hyperledger

FINTECH: The Value of Centralized Vision

Source: SpaceX

Source: SpaceX

Elon Musk launched the Falcon Heavy rocket into space with a Tesla car carrying an astronaut dummy, blasting David Bowie. His competitors spend about $500 million per launch, because the very expensive boosters which get the payload away from Earth's gravity fall back down and explode. Musk's boosters are smart -- they can land and be re-used. As a result, his cost is $90 million per launch. Good luck competing against a 5x advantage. 

We don't bring this up to point to the cult of personality, but instead to the power of a determined, clear vision backed by well-funded and functional organizations. While Fintech has been about democratizing access to financial services for customers, Crypto has been about decentralizing production to the community. Decentralization is useful and can create certain desired attributes, but it is not always strictly better. The Falcon Heavy did not come from design by committee, crypto consensus mechanisms, or votes from survey groups about what features customers would like. It came from reverse-engineering the future based on a purpose, levered with human and financial capital.

In Finance, the West is failing to have any coherent vision of the future. Few of our financial leaders have articulated anything close to an artificial intelligence or crypto strategy that coordinates across divisions to build a coherent future. Nobody has bet the farm. Compare for example with China. Hyperledger's executive director Brian Behlendorf recently discussed why operational progress in blockchain adoption among existing industry is far ahead in Asia. Money is moving through productions systems. $2 billion is being spent on artificial intelligence research and education. Americans are still debating coal.

In that light, we have to give credit to Overstock, which continues to move in the fintech direction that Amazon is avoiding for now. The online retailer has 40 million unique visitors per month. They can buy goods using Bitcoin, and now for $9.95 a month they can get a roboadvisor offering. That's right -- in addition to launching it's own blockchain-based trading system tZero and pursuing an ICO, the company is offering investment product portfolios constructed from baskets of stocks. The custody comes from Apex, and the algorithms from FusionIQ. And who knows -- maybe Bowie's playing in the background.

BLOCKCHAIN: Digitizing Delaware's Corporate Heart

Source: Symbiont

Source: Symbiont

Where do corporations come from? If you are from the United States, the answer is most often the State of Delaware -- a state with a deeply developed common law around corporate formation and conflict resolution, and a case study in regulatory competition. Delaware beat out the other 49 states for corporate formation by creating the right legal climate in which to register companies. And now it is innovating again.

The State is working with the law firm Cooley and blockchain startup Symbiont to create the option of incorporating companies directly on a blockchain. The project has been going on for about a year, and is aimed at both private and publicly traded stocks. If realized, this is monumental news for the possibilities of what a blockchain is and how it will be used. Many projects in the West have focused on second order effects -- a token that represents a security, rather than the security itself. If the legal entity itself is digitized as the source, i.e., during the corporate event, then digital assets will need digital systems in all counterparties to which they flow.

Primary and secondary equity markets are downstream from corporate formation. If corporations are built and tracked on the blockchain, do these downstream participants follow? Do they use the same or a different distributed ledger? Does it make sense to have a corporate equity token that is distinct from a tradeable equity token? What about proxy voting? What do companies like Broadridge do if corporate smart contracts can live at the level of the State? Such fundamental questions also reflect on the role of government and economic structure. As another example, a Russian Central Bank group has forked Ethereum to create a Russian "Masterchain" and we can expect similar questions to be addressed in a more centralized manner.

CRYPTO: Quorum on Enterprise Ethereum

Source: JP Morgan

Source: JP Morgan

The enterprise blockchain world changed last week, with the formal launch of Enterprise Ethereum. Many large corporates are backing the initiative, including JP Morgan, Santander, ING, BNP Paribas, Microsoft, BNY Mellon and others. We moderated a panel on Ethereum for Finance, and here are the key takeaways. First, the appetite is real -- large firms are looking for talent and are excited about the open source community and the potential to leverage all that Ethereum brings to the table. They don't see it as disruptive, but as a piece that can function within the ecosystem of existing products and services driven by client demand. The work of integration, however, will be immense. Firms like E&Y, Wipro, Accenture, IBM are focusing on the the integration work. Microsoft and IBM are also in it for hosting the cloud data, and we were impressed by Azure's support of Quorum, JP Morgan's Ethereum effort. It's too early to tell how this all plays with Hyperledger, R3, and other consortia, but the tech is certainly moving forward.  Read more. You can also watch the whole eventhere.

BLOCKCHAIN: Northern Trust Blockchains Private Equity

Source: IBM

Source: IBM

Get ready fund administrators and lawyers! Northern Trust has announced a blockchain production system using Hyperledger's code base for private equity. The system was developed under the advice of IBM for Northern Trust custody client Unigestion. Rather than leveraging the decentralization and consortia benefits of the blockchain, this deployment optimizes the efficiency of managing one particular asset, in what we believe is a smart contract set up. The several parties contractually obligated under a private investment take turns participating in the workflow. IBM hosts the data. Read more.

BLOCKCHAIN: R3CEV at Crossroads

 R3 is a darling of the private Blockchain community. It was first out of the gate with a consulting/subscription business model, signing up 70 banks in a whirlwind of activity and media coverage. Ripple, Chain, Digital Asset and Ethereum were building interesting technologies, but did not have the breadth and the same cooperation of heavy weights behind it. Or so it seemed. Last week we learned that Goldman SachsMorgan Stanley and Santander have elected to leave the consortium. Speculation about the reasons abounds, from issues around control, to the pricing of the desired $150mm funding round (reduced from $200mm), to the cost of annual admission. Others point to Corda, R3's technology, as lagging the open source alternatives already in place from Hyperledger or Ethereum. A supposedly leaked internal note shows the company's current fundraising progress, and points to the inherent difficulty of the project. Can there ever be coopetition between financial firms that allows all of them to mutually own the technology, worth possibly billions in future infrastructure rents? Can adverse selection be addressed between the strong and the weak? Can banks both invest in proprietary companies and share their findings? Maybe not.