Digital securities platform iSTOX launched in February 2020. It is garnering funds, a $50m Series A funding round now finished, and preparing products. What is the firm’s plan? How does utilising blockchain give it an edge? Patrick Brusnahan speaks to the company
Based in Singapore, iSTOX utilises blockchain and smart contract technology to skip over manual processes in the issuance and investment space. As a result, securities can be fractionalised into smaller units and access is extended to a wider base of users.
Patrick Brusnahan (PB): Is iSTOX aiming for a particular market? Or is it something for everyone?
Choo Oi Yee, chief commercial officer at iSTOX (OC): At the moment, we’re set up for accredited investors, which in Singapore is two million net worth and above.
What our technology does is fractionalises and changes the suitability framework for higher risk investments. Now, we are also starting to see cases where there is a big potential for B2B connectivity as well. Could we solve more bespoke problems using our tech?
For example, could we simplify the cost of issuing a structured product? Could we increase speed to market? Could we help investment banks look for that additional distribution space? For smaller family offices or external asset managers, could we be the conduit for operational efficiency? There are some deeper use cases there.
At the heart of it at the moment, we see our investor base as guys who hold from SGD2m to SGD20m in net worth, now slightly underserved by the private banks.
We have one of the top global macro hedge funds on our platform. And frankly, even if you were worth SGD5m, you wouldn’t really get access to that hedge fund, right? Because your minimum investment size is SGD1m, you’re not going to allocate 20% of your net worth into a single hedge fund.
We have the ability to fractionalise that. We took that down to SGD50,000. But from the hedge fund’s perspective, they’re very happy, because they have now a single point to distribute to a broader base of investors. We think our investors are very happy. But they see that as also a way of working with us to expand into the slightly lower tier high net worth space.
PB: When pitching yourselves, how do you lead? With the technology and blockchain?
OC: We obviously think we’re very tech savvy and very smart. At the end of the day, to investors, they don’t care whether it’s blockchain or otherwise. We don’t ask the London Stock Exchange, “hey, what technology are you on?” It really is about access to products. It is about speed, and it’s about efficiency. It’s about what kind of products can you get with us that you don’t get elsewhere.
Darius Liu, chief operating officer and cofounder (DL): The question becomes: how do you diversify in a cleverer way? And the way to do that is to add assets that are basically uncorrelated to whatever public markets are doing. These funds are what we make available to the retail investors in this space. And by adding to that instantaneously, your Sharpe ratio, the portfolio goes up.
PB: Is customer education an issue?
OC: The first part of the education is because in this net worth gap, not everyone is as sophisticated, right? They think about life in stocks and bonds, but they are not exposed to private markets. There is a second level of education about what digitisation means, because obviously, that’s quite a big, scary word. Digitisation is just very enhanced automation of managing securities. There’s nothing scarier or less scary about it. Education needs to happen, because as I was lamenting to somebody today, all of us can get lumped into the fintech market. When the next P2P guy runs away with somebody’s money, we get associated with that because we were fintech.
PB: What are the plans for the next five years?
OC: Getting much more Singapore blue chip names on our platform. That’s happening in the next couple of months. But more broadly, we think that equity will be a big part of our launch. Also structured products, where we see has potentially the space to make Asia really a hub for structured products.
DL: Anybody with any risk appetite of any size will be able to come to the platform and see something that you like and want to buy. I think that’s really the power of being a multi asset platform like us. That’s really the goal. We’re building up that leadership and that functionality in each of these categories over the next year.