Tokenizing Real World Assets with TOKO

Oh welcome to gossip about gossip. Powered by Hedera Hashgraph. And each episode will cut through the hype of blockchain promises and explore real world examples of organizations creating the next generation of decentralized applications, which will bring trust back to the internet for us all. Hello everyone, and welcome to the latest episode of gossip about gossip, the podcast where we talk about real world applications of distributed ledger technology. My name is Zenobia Gottschalk and I'm the SVP of communications here at World's labs, helping to grow the ecosystem. I am joined by Andy gast, work with DLA Piper and Tokyo. Hi, Andy. How are you? Great how are you? Good, Thank you. We're going to do a little bit of a separated podcast today. We're going to talk about two different topics. One in today's session and another in the second episode that will air later this week. For this first one, I would love to focus on your role at DLA and toko. I know a number of folks in the ecosystem know what that is. But for those who don't, can you tell us a little bit about the Genesis of toko and the development and growth of the platform to date? Sure and Thanks again for having me. It's a wonderful opportunity. So I'm Andy Ashworth. As Zenobia mentioned, I am the Chief Innovation Officer at DLA Piper and I came here about 4 and 1/2 years ago. I was tasked with basically creating new alternative revenue businesses that were outside of traditional legal services. And one of the first things that we focused on at that time was building a digital creation, a digital asset creation platform, which eventually became Tokyo after some various working names. And really what we're doing at DLA and with Tokyo and as part of the Hedera council is really carving out new territory. And one of the things that I love hearing from folks is they say, well, how did a law firm, which is usually not so progressive, get involved in doing work like this? So it's been a great journey. We've been happy to be part of Hedera for really the most, I guess, past four years or so. And it's been a very interesting journey that we've had a lot of lessons learned from it, which hopefully I can talk to you about it today. Awesome we are looking forward to diving into this. I think your question was spot on, right? Like what is a law firm doing getting into the asset tokenization business? So once they get beyond that first question, what has the feedback been from the market like? What kinds of assets are you seeing customers wanting to tokenize? So we really we had two main missions in what we were looking to do with asset tokenization. And if we look at our traditional legal work, whether an asset is real estate or natural resources like a mine or infrastructure, artwork, whatever it may be, anything that you could consider as property, even intellectual property, the ownership of that can be fractionalized just what it would normally would in any sort of a corporate operating agreement. The difference here is that we're leveraging technology and tokenization to actually put the ownership of those assets out onto a distributed ledger technology in this case, Hedera. And we're just changing the medium of which the ownership can be represented, the provenance can be fully tracked. And we can also give additional security, kyc, AML, to transactions that normally would have to go through a lot of due diligence over and over again. And we're avoiding a lot of those intermediaries. But the two real main things that we were looking at in asset tokenization, if you take commercial real estate like let's say $100 million office building, the first thing is that's not a very liquid asset. So what we wanted to do is we wanted to create liquidity for assets that traditionally have poor liquidity. And then the second part of it, and this is really an important thing, is we're really creating a democratization of access to these assets. Silence Whereas before, if you were going to be an investor in $100 million office building, you would have to have significant funds and resources and probably know the right people to be involved in a asset investment like that. If we can fractionalized and make the investment available, the asset available to the masses, then we're really doing something. And by creating that democratization and giving access to it, we're also creating further liquidity for the asset. So that's something that's very interesting to our clients who traditionally do business and have these type of assets. So we're still doing the same legal work. But toko enables us with the platform to drive those two major initiatives which are really game changers. And is that why organizations are choosing you? I mean, it feels like there's a lot of different tokenization platforms available out there. Yeah, I think that. The combination of what we always set out to do was our clients want us as the trusted advisor when we're doing any sort of business deal with them to make sure that we're avoiding risk, we're staying compliant. All of the regulatory bodies that would oversee whatever the deal may be are properly being addressed and that our clients can feel good about what they're doing and know that they've mitigated risk. This is really just another way to go about it. With tokenization and the combination of the law firm and the technology platform is really unique, not only in our industry, but this is why people are coming to us. They know that they can be trusted, that this is something that they can do and they can stay out of trouble while doing it. And I mean, this is no small feat. You guys operate in so many countries and jurisdictions. How do you deal with the regulation of tokens if there is regulation in these various jurisdictions? Again, I would say, actually, that's one of the current challenges. Depending on where an asset is, what type of asset it is, where the investors are located, how it's going to be structured that is going to make it potentially difficult to actually move through the process of tokenizing an asset, getting it out through a broker, dealer, a custodian, and then eventually onto an exchange. And part of what we're doing is not only doing the traditional legal work and structuring the deal to make sure that folks are doing things the right way and that they're not introducing risk into their business. But then the other side of it is with all of the integrations and partnerships that we've built out globally, what we can do is we can help find that solution of the proper. Once we've minted the tokens who's the proper broker, dealer, custodian and eventual exchange and what type of token it should be and where it will be traded and even which geographies can have investors coming from there or not. So again, it's that planning all the way through. But until as digital asset tokenization comes along further and all of the governments are able to say, OK, this is how from a regulatory standpoint, this is how we'll interact moving forward. This is what the set law is. It's often challenging for us to find the solution at this point to move someone through. But we have been able to do that for everyone that has come to work with us at this point. Fantastic and so it sounds like people are coming to you because it's a combination of the platform, plus all of this expertise that you have on the legal side. I think maybe the flip side of that, though, is it's probably not that often that DLA Piper or law firms go out and build software. So how has that experience been building that, building the platform? So it started off with a proof of concept about really about four years ago where we went ahead and we just wanted to see, hey, could we actually tokenize something? And at that time we weren't involved with Hedera. We had built something in the cloud on with Ethereum. It was extremely slow. You know, when you're again, I'll use that $100 million office building if you're tokenizing that type of asset or you're trading or buying and selling ownership, you know, you can't wait minutes to hours to see if your transaction went through. So that was very discouraging. You know, we knew technology would come along. But then very fortuitously, Scott Thiel, who is one of the founders of Tokyo, he was in New York and I was in New York, along with Mark Radcliffe, who was also active in the Hedera counsel to really talk to Hedera and see what you guys were up to and being able to meet at that time, Mance and Lehman, and really talk through why Hedera was different and how it actually might address the performance issues along with really having an enterprise focus, which is our sweet spot with the clients that we deal with. That's where things started to come together. We have had a very long development road as with anybody who's been involved in developing a product, whether it's software or something else, you know, you always have that combination of this seems like something we should build. And then when you're halfway through building it, someone else has already created the functionality and you incorporate it or create relationships and partnerships. So it is a lot of that. But I will say the one thing that really worked out for us is that if we had gotten to market earlier, let's say two years ago, we would have been too far ahead of the market. So in some ways it was a blessing that it took us longer to get to production, but the market wasn't ready for us yet and we happen to really be in a very good place where we hit with our capabilities when the market was. Really starting to embrace it. So that's definitely a lesson learned of, you know, you always want to move fast, but you need to be gauging the market and make sure you're not too early to the market where you don't have any business to do. We would have died on the vine if we had gotten there two, 2 and 1/2 years ago. Yeah, and I think you make a good point. I in some ways, it's like it's like children, right? The days are long, but the years are short. I don't think people realize how much effort goes into building these kinds of products and how much time and energy and thought around what that entire ecosystem has looked like. And also, I would say, since we're a global firm and we do have resources everywhere, Scott and his team are located in Hong Kong. I'm on the East Coast of the US. When somebody figures out how to get rid of time zones and make everybody on the same time, life will probably be a lot easier. It's made for some very long days and 6 day weeks, certainly with Hong Kong coming on board earlier. So there still are a number of things we haven't solved as a civilization at this point, which have made it difficult. Yes, I think that's certainly a multi-trillion idea. But you mentioned that was one of the lessons learned in terms of time to market as you think about guiding other organizations, big or small. Any other lessons that you'd share with them? Yeah, I think especially if your main business is not agile software development, it's often challenging, and especially in larger organizations, you'll have leadership who will come to you and say, well, you know, let's just throw more developers at this that will make it go faster. What you have to know is that actually, I believe that a smaller and more agile team, you know, we have great partners with Luther systems, with CCW. They were critical in working with us in a very agile methodology to get to market. But what I always tell my leadership is this is not a coal mine. You just can't throw more coal miners at it to dig more coal. It just doesn't work that way. And then also having the flexibility in an agile or DevOps methodology where, you know, you have to expect that things are going to change as you go, whether things are coming to market or you realize that there's a feature that you need to build in or an integration you need to build in, and that flexibility that smaller team allows for better communication and collaboration. And that's definitely one of the things that allowed us to be successful. OK so, Andy, say somebody wants to do something like tokenize, a real estate asset, a big building. Can you walk us through the process, how that starts, how it interacts those transactions interact with the Hedera network, the whole lifecycle of that? Sure so the first thing that we would do is if someone reaches out to us or it's an existing client and in your case, you know, like you said with the real estate as the example, we would do first a quick feasibility study making sure that the type of asset that they're looking at, where it's located, who are the potential investors, where they're looking to get to from an exchange perspective, and who might be the folks that would actually be participating in the deal overall? We want to make sure that there is a path to doing that. And what we have done is through our partnerships and integrations, we will do all the legal work and then we'll mint the tokens according to whatever the parameters are for the deal. But we're not a broker dealer, we're not a custodian and we're not an exchange. So all of that work is through partnerships and integrations that we've built into the ecosystem system. The main thing that we really need to make sure with the clients is that when we're going to do a deal is that they have a risk mitigated way to basically deliver that all the way through. And that really is the biggest challenge, as I mentioned before, that we depending on those geographies and the specifics of the deal, finding the right broker dealer, the right custodian and the right exchange that these people can do their business on is the key thing in shepherding the deal from the traditional legal work and the minting of the tokens all the way through to a client getting onto an exchange and being able to buy and have their tokens bought and sold accordingly. The other part of it is also talking to them about where is this going to live? So our first default response is always based on the speed of transactions, the low gas prices, our cost of transactions and the energy efficiency of Hedera. We would prefer to see them on the Hedera token service. If they insist on moving out to another DLT, we can support that. But where we're always starting for those main reasons, as well as the risk mitigation and the enterprise approach of Hedera along with. The public facing part of it. We feel that that's the best place for them to land. Well, we love to hear that. So, Andy, you know, I think we are obviously in a crypto bear market. And while that's never great to see, I think as you look at traditional technology cycles and life cycles, that's where a lot of the innovation happens. And where a lot of the real building can get done. So as you look ahead for Tokyo, what do you see happening in the marketplace? And can you give us a preview of what you all are going to be focused on for maybe the next 6 to 12 months? Yeah so I think you hit on a really important part. You know, there are attorneys at our firm globally who do work with in crypto, but that's not really the focus of Tokyo and it's really not the focus at all. We're looking at, again, digital asset creation. We're basing it on real world assets. We do also do NFTS, but real world assets is where I think the differentiator lies for Tokyo. And it's important to explain to people when you're coming in with a solution that's a DLT solution or a technology solution and it revolves around tokenization. The first thing you have to make people understand is this is not crypto. Let's move on to what we're actually solving as a business problem here and how we're moving you through again in a risk mitigated fashion. But to answer your question about what are we also focusing on? Asset tokenization is one part of Tokyo. And then there's another very large part of Tokyo, which is really wrapped more around environmental, social and governance, ESG. And that's a very hot topic. And when you look at, again, our clients, if you look at large pharmaceutical companies, technology companies, these companies have very complex supply chains. They know they need to drive towards sustainability and they need to be able to manage up and down that supply chain or just through their business processes. And it's really important for us to continue building out our ESG capabilities. We have excellent calls and references at the firm from a legal and regulatory and compliance standpoint for ESG and especially over in the EU. Obviously, that's been much more accelerated than it has in the US. But this is what we see is really one of the largest business initiatives that will have from a legal services perspective as well as technology perspective on Tokyo. And we have been building solutions with other council members at Hedera as well as with partners and industry to have additional differentiators. And I think the important thing, again, just like we were talking about before with not start making people understand this is not just a crypto play, if you will. What's important with ESG is just because it is driving towards sustainability and because it may be supporting a green initiative. That doesn't mean that what we're actually working on with our client is not a profitable endeavor for them that has a strong business case and return on investment with the added feature of their driving towards sustainability. So that's something that we always focus on. If we have a strong business case, we know we have a good discussion with our client ahead of us and then we can help them drive towards that sustainability while solving actual business problems with tokenization and Hedera as the DLT. Awesome Thank you, Andy. And I think you may be giving us a little bit of a sneak peek into the next podcast, but we will hold off on talking about that. ESG is a hot topic and it really threads through a lot of things. And it's really applicable to everyone, and that's why I think everyone should, between this podcast and the next, investigate ESG a little bit and we'll be talking about how we're really driving towards that on Hedera. Indeed Andy, Thank you so much for joining us. For the audience here, please stay tuned. We'll have another episode with Andy coming up very soon. And Thank you so much for your time today, Andy. We'll chat soon. Thank you very much. And anyone who's interested in Tokyo. You can find us on the internet at Tokyo network is our official website. And Thanks again for having me. Awesome Thank you.