The Digital Asset Hype Cycle: A Wild Ride, What’s Next?

11 min readJul 2, 2020


For many of us, Digital Asset Tokenization as a business was a moment in time. But for some it was a very profitable moment. What’s next?

By Dave Hendricks

While we launched Vertalo as a startup in 2017, our story occurred within a larger context: The Rise and Fall of the ICO Era and the emergence of the Security Token Offering. While the ICO era launched thousands of projects — many which failed — the ensuing Security Token era was notable not so much for how much launched, but for how much didn’t launch, despite early enthusiasm and promise. If we are looking at these conjoined events, how should we assess current market conditions?

The Gartner Hype Cycle (below) highlights how the promise of an early technology can outrun the underlying reality and encourage excesses that eventually shake out into disillusionment. Then, the real progress (and work) occurs as participants begin to solve the real market and technology problems in order to create a sustainable and thriving industry.

The Gartner Hype Cycle

When considering the emergence of the Digital Asset Ecosystem, the Gartner Hype Cycle provides us with a great way to map the progress in the digital asset industry, and our own progress alongside it.


Gartner Hype Cycle: Teenage BTC Millionaires, ICO Craze

In a period of incredible optimism and sky-high expectations, Vertalo began our digital asset and tokenization journey differently than many other digital asset companies. After we developed and launched the first version of our platform (a due diligence platform using smart contracts) in July 2017, we briefly considered raising funds using an ICO, as many other companies did at that time. However, our General Counsel and cofounder, a former SEC attorney and securities lawyer, reviewed our plans with our law firm Lowenstein Sandler and concluded that an ICO would be an illegal issuance of a non-registered security. Therefore, at the height of 2017’s incredible ICO boom, we decided to take a different path and issue a token in the form of a Reg D security.

The process of designing and executing a compliant digital securities offering in late 2017 and early 2018 was an intellectually and technically demanding process that was beyond the capabilities of most teams, and it turned out to be very expensive both in the technical development as well as the legal structuring. Our Team leaned heavily on our lawyers, tax accountants and its own experience and expertise to design, code, structure, and ultimately issue our own security token in March 2018. The process of issuing our own Reg D Security Token to 53 investors, advisors, and employees was a profound experience and shaped many insights that informed our Team’s world view.

PEAK OF INFLATED EXPECTATIONS: The Problem With Security Tokens

Gartner Hype Cycle: BTC Miami, EOS Launch

This experience provided us with the first caution flag that something was amiss in the digital asset wonderland. Our first major insight was that any Issuer of compliant security tokens would need to manage a stakeholder ledger (books and records) and ensure that this registry was up to date not merely at the time of primary issuance, but also throughout the entire lifecycle of the asset/security. For many assets, this lifecycle could last decades and include thousands of trades.

The process of issuing our own Reg D Security Token to 53 investors, advisors, and employees was a profound experience and shaped many insights that informed our Team’s world view.

However, the few token issuance platforms that were operating at the time (early 2018) merely issued tokens, on behalf of the Issuer, to investors’ self-sovereign wallets (Metamask, Myetherwallet, etc.) and provided no cap table or registry services whatsoever. The Issuer was left on their own to satisfy these critical record-keeping requirements.

Having identified this requirement and this technological gap through our own diligence, we had no choice but to build our first version of a stakeholder ledger for our own offering.

High Upfront Token Issuance Costs

In an era of permissible excesses, we also concluded that the cost of tokenization was much too high. Token Issuance platforms were seeking $100,000 or more just to tokenize an asset, and demanding the payment of these fees before the funds had been raised by the Issuer.

The result was we decided to start issuing tokens for our clients, like we had for our own raise. We decided to do it less expensively — much less expensively — and whenever the Issuer wants to issue, not only before the capital formation event.

There is no reason to create a token before the capital formation event. A company should be able to issue a fully-tradable — or trade/transfer restricted — token in minutes, at any time during a company’s lifecycle.

As a result, we developed the ability for an Issuer to load their cap table onto our platform, digitize it, and then, if and when desired, tokenize it.


Gartner Hype Cycle: SEC Enforcement Actions Against Kin, Telegram and Stox

As participants began to realize that tokenization, in isolation, can create more problems than it solves, the result was entering the Trough of Disillusionment. This experience led us to finding the missing link in this industry: The ability to manage data over the life of an asset. Having witnessed — and solved — our own investor data management challenge, we pivoted in May 2018 to productize our cap table and shareholder registry for any Issuer of digital assets, US or elsewhere.

There is no reason to create a token before the capital formation event. A company should be able to issue a fully-tradable — or trade/transfer restricted — token in minutes, at any time during a company’s lifecycle.

We developed as a transfer agent and data management platform that can issue tokens, not a token issuance platform that, much later, added managing shareholder data. Our role as a shareholder registry and transfer agent platform (our SEC Transfer Agent registration became effective in late 2019) is a perfect Team-Product-Market fit. The company CEO served as a CFO and Corporate Secretary at his previous company where he managed investor relations and diligence while our General Counsel started his career out as a regulator at the SEC, later joined Credit Suisse’s Legal and Compliance Department and was promoted to Managing Director in Prime Services. Our Mathematics Ph.D. CTO developed highly secure data systems for messaging platforms (Experian CheetahMail) and business data platforms (Bloomberg). This Team’s extensive professional experience coupled with its recent experience in the nascent digital asset management sector combined to create a new operating model for the Digital Asset Ecosystem.

To Connect and Enable the Digital Asset Ecosystem

We began to survey the analog cap table and shareholder platforms to understand their data schemas. What we learned during this process was that most providers who sought to satisfy demand in the emerging digital asset sector had not thought about how they were going to onboard data or comply with regulations beyond their platforms.

In these walled gardens, providers often expect that customers and their data are going to magically appear on their platform, and once the provider completes their transaction, their data updating work is magically completed. Somehow all this transaction data is going to flow across and update all of the related processes and providers using crypto currency wallet technology, a toolset that is complicated to implement, deficient with respect to verifying investor ID, and historically unfriendly to neophytes and normal investors. Needless to say, we found serious flaws in this model.

The result was we then embarked on our mission to ‘connect and enable the digital asset ecosystem’. Our Team sought out integrative API-based partnerships with providers across the spectrum of capital markets participants that are needed for a properly functioning digital asset ecosystem: Exchanges/ATSs, KYC/AML/Accreditation firms, Broker-Dealers, and Custodians.

Cryptocurrency Digital Wallets are a Big Problem for Digital Assets

Meanwhile, we saw every issuance platform issuing their security tokens to self-sovereign digital wallets, but without a way to comply with the mandatory lock-up, identification and accreditation requirements of jurisdictional securities laws.

In the fall of 2018, we embarked on a project with a custodian who asked us to design a method for registering a crypto wallet with a provable and persistent identity for the purposes of AML Compliance. The idea was that if a wallet could be signed with a verified identity, it could be whitelisted and approved to hold securities. This wallet could be brought to a trade and the ownership of that wallet’s contents could be reliably counted on to be the proper owner.

In the process of building its compliant wallet registration technology, our Team obtained another insight: Crypto Wallets are too hard to use and could doom the adoption of regulated Digital Assets. As we expanded our efforts to help make user wallets compliant via registration, it occurred to us that as long as investors were required to master self-sovereign wallets, the majority of investors would not purchase or invest in digital assets.

SLOPE OF ENLIGHTENMENT: Keyless Wallets Replace Self-Sovereign Crypto Currency Wallets.

Gartner Hype Cycle: JPM Coin, Security Token Summit and Bulge Bracket Banks, DTCC and NASDAQ Announce Blockchain Projects

Now, arising from the Trough of Disillusionment, it was necessary to build lasting and productive solutions that enable successful implementations of this new and highly promising digital asset technology.

Our Team obtained another insight: Crypto Wallets are too hard to use and could doom the adoption of regulated Digital Assets.

As such, starting in May of 2019, our Team began the development of Keyless Wallets that do not require investors to install or manage self-sovereign wallets to invest in, own, or trade digital assets. Our Keyless Wallet is as easy to use as an email address and a password, is accessed through an Internet browser and does not require any software downloads. They are effectively unhackable, and don’t feel like a new technology. Compared to the Metamask experience — which was designed for ICO utility tokens — our Keyless Wallet experience feels like something that has worked for more than 35 million people: Coinbase.

This innovation helped us fulfill its mission to be the most user friendly and accessible platform for digital asset management. In addition, our Keyless Wallet, in combination with our connectivity to other providers, created a clear path to even greater simplicity and more powerful functionality for our clients and their investors.

Powering Up The Digital Asset Ecosystem

In early 2020, we saw another gap in the digitization and tokenization market. The cost and complexity of tokenization technology stymied the growth of the market. Broker-Dealers, Investment Banks, and Capital Advisors wanted to satisfy client demand for tokenization but lacked the technology. Token Issuance platforms and their high costs left little room for these firms to advise and service offerings to their clients. So, building on our API-first architecture, user-friendly interface, and built-in tokenization capabilities, we introduced new options for our partners to license our platform and provide it to their clients as a white-label or by using our APIs to create their own UX/UI.

Enter The Sandbox

In March 2020, we put an end to expensive black-box tokenization once and for all with the introduction of the ‘Sandbox Program’. Designed to demystify the process of tokenization, the Sandbox is a program that enables interested participants — Broker-Dealers, Investment Banks, Custodians, ATSs, Capital Advisors — to test and stage digital and tokenized offerings on our platform with little cost other than their own time. The Sandbox program is a guided curriculum that introduces potential licensees and tech partners to the business and technology of tokenization before asking them to commit to associated costs.

Vertalo Digital Asset Platform

In early 2020, we saw another gap in the digitization and tokenization market. The cost and complexity of tokenization technology stymied the growth of the market.

Further, in July 2020, we are launching the Vertalo Distribution Network, a new no-cost, no-risk business building environment where multi-issuance licensing prospects from across the globe can use the Sandbox as a demonstration, sales and marketing tool to develop and close clients and their digital asset business. We believe this program will help speed the adoption of digital assets on a mass scale.

Digitizing the World’s Largest Asset Class

In June 2020, we launched a Real Estate division dedicated to digitizing and tokenizing real estate assets and funds. Headed by a fund manager with extensive structuring experience, this group is working closely with projects that are looking to gain efficiencies that can only be found from modernizing the private asset ownership experience. Besides improved fund administration benefits, the ultimate goal of Real Estate Tokenization is a better CRM experience, more efficient real estate operation and the improvement of liquidity for previously illiquid assets.


In our view of the future of digital assets, the cost of tokenization falls to nearly zero (who pays for SpellCheck programs today?) as our capability to support the initial integration and ongoing data management needs for a wide variety of sophisticated operating businesses is the oil that lubricates the digital asset ecosystem. One result is that “native pricing” replaces the current per tokenization pricing model, that is, data management services are priced by aligning with the existing pricing metrics or conventions for business events inherent to a specific digital asset.

For example, digital data management services (which include tokenization) are priced in basis points (bps) for business focused on assets under management or issuing loans, as a per square foot charge for commercial real estate and in kilowatt hours (kWh) for power generation. The goal is to remove friction and facilitate innovation across a wide array of digital asset initiatives, including financial assets, real estate, collectibles, loans, receivables, supply chain financing, loyalty points, insurance contracts, energy, exotic assets like whiskey barrels, high end automobiles, and fine art, and new instruments that are yet to be created.

The use of APIs means that these businesses benefit from customized service and pricing solutions that fit their business models and that tokenization occurs at volume and entirely under the hood in an automated process. These businesses and their digital assets also benefit from our connectivity into sources of inexpensive, quick and easy collateralization activity (as digital assets are utilized as loan collateral) and secondary market liquidity. The recurring revenue from the data management services we provide using native pricing over the life of these digital assets become the primary driver of our valuation.

As we continue along Gartner’s Slope of Enlightenment to the Plateau of Productivity, Vertalo’s story is just beginning. We hope that the story of Vertalo’s iterative and customer-driven development and our vision for digital assets resonates and provides you with the confidence to choose our team and our platform. We look forward to working with you and writing the next chapters of this exciting technology revolution.

Dave Hendricks, Vertalo’s CEO, can be reached at

Vertalo is a Digital Transfer Agent that digitally connects and enables the Digital Asset/Security Token ecosystem, including ATSs, Broker-Dealers, RIAs, Custodians and Issuers. As a B2B data management company, Vertalo provides cap table, shareholder registry, token issuance and keyless wallets and works with clients through SaaS licensing, white-labeled partnerships and Joint Venture agreements.




A Connections, Compliance, and Cap Table Platform for Digital Asset Custody, Issuance Platforms, KYC/AML, Broker-Dealers, Exchanges & Investors in the Future