Among the various use cases of blockchain, Otonomos—a brainchild of FinTech entrepreneur Han Verstraete—is looking at building a “blockchain-chartered company”. With Otonomos, you can incorporate your company by simply opening a digital share wallet on the blockchain. Once opened, you can transfer shares peer-to-peer, e.g. to investors, or even to create a market in your equity. And by virtue of the shares being “smart” pieces of code, Otonomos helps you automate a multitude of governance-related operations, for instance boardroom voting or capital increases. Otonomos was one of the 10 companies selected to participate in Startupbootcamp FinTech Singapore 2015.
In the first part of his career, Han worked with Goldman Sachs in London as an investment advisor. In 2001 he started his first venture by co-founding Marquis Jet Europe, which in 2004 was sold to Warren Buffett’s NetJets. He subsequently started “YachtPlus,” a provider of shared ownership in a fleet of Italian-built luxury yachts, Han got über-architect Norman Foster to design. Han used the time since his last exit in 2008 to get into the bitcoin and crypto-movement, which resulted in his idea for Otonomos.
We had the opportunity to interview Han to provide his vision for Otonomos, his views on blockchain technology and how it could potentially reshape the architecture of various services in the real world.
LTP: Could you give us an introduction to Otonomos as to how it started and what key solution it provides?
Han: We increasingly see that the underlying Bitcoin protocol could become a ledger for broader financial assets. Cash was the blockchain’s first application. Traditionally, it’s held either in banks or under people’s mattresses so to say, and Bitcoin made cash digital. Commodities especially gold is next: by linking digital tokens to a physical bar of gold or any other commodity, its ownership can be irreversibly documented hence it can be exchanged peer-to-peer. But if you look around for broader financial assets, more than 80% of the world’s financial value is held in a legal container called the limited company. So we are bringing company shares on the blockchain.
Two things to keep in mind are: 1. We focus only on non-listed companies and not listed companies, as we feel that apart from the stark regulatory distinction between the two, the clearing and settlement of listed stocks on a distributed ledger still has challenges to overcome, although that may only be a matter of time as the technology develops and new blockchains replace previous ones. 2. We are doing more than merely linking the actual share certificate of a real-world company with a digital token. We are making the actual company shares a bundle of code, a computer programme, if you like to make them “smart”. Making this work with real-world companies in a number of jurisdictions is perhaps what sets Otonomos aside from some of the other plays that link a physical asset (in some cases, even a company share) to a token on the blockchain. In order to do that, we need to work with a blockchain 2.0 concept.
LTP: Could you elaborate on the “non-listed companies-only” concept? And do you see this moving to listed companies anytime in the future?
Han: At some point in the future, the distinction between a non-listed and listed company, or private and public company, will become moot. You’ll have a continuum from a founder’s or group of co-founders’ genesis shares to a first angel round to a broader outside investor round, to a crowdfunding raise, all the way towards a fully publicly traded company. However, in regulated minds today, they don’t see it as a continuum. They see it as a clear distinction and apply a different set of disclosure and governance rules. That’s why they are struggling how to regulate crowdfunding, whether to limit it to accredited investors only, or allow retail investors in, and up to what amount. At Otonomos we believe that companies who live on the blockchain will be a whole lot more transparent and that the way companies are built and grow in today’s distributed economy, with collaborators working together on a project from various locations around the world, will eventually erase the line in the sand between a private and public company.
LTP: From Otonomos’ point of view, what stage are you in its development? What is the process that is followed for a company to be blockchain incorporated? And also, do you have any existing clients and any funding that you have raised?
Han: We are incorporated in Singapore, funded largely from own funds and to a certain extent, from the Startupbootcamp. We now just opened our first outside round and want to make this work here in Singapore and then scale to other jurisdictions.
Already you can order a company from us by simply opening a share wallet. It takes less than a minute on our website. Once ordered, we take the actual formation off our end-users’ shoulders and do the offline analogue incorporation with the official registrars in our back-end. To get the actual charter, it takes around 24 hours here in Singapore, and we them “upload” your shares certificates and give you access to an online dashboard and your cryptographic key pair to manage your share wallet.
So it’s not entirely correct to say we are “chartering” your company on the blockchain. We call it a Blockchain Chartered Company or BCC, but in the real world the only way that a company could be incorporated is by a government authority, like ACRA in Singapore or Companies House in the UK, etc. This too may change and may be in the future, we would be able to issue digital tokens on the blockchain and call them shares and be incorporated. But for now, we still have to link it with the real world.
LTP: What’s the size of the team that you are currently operating with?
Han: We have a typical structure that we like to call “Hackers, Hipsters and Hustlers.” On the Hackers’ side—the coders—we have a group of people around the founder team of Ethereum, the blockchain we use, or with deep knowledge of the protocol. It is a typical, distributed setup with coders working from New York, Toronto, Japan etc. and committing to our code repositories. And then we have the Hipsters who make everything look beautiful (in terms of front-end coding, i.e., HTML, CSS etc.). And then there are some key advisors—typically on the legal side. We have a Fellow of Stanford’s “smart contracts” group and a Singapore-based US securities lawyer who helps us on the legal engineering side. The overall size of the core team would be around five Hackers, two Hipsters, three advisors and me, as the CEO and head Hustler of you want!
LTP: What are your thoughts on the security aspect of using blockchain for various non-bitcoin purposes and how it’s being implemented in Otonomos?
Han: There was a poll during our demo day, asking “What do you think would be the most innovative area in the FinTech space in the coming years?” Blockchain came first. In my view, Bitcoin is perceived more of a threat by governments as it has the potential to replace fiat currency. There are also KYC/AML concerns, because as such there is no link between you and the digital currency wallet that you have created, so it is possible to do pretty anonymous stuff with bitcoins. That, in turn, lends itself to certain purposes that investors don’t want to touch and governments are averse of.
If you compare that to uploading a company share and creating a share wallet with us, it will be known who you are for two reasons:
1. Most governments don’t allow bearer shares, so you do need to link shares to an owner. 2. If you have your share sitting in a wallet that we created for you and you lose your private key, it is perceived unfair that you would lose ownership title to your shares. So we need to build in a recovery mechanism that would allow you to recover your wallet. That is in sharp contrast with Bitcoin, where if you lose your private key, your bitcoins are lost.
LTP: And how does the recovery mechanism work in the case of a smart share or in cases where the owner loses his private key?
Han: Essentially, there would be a multi-signature mechanism in place. When you create a wallet with us, you are given a primary key pair and a secondary. The latter is only to be used in case you lost your main private key and will need to coincide with two further signatures in order to recover your first key. So you only hold a third of the second key, with the other third held by Otonomos and the last third with a trusted third party, which typically is a legal person. As a result, we never get to see your main wallet private key.
LTP: On a final note, you are based out of Singapore and are making this work in Singapore. What are your expansion plans beyond Singapore?
Han: Yes we first want to make this work in Singapore. We believe we have the right confluence of factors here to engineer this in a controlled environment with benign regulators and supportive investors. We’re all disciples of Peter Thiel’s Zero-to-One where he espouses the virtues of first making sure you’re a big fish in a small pond with monopoly price setting power! However the ambition is definitely to bring this to other jurisdictions soon. We want to be in all major jurisdictions, those where you see a lot of companies being incorporated like Hong Kong, the UK, and Ireland, the usual suspect offshore ones like BVI, Cayman etc. but also the US.