Chris Cummock: When you have a complicated product offering like ourselves, it will bring light to a slightly murky ICO market. We think that we're bringing a really ready to launch ... this is platform. Our managers or the portfolio, which will paying a dividend, have over a hundred years of portfolio management. We bring together the world of banking, Wall Street asset management, and dividends and returns to the cryptocurrency world.
Doug Bridges: You're listening to the Blockcast Show where we talk with the world's leading entrepreneurs and innovators regarding blockchain technology in business. I am your host and technology lawyer, Doug Bridges, partner at Capital Legal Group.
Today on episode three of the Blockcast show, I'm speaking with Austin Trombley, Chris Cummock, and Eric Clarke of Vaultbank about how they're using their Wall Street experience to leverage blockchain to provide a unique investment firm.
Hey guys, how are y'all doing today?
Austin Trombley: Doing well.
Eric Clarke: Hey Doug, how are you?
Chris Cummock: Great.
Doug Bridges: I'm doing good. Hey, why don't y'all just sort of explain what you're different roles are really quick at Vaultbank, so that everybody can understand who's online right now.
Austin Trombley: Yeah, true. I'll start. This is Austin Trombley. I'm the CTO. My background is in economics, business, and an MDA in finance, but I've been an engineer for 15 years. I've consulted for Wells Fargo, First Tennessee Bank, Visa, some of the largest banks in the world, and I'll leave it to Chris then.
Chris Cummock: This is Christopher Cummock. I'm managing director at Vaultbank; co-founder. I've been the securities management, portfolio management for over 10 years specializing in tech ITOs, and I'm real excited to talk to you about VaultBank.
Eric Clarke: This is Eric Clarke. I'm the marketing manager at Vaultbank. Actually, I'm a three time entrepreneur, and I recently existed my last venture. I'm excited to be on the Vaultbank team and give some more information about what's going on at Vaultbank today.
Doug Bridges: At Vaultbank right now, you're getting pretty close to your token offering that should be happening next month, right?
Austin Trombley: Yeah, so our presale is starting this Friday, and the main sale is November 9th.
Doug Bridges: Is that keeping you pretty busy; getting ready for that?
Austin Trombley: Yeah, absolutely. We've been doing roadshows across the West Coast and New York getting more and more institutions involved.
Doug Bridges: Why don't we go over what sort of offering Vaultbank has and how it's going to be using blockchain to accomplish that. You've made some headlines with a lot of different things you're doing, but why don't you describe what your core offerings are, and how that uses blockchain.
Austin Trombley: Yeah, sure. We partnered with Ambisafe and the founder of Ambisafe is Andrey Zamovskiy. He was the chief architect of Tether back in 2010. If you really think about one of the biggest value propositions we have, it's that Tether means that you literally own a dollar in a bank account. The market cap of Tether today is something like $435 million, which means that there are 435 million tethers out there where there's a dollar in a bank account somewhere representing ... It was the first asset backed crypto. With what we're building, it's actually backed by secured credit assets. One of the yield of those assets actually go back and get paid back to the investor in one or two ways. One is by creating scarcity by purchasing bitcoins in the secondary market then as well as, quarterly dividends.
Another part of our offering is the Vaultbank debit cards. There's a UK bank called Falopa and Falopa has eight thousand debit card holders. Their debit card is so smart that if I, Austin Trombley, leave San Francisco, and I go to Italy. They know that the local currency is euros, and my default payment tender is US dollars. They'll actually swap dollars for euros. When you transact, you'll actually pay the merchant in the local currency in euros, and they do that at a very industry exchange rate. We're building micro services on top of that to allow the consumer to actually pay with Ethereum, Bitcoin, and Vaultbank token, so when you go to the point of sale systems, you'll actually be able to pay with ether, and it will actually transact to the merchant in whatever the local currency is.
I would say that the second part of the second part of this is Falopa does 17 fiat currencies. They're currently building out the capability to do a levered fiat investments as well. Aside from just supporting the major cryptocurrencies, we'll also have a very wide offering in the fiat as well.
Doug Bridges: With the token offering that's happening with the presale starting shortly and then with the full offering happening in early November, if somebody wants to get involved in that, how do they go about doing that? What happens with the money or with the tokens that they invest into Vaultbank?
Austin Trombley: Yeah, good question. Typically, the way that people partake and participate in ICOs is ... the easiest way is by ether or bitcoin out of their coinbase account. Coinbase is a centralized exchange, so you cannot participate in ICOs out of your coinbase account. If you try to you're gonna be just literally sending your money to coinbase. Typically what will happen is after you buy ether or bitcoin, you transfer your ether or bitcoin to another decentralized exchange; something like a Poloniex or an EtherDelta. From there, there's a smart contract sitting behind the Vaultbank wallet ID, so once you send it from you parity account into Ether or Bitcoin, the total amount that you want to invest into the Vaultbank wallet ID, which is with Order Book ... I highly encourage everybody go and check out orderbook.io. We're working with the Ambisafe team to help to develop the secondary market a lot more and make it much more robust. We're doing that in a joint venture with them as well after the ICO. After you send it through our Order Book wallet ID, the smart contract automatically exercises to the exact amount that you sent in in ether or bitcoin and will send back your Vaultbank tokens.
In order to make sure that your wallet supports ERC20 tokens, I highly suggest that you set up an Order Book wallet ID, and you participate in it through that e-centralized exchange.
Doug Bridges: Before they get involved in that, do they need to vet themselves as customers for you before they can invest in the presale?
Austin Trombley: Absolutely, so we do have KYC and AML, so we are filing as a security. We are registering with the SEC with the reg D and a reg S. As part of being a security, we are following all the laws associated with accreditation KYC and AML.
Doug Bridges: Let's talk about that a little bit because most companies who are in the blockchain area are doing everything they can to avoid being considered a security either by doing a SAFT transaction like Filecoin did, so that that was considered a security, but the coins, themselves, were not. Many companies who were trying to characterize themselves as utility tokens, so that they don't have to be securities or so they think. Obviously, the law is still somewhat up in the air with respect to The United States and the SEC. Why did you decide to make your tokens be securities?
Chris Cummock: I can speak to that, Doug. This is Christopher Cummock, managing director. We saw the ICO market and the whitepaper market and just the way the utility tokens were coming to market, and we thought that we could apply our skills as fund managers, as people with experience in banking and hedge funds, and apply the transparency and audited financial statements. We thought it was way smarter to register as a security token. There are less than six tokens in the world currently that are registered this way, and we welcome the regulation. We welcome the transparency that it requires. It did require to go through a lot more legal loopholes but in the end, we believe that's ... When you have a complicated product offering like ourselves, it will bring light to a slightly murky ICO market. We think that we're bringing a really ready to launch business platform. Our managers or the portfolio, which will be paying a dividend, have over a hundred years of portfolio management. We bring together the world of banking, Wall Street asset management, and dividends and returns to the cryptocurrency world.
Doug Bridges: With your token being a security, how does that affect its liquidity in how it can be ... You can't run on a regular token exchange for it to sit around with the regular laws.
Austin Trombley: We do. In order to comply with the local laws in being a security ... and we are going to invest in our ICO in The United States, there is a one year lockup. For countries like China and other countries where they don't have the same appreciation for accreditation, and they don't have lockups. It does not apply to them, but we do follow whatever the local jurisdiction or law is or from wherever you currently reside and live.
Chris Cummock: Yes, this information will be available on our website. It's roughly 15 nations, which either require an accredited investor status or a qualified investor status. We're gonna have a document, which clearly lays out which ones you're required which is only a few; two to three nations. Most are accredited status which usually means you need 200 thousand dollars in personal income, 300 thousand for a joint filing couple, or 1 million dollars in investible assets.
Doug Bridges: If they're an accredited investor, will they have to have lockup or just in The United States.
Austin Trombley: In The United States. Yes, they will. Outside of The United States, it depends on what the local laws are there. We'll have those posted. Our SEC attorneys are Gagnier Margossian and Shartsis Friese here in San Francisco.
Chris Cummock: Correct. We'll have a one page document detailing exactly which areas are locked up for a year, whether you need to be an accredited or qualified investor. Some of them, you just need to jump through some loopholes in order to purchase it, but then there is no lockup period. Other ones, you need to jump through the legal loopholes and then, also be locked up. We'll have a clearly stated document approved by attorneys on our website within 24 hours.
Doug Bridges: Since the tokens are securities, what is their relationship to Vaultbank the company itself?
Austin Trombley: It actually represents the equity in the company, so in an ideal situation of two, three years from now if we were to get bought out by a major institution, a Wall Street bank that sat on the sidelines while there was all this growth, those funds would actually be distributed back to the token holders and the token would go away. It is actually the raw equity in the company.
Doug Bridges: Now, I assume it's a nonvoting equity.
Austin Trombley: That's very right. That's very true. Thank you for that distinction.
Doug Bridges: Now, how is the equity in the company distributed among the token pool?
Austin Trombley: About 67 percent will be going to the public markets. The rest will go towards joint ventures with Falopa and Ambisafe and the team.
Doug Bridges: Once you do this presale, what sort of capitalization are you looking forward to through your presale?
Austin Trombley: We're looking to raise 100 million right now. We've already created a pretty substantial amount prior to the presale with very interesting people. We have hard caps on both, so the hard cap on the presale is 40 million, and the hard cap on the main sale is 100.
Doug Bridges: Then, how will Vaultbank use the money it raises?
Austin Trombley: 80 percent of the funds will go towards building the secure credit fund which pays out the dividends. 17 percent will go towards development, so stitching together the technology that is Falopa with the secondary market exchange trading platform and building the microservices around that, we'll take probably about 15 engineers that are here in San Francisco, we'll have our offices at One Market, and three percent goes towards operations.
Doug Bridges: The funding that you're creating, how are you using the money to ... I mean, you're getting in a lot of money, then you're going to try to use that money to make more money. How are you gonna do that?
Austin Trombley: We'll be allocating that using Random Forest Capital's credit engine. They've got access to tons of very, very high yielding paper like MCA, they've got secured fix and flip, secured auto. We're working with Mitsubishi right now for the credit warehouse facility. They're comfortable levering the paper at different levels based on the asset class type. For instance, secured auto, they're comfortable levering 4 to 1. Secured fix and flip, residential and commercial, 4 to 1. QM, non-QM residential paper, 10 to 1. They'll be using their artificial intelligence and machine learning credit engine to build a high yielding portfolios.
Doug Bridges: These assets which you'll be investing in with this fund, they're primarily loans that are being bought up or being invested into?
Austin Trombley: Exactly. Secured loans. That's right.
Doug Bridges: How does their machine learning in artificial intelligence ... how are y'all leveraging that to make sure that you're buying good assets?
Austin Trombley: Yeah, absolutely, so in the last year and a half, they've consistently outperformed double digit returns. Right now on lever, they're returning 12 and a half/13 percent, so when you add lever to that, it gets very interesting. They've consistently proven that they can build really really high yielding portfolios without too much concentration and too much risk in one asset class.
Doug Bridges: Then, any revenue that you gain, how much of that will be distributed out as a dividend versus being reinvested?
Austin Trombley: 100 percent of that will go towards ... We'll be buying up the token in the secondary market as well. That number will change over time depending on how the token is performing, so both the dividend and buying up the token in the secondary market will equal 100 percent. What that share is will change over time. At the beginning, it will be mostly dividends.
Doug Bridges: Right, and if you're buying up the tokens on the secondary market, that should drive up the value of the token which would benefit the holders as is.
Austin Trombley: Exactly. We're hoping to create scarcity. Absolutely.
Doug Bridges: Separate from the investment fund is your prepaid debit card offering, is that right? How does those two interact?
Austin Trombley: Yeah, the debit card functionality is gonna be built with that 17 percent development portion. It's already a standing product. It's called Falopa. They've been doing this for about five, six years, and they currently have eight thousand debit card holders and transact on 17 different fiat currencies. The microservices that will allow for you to transact on crypto will take us three to six months to build.
Doug Bridges: Then, with that service, is your expectation that somebody can just go online and sign up for this prepaid debit card, and then deposit ethereum or bitcoin or other type of currencies to use it?
Austin Trombley: Yeah, any of the 17 fiat that we support or at the beginning, in of the three crypto. We'll be expanding that number over time.
Doug Bridges: Does your system keep that stored in however it's deposited, or how does it keep track of the exchanges?
Austin Trombley: That's right, so just like any other exchange right now, there's a wallet for each one of your different types of assets. Vaultbank will have a different US dollar wallet from its euro wallet from its ethereum wallet from its bitcoin wallet. That's the right way to think of it.
Doug Bridges: Then, when you go and went to pay using your card, you can select online which wallet you're wanting to pull out of?
Austin Trombley: Exactly. You have to choose a default tender with your account when you go online and sign in.
Doug Bridges: Now, a lot of the investments in the Bitcoin space and in the blockchain space have been somewhat volatile. I think there are a lot of people who are looking at investing into a fund which is then going to leverage their investment to go into secured assets, might be concerned about the risks they'd be facing even if using machine learning to do some of it. How can people be sure about the risks their gonna be facing?
Austin Trombley: Sure. What I would tell you is having it secured by secured credit assets is safer than the US dollar, which is what Tether's built on, and there's 435 million tethers outstanding. If you look at 99 percent of the other ICOs, they're backed by nothing. As far as there being risks when you're investing in credit, sure. There's risk when you invest in anything, but of all the different types of asset classes, the least volatile that we've found when you compare it other liquid things like equities or currencies, it's much, much more stable, and because of the way that we're approaching it, we're weeding out a lot of the pump and dump people. We've also got a one year lock on management, so it's not like Tim Draper in Tezos where the management team is gonna dump it in the first six hours and take its money and run. We're actually building a product here, and we expect to be around a year from now.
Doug Bridges: What level is those dividends would people be expecting from the investment fund?
Austin Trombley: It's really hard to promise that. I can tell you that we have audited returns. We will be using KPMG as our auditor and because of being a security, we'll have quarterly postings of those returns. I can tell you right now we have audited returns of 12 and a half/13 percent, and you should expect that but with leverage.
Doug Bridges: Now, what sort of work have y'all been putting into on the development side of this to stitch everything together?
Austin Trombley: Yeah, so we've already hired a couple engineers and mobile app developers. They're already starting to tease out the code. We've been working with Falopa. They've got a really robust documentation around their APIs, so stitching them together should be absolutely doable.
Doug Bridges: You've mentioned you already had some interesting private investors looking at it. How's the roadshows going these days for getting the investments going in Vaultbank?
Austin Trombley: Yeah, sure. I can tell you guys you should check out vaultbank.io for our leadership. We've got a couple updates from the board of directors. Aaron Oliver, who's the former head of Digital Commerce at Mastercard MEA, he's on our board. He's gonna be working with CJ MacDonald too ... was a founder of Gyft, which was one of the first plastic-less cards that sold the first data. They're gonna be steering the card potion of this, and then from a portfolio perspective and banking advice, we've got Ken Kroner on our board today. He's the former CIO of BlackRock. We also have Andrey Zamovskiy who's the former chief architect of Tether. David Maughan, who is advising us on the regulating body where when it comes time to work even further with the SEC, we've got the right people to get in front of them and help explain what we're doing, and how we're doing it, and why we're doing it the right way.
Doug Bridges: Now, as part of your presale and as your token offering, you have a bounty program that you're offering as well. Can you talk about that a little bit?
Austin Trombley: Yeah, we've got bounties for everything down to translating our whitepaper to your local language. There's about six or seven different bounties that we have. I highly suggest taking a look at vaultbank.io. If you have any questions about to collect on those, at the very, very top of the page, you'll see our telegram channel. If you click on the folded airplane telegram icon, you can join the conversation, and you can chat directly with the Ambisafe team to find out what you need to do in order to collect on the bounties.
Chris Cummock: We will also directly connect you also to Eric Clarke our marketing manager, and you can answer any questions about Vaultbank, our debit cards, about our offering, or the bounty card.
Eric Clarke: Yeah, I'll just jump in here a little bit with a little bit more information on the bounty program. More detail is gonna be coming out on that on bitcointalk.org. Tomorrow, we're gonna be doing the official announcement about the ICO or about the token sale on there. Along with that is gonna be all the detail about the bounty program and also the official bounty manager. There's additional detail that everyone's gonna be able to find out there, and that's officially on October 25th is when that'll be up.
Doug Bridges: Thanks Eric. It seems like y'all are trying to bootstrap up a lot of things and pull in a lot of services together, and your team has a huge of finance background. What sort of non-finance things have you run into while getting the company going that have caused you challenges to start up a blockchain company?
Chris Cummock: Well, that's one of the reasons why we teamed up with Ambisafe because they're one of the best blockchain and ICO providers in the world. You're absolutely right. Most of our board and our executives have backgrounds in finance, banking, and hedge funds, portfolio management, but we knew that when we brought in Andrey Zamovskiy and Patrick Baron of Ambisafe that we would marrying our expertise with one of the leading ICO and blockchain companies in the world. Andrey Zamovskiy, we can't speak enough about his resume, his professionalism, and how influential he is in the blockchain world. His company, Ambisafe, saw our vision, saw how we could bring together financial services, returns, and usability through the debit cards, and create an amazing user interface, and bring everything in-house with the Vaultbank team.
Austin Trombley: They've got about 50 blockchain engineers from here to Kiev and so partnering with them, we actually have a 1.5 year agreement to co-engineer this together.
Doug Bridges: Does that put the leadership group mostly up to this point on the marketing and roadshow side of things to get the investments going to start the company up?
Austin Trombley: We're definitely in a divide and conquer phase. There's executive leadership running the debit card functionality. There's executive leadership running our marketing. We've really taken a divide and conquer route to trying to make sure that we bring this to market with as much of a true offering as possible with as much standing product as possible.
Doug Bridges: Now, after you raise these funds, how long will it take before you're able to get the portfolio together to begin investing in assets? I assume you're going to have to convert a lot of the investments that come in as ethereum or bitcoin into a fiat currency to be able to do the investments.
Austin Trombley: That's right. It will take us about two weeks before we liquidate all of the investments that come in through the presale and the main sale. We can actually put that money to work in assets, but the answer is less than 30 days.
Chris Cummock: We think this is what really just makes us a very distinct ICO offering is that most of the whitepapers that we've read said that they have great ideas and platforms that they intend to develop, but most of it, the work and the coding and development, hasn't happened at all. They raised the money, and they intend to have things happen, so the realization of whatever their business plan is could be six months, year, maybe even two years out. We have the debit cards ready to go. Our Order Book platform with Ambisafe is currently accepting money for ICOs. The platform of Random Forest Capital and the purchasing of credit assets; that can happen, as Austin said, within two weeks.
Doug Bridges: You're not in the pre-development stage. You feel you're much more ... I wouldn't say beta level, but you're close to being able to do what you need to as an operating company rather than floundering around for another six months.
Austin Trombley: Yeah, that definitely sets us apart. You're not investing in an idea.
Doug Bridges: Now, one thing that I found interesting about Vaultbank was that a lot of hedge fund investments and other types of investments have generally not been available to people who are not very high net worth, not just accredited investors but people who, at least in The United States had large, large amounts of money to invest into the hedge fund itself. Can you talk about how fractionalization of the coins allows for greater opportunities for people to invest in these types of investments?
Austin Trombley: Sure, being both a security and a utility, anytime where you are actually going to use it as tender, the Vaultbank token, having that ability to reduce it down to the social equivalent to a penny is critical because it makes the utility of it that much more usable.
Doug Bridges: Is there a minimum investment for people to invest into the presale or the regular token offering?
Austin Trombley: There is not. No.
Doug Bridges: Most people I know who don't get involved in hedge funds and investments like that, this seems like an opportunity if they're an accredited investor, without having to pony up $200 thousand to put into a hedge fund.
Austin Trombley: Yeah, a lot of hedge funds that we've seen here on the West Coast have minimums of 250 to 500 thousand and that's very important.
Doug Bridges: Now, what's your goal for what you see Vaultbank doing five years down the road if you've even thought out that far?
Austin Trombley: Yeah no, we have. We're trying to decentralize all financial services, so there are a lot of gaps or decentralized apps that could solve for ... take Wells Fargo, right? When I consulted for their commercial enterprise portal, they had a 133 different products that did about 1 trillion in transactions a month. There are 13 trillion a year. Each one of those different products could be solved for with a product where it's better for the consumer. It's faster. It's cheaper, and it's more transparent. I think if you really start to look at the model of trying to disintermediate financial services, you'll share the vision that we have that in five years, there are a ton of banking products that are a sticking point where the fees are prohibitively expensive, the customer service is awful, and there's just a much better way to do this.
Doug Bridges: How does blockchain enable y'all to do that; to cover these areas which haven't been addressed these day?
Austin Trombley: A lot of that surrounds some of the places where blockchain's fallen on it's face, right? The first one was that there would be instant, immutable transactions just because it's on the blockchain. If you look at some of the exchanges including Coinbase, if you buy ether or bitcoin, it could take up to seven days for that settle in your account. Traditional old equities can settle in an account today in two or three day, and then if you really think about why is it that cryptocurrency haven't caught on to the masses, it's because the fees are so insanely expensive. In order to buy-in through Coinbase, it's 1.4 percent. In order to sell, it's 1.4 percent, so it's 2.8 percent roundtrip. It doesn't make any sense to transact that way in every transaction because it's just way too expensive, so it's only been really in line for speculators. We're really trying to solve for those two issues and many, many more.
Chris Cummock: Another issue that we're trying to solve for is the lack of real business plan behind some of the new ICOs. Many people have already adopted bitcoin and ethereum, but of the new ICOs, what are their whitepapers released say? What is their offering? It's usually just to develop some sort of idea or build some form of platform or technology. Many of these will take off and do well, but from the whitepapers that we read and we compared ourselves to when we started in this endeavor, we always said to ourselves, "Why wouldn't we build a real business plan and have a real hedge fund offering, liquidity, and marrying of banking services with a cryptocurrency, and beat people on fees and their ability to have usability in their pocket with the debit card and actually receive a dividend? Nobody's paying a dividend."
Doug Bridges: Right, and I think it's widely said that ideas are a dime a dozen. It seems like a lot of ICOs are interesting ideas, interesting protocols that are put down into whitepaper, but the actual monetization of that protocol, a way to make money off of what their idea is, is often lacking.
Austin Trombley: Absolutely, so I'm a part of a token founders group. There's about 40 of us here in San Francisco, and we met up, and I heard a couple pitches the other week. There was about 10 people in the room. Of them, I would say about half of them were people saying that they wanted to do an ICO with the utility when they were a security. Those same people were typically solutions looking for a problem. The other half were ideas that could've been done in a database. They didn't need to be done on blockchain. I think what you're saying is very, very true and even furthermore, monetizing on these ideas at some times when the teams are really immature and young and they haven't proven that they can execute, makes your investment precarious at best.
Doug Bridges: Yeah, but they don't want you to call it an investment obviously.
Austin Trombley: Oh yeah, exactly because they're not a security, so they can't. Right? That's exactly why what we're doing is so unique.
Doug Bridges: I think we're just gonna wrap up for today because this is a lot of information to pull together. I appreciate you hopping on for the interview.
Austin Trombley: Thank you so much.
Doug Bridges: Hey, thank y'all.
Thank you for listening to the Blockcast Show with Doug Bridges of Capital Legal Group. If you like our show and would like to know more, please check out blockcastshow.com or capitallegalgroup.com. Also, please leave us a review on iTunes. You can also follow us on Twitter @blockcastshow.
Doug is an experienced technology and intellectual property lawyer. A former UNIX and telecom programmer, Doug uses his technical and legal skills to assist clients in the complex challenges they face on a daily basis.