Why We Invested in TrustToken
I’ve written before about how excited Signia is about tokenizing securities and real-world assets. This week, I get to announce that we’re doubling down on this thesis with our investment in TrustToken. We’ve participated in a $20 million round for TrustToken to build on the great progress they’ve made in creating a secure and legally compliant platform for tokenized assets. Joining us in this endeavor are lead investor Andreessen Horowitz, BlockTower Capital, GGV Capital, Danhua Venture Capital, Jump Capital, ZhenFund, Distributed Capital, and others.
TrustToken lies at the intersection of asset tokenization and another area of great interest for me: stablecoins. The first significant asset TrustToken has tokenized is one of the simplest and most ubiquitous: the US dollar. The recent controversy over Bitfinex, Tether, and Bitcoin price manipulation has underscored a few truths about stablecoins. (1) The billions of dollars in daily volume that Tether does demonstrates the deep need for a price-stable asset in a market that historically has swum in volatility. (2) The murky legal context and heavy moral hazard exhibited by Tether isn’t acceptable and has potential to do real damageto crypto markets. It’s one of the great paradoxes in crypto today that a sector so bent on trustlessness has come to be so dependent on an asset which requires so much unearned trust in the central entity behind it.
Fortunately, TrustToken’s TrueUSD is a transparent and legally compliant alternative. It’s redeemable 1:1 for US dollars, and, unlike Tether, the underlying asset—those dollars—isn’t held by TrustToken, but in escrow by registered banks and fiduciaries. Those banks and fiduciaries are regularly audited by independent accountants, who publish attestations that the dollars held in escrow fully match the outstanding TrueUSD.
While tokenized dollars is the first (exciting and oh-so-dearly needed) use case for the TrustToken Platform, it can be applied to all sorts of assets, including other fiat currencies, real estate, fine art, and so on. TrustToken creates a legal bridge between the real world and the blockchain world, providing a secure pathway for tokenizing assets. The critical component in the TrustToken Platform is the “SmartTrust,” a type of legal contract that appoints asset beneficial ownership and control to a smart contract—basically a trust in the traditional legal sense that connects to the blockchain. Tokenizing assets means placing them in a SmartTrust and distributing the associated tokens through it, after which they can be traded on exchanges or sent to other addresses.
One of the great lessons the tech world has had to—painfully—learn over the past two years or so is that ignoring or circumventing rules and regulations doesn’t always make for sustainable innovation. We’ve seen it with Uber; we’ve seen it with Facebook; most egregiously, we’ve seen it with Theranos. The team behind TrustToken, understands that there are drawbacks to thinking of innovation as moving fast and breaking things. That’s why the team has firmly embedded its innovation—which truly does have the potential to be groundbreaking—in current legal institutions. TrustToken is moving incrementally and making things that are safe, sound, and will be 10X better than the status quo. That service brings us closer to tokenizing billions of dollars’ worth of assets, creating enormous value through reducing illiquidity and unleashing latent commerce.
Sunny Dhillon is a founding partner at Signia Ventures, a $100m seed and series A venture capital firm based in the San Francisco Bay Area. He invests in consumer and enterprise startups. He leads the fund's investment strategy in distributed ledger tech.