This week’s must-know stories in the Agentic AI, FinTech and Digital Asset space. The latest edition of the Agentic AI & The Future of Finance Newsletter is here:
Image Credits: shutterstock.com
This week’s must-know stories in the Agentic AI, FinTech and Digital Asset space. The latest edition of the Agentic AI & The Future of Finance Newsletter is here:
Image Credits: shutterstock.com
This week’s must-know stories in the Agentic AI, FinTech and Digital Asset space. The latest edition of the Agentic AI & The Future of Finance Newsletter is here:
Image Credits: shutterstock.com
This week’s must-know stories in the FinTech, AI and Digital Asset space. The latest edition of the FinTech Ecosystem Newsletter is here:
Image Credits: shutterstock.com | Varavin88
This week’s must-know stories in the FinTech, AI and Digital Asset space. The latest edition of the FinTech Ecosystem Newsletter is here:
Image Credits: shutterstock.com
This week’s must-know stories in the FinTech, AI and Digital Asset space. The latest edition of the FinTech Ecosystem Newsletter is here:
Image Credits: shutterstock.com
This blog post first appeared in Forbes.
A wave of skepticism hardly hit the crypto assets market in 2018, especially observable by a massive drop in ICO volumes. This sharp decline was mainly due to offerings of poor quality and a lack of regulatory oversight. 2019 will be a transition year on the way to a regulated market of tokenized assets. Security tokens are at the core of the rebound and three major disruptions are accelerating the redefinition of financial markets:
The digitization of existing assets
One of the main reasons which caused investors to lose interests in ICOs and cryptocurrencies was the lack of oversight on that new fund-raising method and the poor quality of the assets they received in return of their investments. To overcome that deeply-rooted problem, the trend is to turn towards known and well-recognized asset classes like tokenization of securities and add the efficiency and safety potential of decentralized ledger technologies.
An evolving infrastructure for digital assets
Supporting the digitalization of existing assets, a strong and reliable infrastructure is needed to provide a seamless experience for the end-user, namely individual and institutional investors wanting to diversify their asset allocation. Since the beginning of 2019, an upsurge of established global financial exchanges announced a handful of projects aiming at developing the trading of digital assets in a regulated environment. With different levels of progress, all major players have at least announced collaborations with technical experts and companies to develop deeper knowledge in this ground-breaking technology advancement.
A more transparent regulatory framework
There is a need for regulatory approval in all jurisdictions and broader market acceptance from all existing players in the industry. From the regulatory perspective, a major shift towards digital assets can be observed at the moment. But at its current state, it won’t happen before 2020. The Swiss legislator, considered to be one of the first to rule on that matter, will soon vote on such legislation. However, even if successful, the ruling will take effect on January 1st, 2020.
Today’s insufficient market infrastructure level
Currently, the market infrastructure still needs to overcome psychological and technological hurdles to trigger interest from institutional investors. Three main reasons explain the lack of trust in the existing market infrastructure: insufficient market readiness, lack of education of market players and investor related factors. Insufficient market infrastructure and market readiness can be defined by the limited integration between traditional money and digital assets, a low level of liquidity and transparency of current digital assets and no enterprise-grade custody solution available, making the investor itself bear the responsibility of holding the asset, or having to rely on relatively inexperienced custodians with low volume capabilities. The lack of education of market players is characterized by the recent development of decentralized ledgers and not enough time for established market players to adopt that technology to-date. Furthermore, there is no standard for security tokens. Lastly, investor related factors are comprised partly from a disjointed and inconsistent investor experience with crypto asset-based exchanges with renowned names having experienced systematic technical problems or having been hacked. Also, the lack of institutional grade investment products hindered the attractiveness of digital assets to meet the needs of sophisticated investment strategies.
What assets to be tokenized, only cash, shares and real estate?
In theory, all existing asset classes can be put into digital certificates “tokens”. From listed and unlisted equity, bonds, real estate, luxury goods and investment funds, every asset class already has been tokenized, but not in all cases was it proven to be an improvement of existing processes or adding any kind of value. One central criterion is that it’s only useful to tokenize assets, which can be after only be transferred via blockchain. With the current state of legislation, it does not bring value to tokenize tangible assets such as real estate and luxury goods since both asset classes can still be sold outside of the blockchain or any other exchange. However, the digitalization of intangible asset classes such as debt, equity and derivatives can already benefit from smart contract characteristics in managing the entire asset lifecycle such as issuance, electronic voting rights, dividend payments and automated shareholder registers.
Following are the Finoa research results on potential developments of digital asset classes for the upcoming 8 years:
Source: https://finoa.io/#research
A clear trend can be observed that intangibles will cover most of the projected market volume with more than 95% of the total if we include “Other financial Assets” as intangibles.
Traditional & new players competing for the market share
Competition between the existing exchanges and newcomers will be key to determine the future of the digital assets’ providers. On one side, existing market leaders have the most potential to grasp the largest market share. With an existing base of trusted customers including the largest institutional firms, an established brand image and a proven ability to scale, only a technological change is required to address the new market of digital assets. Since they are and will remain regulatory compliant, exchanges will set the standards for security tokens to be listed, as they already do, increasing investors’ confidence and broad market acceptance. On the other side, new market players are entering the space with disrupting technologies and more flexibility to adapt quickly to changing market conditions. However, even with a more efficient technology, new actors are facing structural problems to set foot in the industry. First, regulatory conditions like exchange and broker-dealer licenses are needed to operate in most countries. In addition, distribution and connections to financial institutions are still lacking to gain broader market presence, acceptance and confidence.
The first half of 2019 has and will continue to witness traditional market players entering the digital assets space at a fast pace. Singapore’s SGX partnered with Nasdaq to develop a blockchain settlement system. In Europe, Deutsche Boerse and SIX also partnered with technology companies to integrate digital assets in their offering starting this year already.
Newly established companies are starting to get traction in the security tokens space with names like Coinbase Prime to create an institutional trading platform or t-Zero which offers a regulated platform for security token offerings. Also, daura and Sygnum joined forces with Deutsche Boerse and Swisscom to build a tokenized ecosystem with a focus on issuance of security tokens.
Dependent on regulatory approval
To conclude, digital assets show a great potential for the future of the financial service industry. To support its successful development, customers and institutional players will soon decide on whom to partner with for new security tokens issuance. Furthermore, the regulatory approval will be the most time costly condition to get the ecosystem up and running. 2020 will be a transition year for the development of the market infrastructure for security tokens. Momentum will build up in 2021 and 2022 before going to a generalized market acceptance and towards a more tokenized economy.
Oliver Bussmann is Founder and CEO of Bussmann Advisory; ex-chief information officer at UBS and SAP.
This blog post first appeared in Forbes.
With 2019 right around the corner, the time has come to reflect on the events of 2018, but more importantly, to consider what the next year holds. With a groaning bear market dampening the crypto hype, it is easy to forget that blockchain technology continues to hold much promise.
While some may lament the entry of regulators in 2018, clamping down on ICO projects, and putting in place strict frameworks for compliance, these are signs of a market maturing. Speculators aside, industry experts knew the Wild West of Crypto was only a transitionary phase, and as it draws towards its close, the time has come to focus on holistic, sustainable growth with real, tangible benefits.
As 2018 marched along and the utility token market saw a slowdown, industry has been rife with talk of the arrival of security tokens. This is for good reason.
The market has long-waited for the grand entrance of institutional investors – but they have not yet significantly entered the market. This has partially been attributed to the core offerings of ICOs. Utility tokens offering usability are simply not substantial enough to investors, who are used to buying stakes in companies.
Enter security tokens. The familiarity of the IPO world coupled with the benefits of blockchain is an offering that promises to redefine the IPO business. The idea of programmable equity brings possibilities of immense liquidity and efficiency at lower costs. Coupled with access to global pools of capital, 24/7, opportunities abound.
However, it is still a promise, as the market infrastructure for listing and trading security and asset tokens is still in the works. But the change is coming, with 2018 seeing major crypto exchanges applying for brokerage licenses in preparation. With the market still nascent – we expect to see the opening of exchanges with security token trading functionalities in 2019. However, it is likely in the early stages that liquidity will be limited.
The success of security tokens is contingent on digital asset exchanges being up and running. Alongside crypto exchanges like Coinbase, Binance and Lykke seeking regulatory clearance for security tokens, we also see traditional players like Nasdaq, London Stock Exchange and the Swiss Stock Exchange developing digital asset platforms, signs indicating that market infrastructure will be in place by the second half of 2019. As processes stabilize and regulatory concerns are addressed, we will see the launch of several STO projects towards the end of 2019, with major activity and more liquidity in early 2020.
With several indicators pointing towards the possibility of a global slowdown especially in the equity and bond markets in the coming year, investors are on the lookout for alternative asset classes. With the developing market for security tokens, there are immense possibilities in the tokenization of well-performing assets that previously lacked liquidity. Consider healthy Small-Medium Enterprises (SMEs) and Real Estate Assets, that tend to have robust returns, but lack wide market access.
While they may not be able to afford public market listing, opening up to global markets of investors could provide an infusion of capital that could help scale their businesses. With over 90% of companies in operation globally listed as SMEs, the potential for growth is significant.
Of all the methods to harness the power of blockchain, one that has piqued interest across borders and industries is the possibility to develop B2B2C ecosystems. A McKinsey study from 2017 reported the importance of ecosystems in the future, suggesting that new ecosystems would emerge in place of many traditional industries with over $50 trillion in revenue by 2025. Not unlike e-commerce in the nineties, the vast potential for growth and disruption with decentralized P2P ecosystems is yet to be discovered.
In enabling efficient peer-to-peer transactions through shared APIs, the potential of a smart contract-powered decentralized ecosystem is vast. This also involves the construction of new business models, in a frame of cooperative competition, with competitors coming together to build up ecosystems that connect various players through the lifecycle of any product and the end-to-end delivery of services.
While this concept has already seen some implementation in 2018, the experiments have brought learnings rather than success. The experiments have helped identify complications in implementation, such as the need for a business governance model that allows all ecosystem players to have a voice without any single leader.
The learnings from unproductive experiments open up the gates for more progress in 2019, with innovative new decentralized ecosystems being developed by the end of the year.
It is more and more widely accepted that blockchain is here to stay. Even as the technology turns toward the trough of disillusionment on Gartner’s hype cycle, comes the investment in technology development and greater regulatory clarity.
At the end of 2018, blockchain remains the darling of the tech-savvy, but is still perceived as a vague, not-quite-understood, new entrant to the tech conservative. The true winners of 2019 will be companies that are able to bridge the crypto and fiat worlds, enabling digital links between the two. This linkage is a necessity across industries, from storage, trading, asset management of digital assets to real world applications of technology for the bystander, such as voting and land-registry.
The end of 2018 also marks the end of the crypto-hype, and we welcome the next phase of development of digital assets as we move up the slope of enlightenment and toward the plateau of productivity.
Image source
This blog post first appeared in Forbes.
As I have written about before, we are in the middle of a sea change in terms of how commercial markets are organized.
Much of this change is being driven by blockchain technology, which can be used to replace the vertical, siloed industry structures we know today – structures that are fragmented and full of friction – with radically decentralized, open and fluid ecosystems.
Having been in this space for quite a while now, and having worked with a large number of companies and projects, I am more convinced than ever that this vision of new ecosystems in the enterprise space is a fantastic growth opportunity. I also find that the true dimensions of what is going on here are becoming clearer.
Up to now the blockchain discussion in the enterprise space has generally been about efficiency gains – about bringing down the costs of existing processes. What I see more and more is that the horizontal, fully integrated value chains of the future can be a tremendous engine for growth as well. And this is where it gets interesting.
Let’s have a look at how this looks in practice.
We are for example advising am European bank that is working on a horizontal, blockchain-based real estate ecosystem. In this space, the bank sees itself as one part of a fully integrated value chain in which all the products and services around selling, buying, moving in or out of a home are digitally integrated into a single open platform. This can include everything from the mortgage application and acceptance to title registry to securing building and renovation permits to tax assessment and payment to arranging for the moving company to hooking up the telephone and internet and engaging the landscaper.
Such a platform, if it could be built, would of course be great news for the home buyers and sellers. Instead of dealing with different vendors who do not know anything about what the others are doing, with blockchain and smart contracts, everything can be digitally contracted for and coordinated in a single space.
What I think enterprises need to keep in mind, however, is that the new market platforms and business models that will come out of this kind of integration will be very interesting for them too.
Here’s why.
In any marketplace, all participants have to be connected. Today this is achieved through a hub and spoke model. Industries and businesses exist in their own silos, and then rely on some sort of market platform to come together and do business.
Google and Amazon are obvious examples of such platforms whose business model is to integrate market participants and facilitate transactions. That has proven very useful, but having a proprietary market platform also adds cost and friction. More importantly, these platforms also disintermediate the customer interface, transferring the customer relationship from the business providing the product or service to the owner of the platform.
With blockchain we can build new kinds of market platforms that are collectively owned by the participants.
This technology by its nature makes it easy for large, disparate groups of market participants to communicate, collaborate and – most importantly – safely transact with each other. In a blockchain ecosystem, all participants can also observe the entire state of the market at any time, as opposed to in a proprietary platform, where only the platform owner has the full overview.
By adding smart contracts to the mix, we can build a cross-enterprise workflow engine, moving business logic out of the enterprise and into the collective ecosystem layer. This would allow market participants to easily codify market rules as well as individual partner agreements in a way that is transparent, trustworthy and easily enforceable.
Such platforms, which exhibit a high degree of automation, are highly efficient. Without intermediaries, they are also inexpensive to use. By getting rid of the need to build and maintain costly data and transaction silos, not to mention the APIs and reconciliation mechanisms required to connect these silos together, such platforms can be built more quickly and far less expensively than traditional ones. That can represent significant cost savings within the enterprise. Perhaps more importantly, once built such platforms can facilitate cross-selling, reduce acquisition costs and potentially radically increase the customer base.
As has been pointed out, moving to blockchain-based horizontal ecosystems can also have advantages within the enterprise by catalyzing the breaking down of value chains into their component parts. In place of the monolithic legacy systems businesses are used to, enterprises can then move to a microservices architecture built on the foundation of blockchain and smart contracts. That will let them develop lightweight, dynamic, easily scalable and more robust applications that they can plug into the ecosystem, and withdraw, as needed.
Of course, it won’t be all smooth sailing. Challenges to overcome include the complexities in the initial setup, in particular the operating model discussions (designing the ecosystem, reaching consensus on the desired rules, working out partner agreements).
Once the ecosystem is running, there will certainly be governance issues to deal with as well. Perhaps as challenging will be the mindset change. While enterprises have long been used to cooperating with competitors in strategic partnerships, this brings such “coopetition” to a whole new level. People will need to get used to it.
I believe the potential rewards will be well worth any such growing pains.
This blog post first appeared in Financial News.
There should be no doubt by now that initial coin offerings – token sale fundraisings by startups – have established themselves as new and very compelling forms of capital raising.
Startups, primarily in the blockchain world, raised $4.6bn in various forms of token launches in 2017, a quantum leap from the $0.2 billion raised the year before. While this may not seem like much compared to the $188.8bn raised in traditional IPOs in 2017, five of the largest ICOs in history took place in October and November so there is clearly strong momentum.
This has begun to disrupt above all the traditional venture capital model by providing a compelling alternative fundraising mechanism for startups. An ICO lets a startup take its idea directly to investors for near-instant validation through the crowd, and relieves founders of the often significant time commitment needed to pursue fundraising through traditional means. This in turn gives them more time for their real job: innovation. With a successful ICO, startups can also potentially meet all their capital needs in a single raise rather than needing to constantly raise fresh venture funding.
So it is no surprise people are beginning to ask if ICOs will make venture capital obsolete. I think the new model will almost certainly disrupt the way VC firms do business. But it won‘t mean the end for them.
VC firms still offer founders a lot. Their participation in a project is a strong validation of the idea and they can offer valuable advice in terms of refining concepts and developing business plans. While a single, all-encompassing funding round through an ICO can be tempting, windfalls can lead to excesses. Venture capitalists, which traditionally provide funding in series of smaller rounds, can help ensure founders remain prudent spenders and push them to meet deadlines and achieve milestones.
There are also parts of the ICO market that need to mature before it can attempt to replace venture capital.
The biggest area that requires attention remains regulatory uncertainty. While regulators around the world have generally been attentive to the rise of ICOs, and have worked hard to understand them, there are still a number of thorny legal and regulatory issues to be addressed. There is disparity between jurisdictions and most countries have yet to address cryptocurrency tax questions in a meaningful way.
ICOs also continue to face a serious threat that traditional forms of fundraising do not: that of hacking. We have seen money stolen from token launches through fraud, for example through phishing schemes or fake websites, as well as security flaws in cryptocurrency wallets. If the ICO community cannot address such cyber security issues, it will have a hard time catching on with mainstream investors.
None of which is to say ICOs will be unable to deal with these issues. Various initiatives are underway to improve regulation, security and investor protection.
These include efforts by the industry to regulate itself, for example through codes of conduct like the one we recently developed at the Crypto Valley Association. Increased focus on cyber security is likely to see more structures designed to protect investors, such as lock-up periods forcing investors to more carefully evaluate projects and discouraging ‘pump-and-dump’ schemes, and pre-registration requirements.
In the future we are likely to see more structured funding rounds as well, with caps, increased transparency regarding the need for funds, and innovative ways to govern the use of funds – from voting by investors to smart contracts to ensure that pre-agreed capital expenditure plans are adhered to.
But for the time being, although ICOs are clearly a disruptive development in the world of startup funding, they do not stand to replace traditional venture funding – certainly not yet.
And even as the ICO industry matures there is every reason to think venture capital will remain an important part of the startup process. Venture capitalists could work alongside ICOs by providing funding and advice to refine an idea and develop a business plan before attempting a public funding round.
In fact, combining the benefits of both VC funding and ICOs may turn out to be the best choice for venture capitalists, founders and the broader investor community alike.
For startups, it means access to important expertise at perhaps the most critical moment for the whole venture: its inception. And for VC firms it means still having the chance of getting in early on projects, either with an equity share, early participation in the eventual ICO, or both.
Oliver Bussmann is founder and managing partner of Bussmann Advisory; ex-chief information officer at UBS and SAP; and President of Crypto Valley Association, a Swiss blockchain network.