SOMA.finance co-founders William (Bill) Heyn, John Patrick, and Will Corkin recently sat down for an AMA session from the company’s offices in Hong Kong to share the latest updates with the project and tease upcoming developments.
SOMA.finance Co-founder AMA
To help get new and prospective members of the SOMA.finance community a better understanding of the project, Willam Heyn said that he and the co-founders realized several years ago that the tokenization of finance and decentralized finance were really the future of the financial industry, but at the time there was a lack of regulation and moderation of the systems.
They realized that there was an opportunity to make a DeFi platform that offered all the features that users have come to love but in a safe, secure and compliant manner. “The real reason for this is to protect the people who are using the system,” he said.
To create the platform, they partnered with the U.S. registered broker-dealer Tritaurian Capital and the team at Mantra Finance to create SOMA.finance. “Once you are on the platform, you can trade just like you do on a DeFi platform, but it’s legal and compliant.”
Moving on to the community questions, the first question related to the ongoing onboarding process for SOMA.finance, which is currently working its way through the waitlist of people who signed up for access early, and when the platform will be open to the public.
Heyn said that SOMA.finance currently has a “great problem” in that they have a waiting list of 700,000 users, but it takes a while to send out onboarding emails as sending such a large batch is viewed as spam activity. The team is currently sending out smaller batches of 25,000 emails every few days, and he expects that all of the waitlist users will have invites within the next month or so, at which point they will open the platform to the general public.
Will Corkin noted that due to U.S. compliance laws, each application must be reviewed by a live person in order for SOMA.finance to stay above board and remain in compliance, which adds extra time to the onboarding process.
SOMA.finance has built a streamlined process on its backend to help with onboarding a significant number of people while remaining fully compliant, he said.
Q: Why does SOMA ask for income information and why do some people get onboarded quicker than others?
William Heyn noted that there are intricate rules around legal and compliant securities offerings in the United States, including rules related to Know-Your-Client (KYC). This requires firms to know the basic information about their users, like who they are and where they are from, but it also requires a deeper level of understanding in the financial community.
This includes things like understanding a client's risk tolerance and what amounts they should or should not be investing. “As an honest and fair broker, you are supposed to make sure that people don’t invest a million dollars when they’re on a regular person’s salary because it's not a suitable investment for them,” he said.
Regulation CF, which is a regulation related to crowdfunding that allows SOMA.finance to raise up to five million dollars from retail investors, is a good example. “One of the parts of that rule is that individuals are not allowed to invest more than 10% of their net income per year.”
In order for SOMA.finance to remain in compliance, they need to know income information so that they can cap the amount an individual can invest in a certain project. “So for the people out there who say, ‘I’m not going to answer that question,’ and put zero, that really doesn’t help them out,” Heyn said. “So please do be honest with that, when you fill this stuff out it really does help us provide a better product for you.”
As far as the varying time to onboarding goes, verifying some users’ information is quick and easy, which allows them to be onboarded faster, while some take longer due to minor errors, such as attachments that are password protected, which delays the process as users need to resubmit their information.
John Patrick added that the team has employed a traffic light-type system, where the bulk of applications get put in the green category, which means their real world identity and online identity, which is tied to a cryptocurrency wallet, came back with a risk profile within our risk limits of a green score.
Yellow might mean there was a bad picture of an ID or selfie photo, and they usually just require a little bit more oversight. “Red is obviously a bit of a problem, and then black is a really big problem, but we don’t anticipate many of those,” Patrick said.
For any users going through the onboarding process, the SOMA.finance team has support lines available 24/7 through its Telegram group.
SOMA.finance Roadmap, Timeline and Upcoming Products
John Patrick began by discussing SOMA Starter, the launchpad for the platform that is designed to tokenize a variety of assets. The first token to launch on Starter will be the SOMA token, which will represent a future financial claim on a percentage of the profits that are generated by the SOMA.finance platform. This will be paid out to SOMA holders in the future as a dividend, which is one utility of the token that makes it a security under U.S. financial laws.
This allows SOMA.finance to create real economic value that is transferable in a compliant manner to token holders.
“SOMA can offer any number of tokenized assets via this starter product,” Patrick said. “It is for early-stage businesses, it is for up and running businesses that want to raise capital, it's for any number of different things and it will be one of the first products that we'll launch.”
Along with Reg CF, which is what the SOMA token launch will fall under, Starter can also offer Reg S, which is for international securities investors, Reg A, Reg A+, and Reg D. Under the licensing provided by the partnership with Tritaurian Capital, SOMA.finance can offer these things compliantly in a tokenized fashion, which is one of the unique selling points of the platform.
For anyone who would like to confirm the credentials of the platform, they can do a brokercheck – which is a public database for all registered broker-dealers in the U.S. – for firm 45500. This will show that SOMA.finance has the “ability to do private placements of digital securities using DLT or blockchain technology.”
Some of the other products that are coming will focus on the DEX trading experience, including the liquidity hub, which enables the trading of different types of tokenized assets. Those could be crypto-specific assets, securities assets, or any number of different types of products, and they will be traded on an automated market maker (AMM).
AMM’s trade peer-to-peer via permissioned liquidity pools, so users will be able to have a traditional DeFi experience but in a permissioned way. Once a user goes through the onboarding process, they will be granted access to certain permissions at a smart contract level that will allow them to access certain products.
This allows SOMA.finance to segment users based on things like whether they are retail or institutional or accredited, or by what state they live in if they are from the U.S., since different states have different laws.
A third product that will be released soon is SOMA Earn, which is a complaint yield and investing product that allows SOMA.finance to offer private placements of tokenized assets which are yield and interest-bearing. One sector currency being explored by SOMA.finance is proof-of-stake yield-bearing instruments.
Willam Heyn noted that one of the best things about SOMA.finance is that it allows users to trade in confidence knowing that they are interacting with other legal and compliant investors and not helping to fund terrorism, drug dealers, or international human traffickers.
Q: Who is eligible to use the platform and are there any restrictions, whether in general or specific, to the products themselves?
William Heyn: There are a number of different rules and regulations we follow on this, but our goal is to make sure that everyone who can be legally allowed to access the platform will be able to do so.
Major restrictions include the OFAC list, which is a sanctions list in the U.S. that includes individuals and countries that U.S. citizens are barred from doing business with. Specially designated nationals and other lists are also observed.
“As long as you are not on one of those lists or in one of those very few countries, then you are permitted to trade on the SOMA platform,” he said. “If you are allowed to buy U.S. stocks where you live, you can participate in this online platform, with the exception of Canada currently due to the complex nature of Canadian securities regulations.”
Will Corkin noted that there are also some restrictions for certain Reg offerings, like Reg D, which is only for accredited investors.
In general, SOMA.finance has been created for retail investors, so the vast majority of assets offered on the platform will be available at the retail level. In an industry that has historically been plagued by scams, SOMA is looking to utilize the regulations that are in place to make sure that the tokens and securities offered on the platform are real tokens, real securities, and backed by real companies.
Q: What are the advantages of SOMA?
There are a lot of risks to trading in DeFi, from trading with unsavory characters to investing in products where you might not even know who’s running the product. SOMA is focused on offering access to tokens that people want where users don’t have to worry about whether or not it will be the next rug pull or scam token.
For Will Corkin, a major benefit is the upcoming SOMA token sale, which will give investors access to a compliant tokenized asset that offers a dividend. “Having passive income through dividends or through different pieces is an amazing thing to have in their portfolio,” he said. “There aren’t many tokens in the space that have done this, in the right way, as a security.”
“The SOMA token is inexorably and permanently linked to our company,” Heyn said. “It is a preferred equity interest in our company. So this is not a situation where it's some undefined financial instrument that could disappear tomorrow. This is 100% linked to our company for good, and there is no way to get away from that.”
John Patrick highlighted the ability of SOMA.finance to connect DeFi with TradFi by providing an on-chain/off-chain system as one of the key differentiators that other platforms lack. Users can interact with both a non-custodial product, such as a MetaMask wallet, as well as with the fiat world, including bank and brokerage accounts, from one easy-to-use platform.
“The ability to move on and off-chain between your wallet holdings, your bank account, your brokerage account – all in a seamless fashion – is really what’s going to expand the capital pool of investment potential into this ecosystem and take it to the next level,” Patrick said. “It hasn’t been done in a way that’s compliant and retail friendly yet, and that’s what SOMA.finance offers.
Q: When is the SOMA token launch and what are the requirements for taking part in the public sale?
Will Corkin: The SOMA token will be offered through SOMA Sarter as the first token launch, and it will be through a Reg CF. That allows U.S. retail and international retail traders to participate, along with institutional investors.
This is one of the first compliant token offerings for U.S. retail people ever as they’ve never had a way to actually be able to participate in a legally compliant way. “Going through a private placement requires a lot of documentation and a prospectus. We are making our way through it, and we are almost there, so it will be in the very near future,” Corkin said.
The team is focused on working through the waitlist of onboarding users before they launch the token to make sure that members of the community are able to gain access. The launch of the SOMA token will signal the start of activities on the platform, and from there the team will expand the available digital assets and securities through SOMA Starter.
Heyn said that if you are on the SOMA.finance platform and have completed the KYC process, you are cleared to take part in the SOMA token launch.
Tritaurian Capital has extensive experience in private placement offers, so projects and companies looking to enter the Web3 space can reach out to SOMA.finance if they want to offer a compliant token offering to investors in the U.S.
Q: Can you explain more about the regulatory licenses that SOMA has been cleared for in the U.S.?
William Heyn: Tritaurian Capital is a registered broker-dealer in the United States, it's a part of the Securites Act and the Securities and Exchange Act. Any firm that sells securities to the public needs to register with the SEC and with FINRA. We have to follow those rules, and those rules are designed to protect the investing public, so that’s the framework we sit under.
One of the new product lines that broker-dealers are being told they need to request is permission to deal in the digital asset space or distributed Ledger technology. Tritaurian has a license to issue private placement Securities using blockchain technology, and that is why we have been able to operate compliantly since 2019.
Q: What is the difference between the way SOMA.finance operates and Promethum?
Willam Heyn: “There was a letter put on in 2019 that was a joint declaration by FINRA and the SEC that included the different ways that they would like to see broker dealers interact with the crypto space.
One of the things that they outline is what they call a “special purpose broker-dealer.” The special purpose broker dealer was designed especially to be a custodian of crypto assets and that's the license the Prometheum guys managed to get. It’s a big accomplishment, and we are happy for them.
It is also a license that we already have, and we are moving forward passed that.” It mainly revolves around being a custody provider, “but we see the future of this industry – especially based on some of the latest blow-ups – to be non-custodial.”
SOMA is designed to be completely non-custodial, so users remain in control of their assets at all times. This is not the same for custodial platforms, like Prometheum, which means that in the event of bankruptcy, all funds get put into receivership and users lose their assets.
“We think custody is the old way, the new way is being non-custodial,” Heyn said. “But in the event that somebody said, ‘Okay, you have to be a custodian,’ we're all set up for that.”
Q: The SEC identified 13 tokens as being securities. Will they be offered on SOMA, or is SOMA steering clear of all unregistered securities?
Willam Heyn: “Early on, SOMA will only be listing tokens that we issue to help keep the process clean and make sure we get things done correctly to start without adding that layer of complexity.
In the future, we will look towards listing anything that fits within the regulatory parameters and is legal for us to list. That is a ‘Phase 2’ concept.”
That being said, only tokens that are not on the SEC’s “naughty list” will be up for consideration on SOMA in the future.
John Patrick noted that projects that are on the “naughty list” could potentially benefit from seeking out SOMA’s help to get them to a place where they can be regulator-approved and listed in the U.S. market.
He also highlighted that SOMA is building out its smart contract on Ethereum, so at this point, it's not feasible to operate on some of the other platforms, like Solana, that were identified as unregistered securities by the SEC.
While SOMA will focus on tokens issued through Starter, there are a variety of functionalities, like those previously mentioned for the SOMA token. Other possibilities include tokens that are tied to cash flows like future revenue sales or merchandise sales.
“We can codify all different types of economic value into the token,” Patrick said. “We’ll also be tokenizing real-world assets (RWAs). We're starting primarily with tokenized U.S. public equities, with a focus on large blue-chip technology companies. In the future, we will add more and more equities that can be tokenized and traded 24/7 in a DeFi environment.”
Future assets that could be offered on SOMA.finance include tokenized Treasuries, ETFs, mutual funds, money market funds, and other publicly listed assets with high liquidity and regulator approval.
With SOMA.finance, investors that have typically not been able to access certain investments – like Tesla stock – due to being in jurisdictions outside of the U.S. will be able to access tokenized versions of these assets in a legally compliant manner while knowing that their tokens are fully backed by the underlying asset.
The key is that assets on SOMA.finance are not synthetic, they are backed by real assets. Users will be able to swap for the asset itself, and they will also be able to mint new tokens by transferring shares of companies that they already own to SOMA and tokenizing them through the platform. This is something that has never been done before.
Users will also be able to burn the token to retrieve the underlying security. As a US broker-dealer, SOMA has all the proper licenses to hold shares and properly manage them.
Q: What direction is the industry going, and what is SOMA doing in regard to the unfolding regulatory framework?
William Heyn: “We are trending towards a much more regulated environment. While people like to focus on the difficulties in getting regulations established for the crypto industry, there are plenty of upsides.
They are 100% in essence about protecting investors. The SOMA token is not going to be a random token we generate that’s just out there floating around. It will be a corporate interest of a corporation. You know who owns the company, where it's located – the types of things that investors need to know about to make a sound investment decision.
When things go badly, that’s when you need these regulations. They are to protect investors, despite how clunky and frustrating they can be.”
Will Corkin wrapped up by highlighting that SOMA.finance is designed to help level the playing field for retail investors by eliminating some of the biggest disadvantages that many platforms suffer from, including whitewashing, front-running, and order-book manipulation. And SOMA does it in a legally compliant, decentralized, non-custodial manner.
John Patrick closed by noting that amid the uncertainty of the regulatory landscape in the U.S., SOMA.finance is focused on positioning itself as a friendly party that offers tokenized products to the average users who have been neglected thus far.
“We want to check the boxes of compliance, safety and interesting products, offering a common middle ground and being a friend to both sides. I think we are well positioned to do that, and that is what we are here for,” he concluded.