Russia’s Role in De-Centralizing the Business World
Globalization increasingly, it seems, is yesterday’s news. The wave today is about de-centralization, be it hegemons or central banks. This is the blockchain of things, DLT (Distributed Ledger Technology) and the technologies that have already formed their foundations and are proceeding to develop strongly. This applies to currencies, property, banking, trade, knowledge, governance, health and security, or areas still not thought of.
As new waves of technology take hold and embed around the world, they change the way we live, work and relate to each other. The pace of innovation differs from country to country given the variables of infrastructure, or lack of it in each place.
Over these past 10 years e-commerce, mobile telephony and Fintech in Russia have evolved at least on a par with developed countries – if not faster. This is called the ‘leapfrog effect’, where the absence of established infrastructure or systems in certain areas enables nimble adaptation and use of technological innovation.
This week’s World Economic and Blockchain Forums at Davos Switzerland, in the absence of the usually attending showy political faces who no doubt had other fish to fry this week, like Brexit, Venezuela, etc. The focus was more concentrated on the business of the world and not on newsy fluff.
Russia, Russians and the Russian markets have and are making their presence felt in this business wave of blockchain technologies as it grows from the conceptual to actual applied systems. One such example is Russian entrepreneur Valentin Preobrazhenskii, the founder and CEO of the LAToken who are strongly represented at Davos this year.
The LAToken platform (short for ‘Liquid Asset Token’) tokenizes virtually anything from real estate, to bank loans, to works of arts or even antiques. The idea is to provide asset owners with a new way to gain liquidity, by selling tokenized fractions of their real-life assets with minimal transaction costs. While keeping the actual assets for their use, owners do not need to borrow money and pay interest.
What they are is a cutting-edge exchange for tokenized assets, services and money. Their exchange brings assets ranging from equity and commodities to real estate and works of art onto blockchain so that people can trade them in cryptocurrencies. By doing so, they bridge the traditional and crypto economies; making capital flows faster and smarter.
Security token offerings bring the perfect balance between ICOs and IPOs by giving access to capital at a relatively low cost while allowing entrepreneurs to remain compliant with securities regulations. Security tokens present investors with an outstanding flexibility by unlocking a variety of asset classes to include real estate, venture funds or artwork.
Tokens linked to real assets may very well be the future of capital markets, as blockchain technology continues to solve the problems of custody and trades settlement. This has already allowed startups to skip VC and private equity stages and access public financing by issuing their own utility tokens. The next step for the industry is to issue and trade tokens representing equity which are now being actively developed to be compliant with regulations for many parts of the world.
According to estimates, the turnover of asset-backed tokens may exceed $1 trillion by 2025.
Another example along similar lines of usability is the American company RELEX represented by T. Michael Lutas and Artem Dorokhov, with project interests in Russia, Southeast Asia and USA. They too attended at both the World Economic Forum and the Blockchain Economic Forum this week in Davos at the specific invitation of LAToken.
There is a synergy, which is illustrative of the use of security tokens and the bricks and mortar business of construction, development and real estate. In this case, a property development project in Vladivostok Russia, which is open for funding. As they are approved as of August 2018 to list on the LAToken exchange, their secure tokens issued for the development project can be traded. In this case, the currency medium is Etherium, which is easily purchased worldwide, and is then used to buy the secure token called RLX, issued by RELEX, which can then be traded as needed on the exchange.
In this example of crowdfunded, real estate investment project, the investment company purchases a specific investment property and transports the fully digitized property title as an asset into their blockchain system by means of a smart contract. The asset is then subdivided into fractions – or tokens –, which are offered for sale to investors. Token ownership gives the holder a proportionate right to the regular income of that specific property (such as rentals received), and a similar right to the capital proceeds should the property be sold outright, or can actively trade the tokens on an exchange at any time 24/7 online.
This is illustrative of the point that the tried and true ‘traditional’ paths of conducting business or investing internationally are becoming, or already have become restrictively impractical. Free trade has an energy that, like water, finds its own level. This is clearly seen in the development and increasing acceptance of those new technologies that can optimize the processes of business, and reduce or eliminate procedural blockages, and opens the door of affordability to previously price-inaccessible opportunities.
It is worth noting that the share of foreign investment in Russia’s real estate for 2018 has broken records since the start of sanctions in 2014. The share of foreign investments in real estate in Russia as a total volume of transactions increased when compared to 2017 by some 24%. This is the largest share of foreign investment since 2014, when it was 39%. The pricing on the Russian market for real estate is currently quite attractive. However, despite the visible potential, many are still afraid to come to Russia due to fear of increased sanctions pressures and banking/trade restrictions. For these reasons and reasons linked to transferring currencies such as the US Dollar, Euro or other through costly, sometimes convoluted banking practices, the future of cryptocurrency and secure token transactions like the RLX and similar look well placed to grow strongly over time.
One thing that seems to be clearly apparent from the Davos events is that the learning curve among international business as relates to acknowledging the blockchain and its functionality in the real world has gone into overdrive. In addition, now that the initial euphoria of the cryptocurrency concept has passed, the era of utilization of crypto and secure tokens as applicable financial tools has begun.
As a postscript, J.P. (John Pierpont) Morgan opined, ‘gold is money, everything else is credit,’ may have to be amended a bit to now include hard asset-backed cryptocurrencies and secure tokens. There are assuredly interesting, disruptive times, where adaptation to the decentralized ‘new’ is the challenge.