Owning Parts Of Race Horses, Sports Cars and Andy Warhol Portraits

Transforming Analog Ledgers to Tradeable Digital Assets

Topics: Private Equity, tokenization, Tradeable Digital Assets

Host: Anthony Noto , Benzinga Editor

Featured Guest: Dave Hendricks CEO of Vertalo

Founded in February 2017, Vertalo solves the most critical challenges facing the digital asset economy today.

Transcript:

Tony Noto: Welcome to the Benzinga Interviews podcast. My guest today is Dave Hendricks, CEO of Vertalo. Those who are unfamiliar with Vertalo, why don't you tell them a little bit about it?

Dave Hendricks: We started in 2016. I was living in London. And so initially we started working on a problem using Ethereum Smart contracts to do human capital due diligence. It was a graph where organizations could connect with their associates, people that worked with and for them, and that would be validated on a blockchain.

So in October of 2017, we created this entity in the Cayman Islands. It was called initially called Certifiable Technology. Then we settled on the name Vertalo

.

We work in the securities context and we tokenize securities.  

Vertalo’s platform allows companies to streamline digital asset management and create liquidity.

Tony Noto: Do you think that the folks in charge over at Binance and Coinbase are gonna have a branding issue? This scrutiny from the SEC it's a negative for the industry. What is your take?

Dave Hendricks: I believe that people should be able to invest in things that they want to invest in.Take a look at Wall Street Bets. You know, wall Street bets is out there, saying whatever it wants. People are posting there, they're providing advice, people who don't understand the underlying, you know, KPIs and metrics and, the industry that they're investing in public equities and they don't know anything about, you know, how a theater is run or what the foot traffic is at a GameStop. They don't know anything about it. But they're part of these, you know, piping schemes in public shares, and no one goes after them. And there's substantial risk in buying and selling, puts and calls. But, you know, people are out there doing it .

Crypto is generally a private market, right? Cuz they're not public equities. They have not gone through an IPO process. They're all private. They're kind of two sides of a coin pun intended, right? Vertalo is on the regulated side.

I've got a former SEC attorney as a co-founder. But you know, that doesn't mean that I think that the issuers of digital currencies should get slapped or shut down. The buyers understand that there's risk here. This is actually quite a knowledgeable buyer base. I think that people should be free to make and lose money as long as no one else is physically harmed.

Tony Noto: Do you think that the FTX kind of ruined the show? 

Dave Hendricks: FTX is an example of malfeasance. I don't think, I don't need to say anything about FTX. I think there's plenty out there that proves that it was a scam. And, and, and, you know, then I don't even consider that blockchain, by the way. That is just like bucket shop scamming, boiler room stuff.

Coinbase, on the other hand I am very, very confident. And by the way, full disclosure, Coinbase is an investor in Vertalo

Bad actors need to be punished, but I don't think Coinbase is a bad actor. And I don't think Kraken is a bad actor. I don't know. I don't spend a lot of time on Binance, so I don't know much about that.

Tony Noto: You're a big proponent of institutional defi. Why is that the future of regulated distributed ledger applications? 

Dave Hendricks: I'm generally a proponent of defi I think that there's some really great efficiencies.

The borrowing and lending process going through a bank is very expensive and time-consuming. Institutional defi is a logical next step for large financial institutions.

Institutional defi gives large financial institutions the opportunity to use the blockchain skills that they developed over the last years and productize that knowledge into offerings, which are step function improvement on current debt, credit and collateral markets.

And they can cut their internal costs, they can increase speed and they can, they can continue to do things with distributed ledger which should turn in ultimately to consumer products. JPM

 Onyx, and Broadridge is doing this. There's so much collateral out there. And these big institutions, it's kind of like they're just gonna end up maybe buying the tech at some point later on, or they're not really gonna develop anything in house.

This is called the Monster versus the Baby Problem. Okay. The, the, the monster is the existing revenue stream from the, the revenue producing product that the, that the company creates. Then, you know, the baby is this small startup in inside a large corporation, which is creating something which drives less revenue.

Apple went through this. The iPhone was the baby and the monster was the iPod. 

Since we brought Aldo's Digital Asset Securities platform to production, I've been able to test with more than a hundred clients. If we failed, it was all right. It wasn't existential, right? Big institutions are less able to do this successfully because they're less willing to test.

If a large financial institution tried to build something like Vertalo, which is a digital transfer agent literally manages data. For issuers and broker dealers, et cetera, their competitor, financial institution companies won't use it. Citadel tried to do something with broker dealer technology and it failed miserably because no one trusted them.

So no one wants to put their data on another. No financial institution wants to trust a competitor, financial institution with their data. So you need an independent. Third party, like Vertalo that can logically and physically separate data, and so that multiple financial institutions can use the same system to get some stability and some standardization.

Yet they have control. Over their data. Right. And that they're not worried about their, about data leaks. 

Tony Noto: You're quite active on Twitter, and you talked a little bit about the Andy Warhol pieces of art that have now been tokenized. Yep. I thought that was interesting. 'm an art guy myself but I don't know how I feel about classic pieces of art being tokenized.

How do you win folks like me over? 

Dave Hendricks: People like to be part of something. People like to join things, they like to be part of a community. It is very, very hard to buy a whole Warhol for 99% of people because the cheapest, Andy Warhol portrait is $600,000. Sure you can go buy the poster at the museum and you can put it up on your wall. But what if you could own a piece of that portrait? t's not dissimilar from NFTs. The difference is that the fractionalized and tokenized versions of Warhol's art issued by freeport.app. That is an actual legal representation of ownership of an actual Warhol and if it goes up in price or value.

Sure, you can sell, but maybe you just want to create a virtual gallery that you can send your friends to and say, here's my art collection. And that's what Freeport is doing.

We already do it with racehorses and sports cars. 

People who have bought fractional interest in racehorses have literally had horses in the Kentucky Derby. And the horse valuations have gone up like this. And so art is historically illiquid fees for buying and selling art at auction are very high. It's not a market that's easy to enter. And by working with freeport.app you are purchasing a fractional ownership of one of these Marilyn Monroe or James Dean or Mickey Mouse. You can be part of something and, and, you know, you're not there to flip it next week.it's not crypto like that. It's more like, Hey, I'm gonna put some money And if this thing goes up I'll benefit but I can sell it at any time. I think the Marilyn Monroe one went for $195 million. 

Tony Noto:  What other industries do you think will gravitate towards tokenization? 

Dave Hendricks: The VC equities, specifically LP interest in VC funds. I think it's a really ripe market because the VCs are not getting exits to distribute gains to their limited partners.

And so imagine 12 years ago as an LP you invested in a VCs fund that hasn't had enough exits. But you know, you wanna move on. And there's some internal rate of return (

irr) that has been, you know, from the markups and the investments in the portfolio.

You might see VCs getting pressure from their LPs to make them liquid. Well, you can create a liquid market out of LP interest. We talked about collateralization earlier. Debt is still one of the most antiquated markets, debt and credit. I think that real world asset tokenization works really well for making debt easier to buy and sell.

Real estate has been reluctant to adopt cuz it's one of the most, most antiquated anti-avian, as they say before the flood kind of markets. And it's a really, really fragmented market. But as their loans come due over the next couple years, you see this in San Francisco and New York and their buildings are not recovering Post covid.

They're going to have to sell off some or all of their interests in their buildings. And so if you're the owner of one of these large real commercial real estates or office buildings and you've gotta meet your loan requirements, we’ll sell off some of your equity to investors in order to stave off the collections so you don't have to turn your keys back while you wait for the return of people to the office.