Interview.

How you are involved in the Security Token space and what drives your interest?

I started practicing what I refer to as “cryptocurrency law” in 2017, which is when I first started hearing about these things called “initial coin offerings” and was amazed to see how much money they were raising, especially given all of the regulatory challenges they faced. It was obvious that the number of active, qualified legal practitioners was insufficient to handle the demand, and since those sorts of opportunities don’t come around very often, it was a very easy decision for me to take the plunge.

When I first started hearing about STOs at the beginning of 2018, I was initially very skeptical, as I was still drunk on the Kool-Aid being handed out at all the crypto conventions. As time went on, however, I started to see more and more abuses and when I began investigating websites like ICObench, it became abundantly clear that the ICO fundraising model was broken. That’s when I began looking carefully at STOs.

What is the biggest misconception people have about Security Tokens?

That they are ICO 2.0. Nothing could be further from the truth. The only reason ICOs had any appeal at all was because of the spike in crypto prices coupled with the fact that a few very savvy investors were making a lot of money on them. This attracted hordes of retail investors wanting a piece of the action. In nearly all cases the only thing they got was a bag of worthless crypto because the smart investors had already taken their profits.

The liquidity of ICOs made them easy to manipulate, and that’s the only reason they did so well. Once everyone figured that out, right around Q4 of 2018, well, you can see the charts for yourself.

“Liquidity” in the context of Security Tokens simply means “more liquid than traditional securities, at least in theory, eventually.”

How far are we when it comes to trading of Security Tokens? Where do you see the biggest problems and how/when will they be solved?

The biggest problems I see are enforcing restrictions on a public blockchain. You can disintermediate quite a bit of the public and private securities markets, but I don’t think you can disintermediate the whole thing. Too many vested interests. Bitcoin is an enigma. I think it’s a wonderful enigma, but trying to make everything as completely decentralized as Bitcoin isn’t necessarily a smart idea.

10 years from now — what will a non-accredited retail investors be able to do that they can’t do today?

I expect that it will become legally permissible for retail investors to invest in companies and other assets that were previously unavailable to them. Exactly what that looks like remains to be seen. There is an enormous amount of discussion happening at the crossroads of law, technology and finance by some brilliant people so if you’re into that sort of thing it is a very exciting time. Digital securities open up countless new ways to approach capital formation.

Are there asset classes for which tokenization makes more sense than for others?

I think so but my opinions on that are based almost entirely on what other people have told me, so I don’t want to take credit for any of it. Dave Hendricks of Vertalo would be a good person to ask in that regard.

If you would raise funds for your Startup, would you use an STO for it? Why or why not?

No. Not today. The economic barrier of entry is too high.

It will take several years before the promised benefits of private digital securities outweigh the costs currently associated with them.

Imagine you are investing into a Startup. You can opt for either tokenized shares or non-tokenized shares. Both for the same conditions, what would you choose?

If the question is whether I would opt for digital securities representing equity in a startup vs. traditional shares representing equity in a startup, as long as everything else was equal I would opt for the digital securities. Eventually all securities will be digital securities so I see no reason to postpone the inevitable.

I would add that, as I mentioned in my previous answer, until digital securities actually begin delivering on the promises being made about them, I would just as soon select the traditional securities if there was any extra cost to me (as an investor) to selecting the digital securities.

And that raises another important issue: As long as digital securities have a higher cost of entry for the startups themselves, then by definition they are more costly than traditional securities for everyone because paying that cost depletes the assets of the startup.

Can you name one thing you believe in regards to Security Tokens most other experts within the industry would disagree with?

I would actually disagree with the premise of that question, which suggests that there are any experts in this industry (yet). In fact, the people whom I respect the most and who I believe are the closest things to experts in the industry all admit that they are not experts yet because there is too much to learn and it is constantly changing.

What was the most valuable lesson you learned in the past year?

Probably that everybody in this industry is a little bit crazy. I think most of us who aren’t in it just for the money are all a bunch of misfits in one way or another. Everything about blockchain and cryptocurrency appeals to our sense of being different, i.e., not the status quo.

The fact that the technology is not easy to understand makes it almost like a super secret club, where only certain people are allowed entry, For people who always felt like they didn’t belong, that is incredibly powerful. I think it is also dangerous, especially when people start treating it like a religion, as some people seem to want to do.

Who is your favorite super or real-life hero?

That would be my wife Sarah and daughter Clara, for having the strength to put up with me as I get more and more involved in this industry. It’s a non-stop learning experience and takes an inordinate amount of time to really grasp everything, both good and bad (and as an attorney I have to be conscious of both). So the fact that they allow me to get so involved and still support me is pretty amazing.

Thank you for the Interview!

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