The 10 key trends in the decentralised ecosystem you need to know as we approach the midway point of 2018June 2018
by Joel John
We are well into half the year and the markets seem to be showing a fraction of the excitement that was there in 2017. The second quarter of the year however has had a large amount of interest coming in from more traditional players. Notable players from legacy financial markets such as Fidelity Investments have begun positioning themselves for the next uptick in interest in the token economy. There have also been a high number of product deployments from banks and peaking interest from government regulators. Interestingly enough much of the key happenings in the month has come from players in the financial industry. Exchanges becoming venture capitalists, centralised exchanges acquiring decentralised ones, banks turning their operation to blockchains and some even launching one. We look at these and more in our monthly brief.
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The steps taken by the incumbents in the space are an interesting indicator of how forward thinking the community is. 3 major exchanges from different parts of the globe have taken drastic steps, each unique in their own ways to make a mark
1. Coinbase To Acquire Paradex
Exchange behemoth Coinbase has announced that it will be soon acquiring decentralised exchange Paradex. While the terms have not been revealed yet, it is safe to assume that the ten-member team that was working on Paradex will now be working with Coinbase. The product allowed individuals to trade tokens without having to deposit them to a centralised, third-party wallet. Instead, traders will be trading directly on a peer to peer basis with each other. This is the direct opposite of Coinbase’s existing, custodian model. The acquisition is an interesting example of an incumbent within the token economy acquiring potential competition before they reach scale. It is also indicative of the fact that there is a great extent of “centralisation” even with respect to decentralised exchanges and that they can be purchased if a large enough player wishes to. The move from coinbase will hedge itself against Circle’s move to token exchanges through their Poloniex acquisition and bring much needed public awareness of peer to peer, decentralised exchanges that require no third party custodianship.
2. Binance To Launch Ecosystem Fund
Binance, one of the largest token exchanges in the world has announced the setting up of a billion dollar community fund aimed at assisting startups and seeding funds. Huobi, Hitbtc and Binance have had their “launchpads” oriented at assisting tokenised startups set up for well over a year. The new influx of capital will come in the form of utility tokens set up by Binance named BNB coin. The exchange had previously invested $30 million to Mobilecoin and is no stranger to investing in early-stage projects in the ecosystem. They also revealed that they would be incubating Dache Chain – an uber-competitor in China.
As capital in the ecosystem increases substantially, the need for checks, balances and stronger systems of governance in projects stemming from the industry increases more than ever before. More reasons to explore on-chain governance
3. Huobi Launches Own Blockchain To Decentralise Operations
Huobi has announced the launch of a $100 million fund towards building Huobi Chain. The exchange plans to move its operations towards the chain and function as a decentralised autonomous organization (DAO). Binance had committed towards a similar goal in March and had indicated interest in listing all kinds of tokens. Rising regulatory scrutiny and risks involved in the centralised management of tokens may be increasingly influencing exchanges towards considering the dex model (decentralised exchanges). More importantly, as traders find more liquidity and better exchange rates in decentralised exchanges with little AML/KYC requirements, the possibility of centralised exchanges being a secondary choice rises rapidly. This is the risk that Huobi may be trying to offset through the move.
Things have changed a lot since 2014. Those days, token based exchanges could not even find a bank account to wire money through on a routine basis. The past month witnessed a bank in Japan launching their own cryptocurrency exchange and a handful deploying products based on blockchains in live production. We look at the 3 major ones in this brief.
4. SBI Holdings Launches Token Exchange
Few days after Bittrex opening support for dollar-based trades with help from American banks, Japan’s SBI Holdings has announced the launch of an in-house exchange. Named VCTrade, the system currently allows individuals to trade only in ripple and is accessible to individuals that had pre-registered for access in October 2017. Additional support for Bitcoin and Bitcoin cash is anticipated to be added soon. The bank had entered the token ecosystem in 2016 through a wholly owned subsidiary named SBI virtual currencies. The Japanese token exchange ecosystem is one of the strictest in the world with exchanges requiring regulatory clearances from the Financial Services Agency (FSA).
Two cryptocurrency exchanges had previously lost their licenses in Japan due to failure to comply with requirements. An indicator of how involved regulators are with exchanges in the region. As stock trading and wallet apps add the option to purchase tokens through them, the much-needed on-ramps for retail consumers to begin using tokens will only increase in number. Japan’s forward-looking approach to tokens may have played a crucial role in banks embracing the token economy.
5. Japanese Bank Mitsubishi Plans on Blockchain Payments in 2020
Mitsubishi UFJ Financial Group (MUFG) partnered with Akamai over the past year and a half to create a blockchain that is capable of handling over a million transactions per second (TPS) with latencies of less than two seconds. The service is expected to scale up to ten million TPS shortly. This is incrementally higher than Bitcoin’s 7 TPS currently, but the system makes the trade-off of being a private, permissioned ledger on Akamai’s cloud. The move from MUFG leaves reasons to believe that large enterprises would continue to work with specialised service providers instead of choosing off the shelf solutions from AWS and Azure for now. Banks implementing blockchains is not a rare event. On the contrary, it is slowly becoming the norm. Over 7 Indian banks had recently agreed to leverage blockchains for faster settlements of transactions between them. Read this report by Deloitte for more on blockchain in the context of banking.
6. HSBC Makes World’s First Trade Finance Transaction Using Blockchain
HSBC bank claimed on Monday that the organization has performed the world’s first commercially viable trade finance transaction with the help of a blockchain. According to CNBC – the bank issued a letter of credit for US food and Agriculture firm Cargill. The transaction involved a bulk shipment of Soybeans from Argentina to Malaysia. Given the sheer amount of paperwork involved in issuing letters of credits and the long timeframes needed to verify them, a blockchain could accelerate the process by a great extent. In the transaction made between HSBC and ING, the exchange was performed in a matter of 24 hours when compared to the normal 10 days taken to complete such processes. Quicker reconciliation of papers involved in such processes could also mean increased liquidity for business owners. Another example of how blockchains are slowly eating into the core functions of modern day banks !
Much of the news coming from regulators over the past week has been about the need for increasing regulations in the space and the proactive steps taken to make it possible.
From being outright dismissive, some have begun talking about the possibility of using them to improve the lives of citizens within their jurisdictions. Make sure you read Christine Lagarde’s piece to understand how regulators may soon have to find the fine balance between enabling innovation and enforcing strict regulations
7. India’s Telecom Authority To Test Blockchains To Curb Spam Calls
India may be far from having its version of GDPR, but the Telecom Regulatory Authority of India (TRAI) will soon be coming to the rescue of people with a solution enabled by blockchains! With an increasing number of services selling consumer data such as phone numbers and addresses in the region, spam calls and texts have rendered the phone numbers of many useless. Putting a limit on commercial communications is difficult within existing infrastructure as spam calls often occur from SIM cards with numbers that are similar to retail consumers. The Telecom Authority in the region will soon be using a blockchain to track consent and frequency of contacting consumers. TRAI Chairman, RS Sharma stated that
“Blockchain will ensure two things — non- repudiation and confidentiality. Only those authorised will be able to access details of a subscriber and only when they need to deliver service… Trai will become the first organisation to implement this kind of a regulation”
With over 900 million telephone subscribers in the region, if done effectively, this may be the largest implementation of a consumer-facing blockchain project by a regulatory authority.
8. SEC Names Valerie A. Szczepanik Senior Advisor for Digital Assets and Innovation
The Securities and Exchange Commission has announced Valerie A. Szczepanik as the Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation for Division Director Bill Hinman. According to the statement released by the SEC, Ms Szczepanik will be coordinating efforts across all SEC divisions to emerging digital asset technologies including cryptocurrencies and ICOs. The move from the regulatory authority is interesting as it puts a face to evolving technology. Given the number of subpoenas issued by the SEC, it is fair to assume that the regulatory body is actively monitoring token sales. They had also issued a website named “Howeycoin” earlier in the year to educate investors about how token sales could deceive them into buying fraudulent products. As the size, nature and complexity of the industry evolves, regulators will play a crucial role in issuing guidelines for entrepreneurs, asset issuers, investors and adopters alike.
9. Christine Lagarde Talks About The Need For Balance in Regulations
IMF’s Christine Lagarde has been a leader amongst regulatory authorities speaking about the potential tokens as an asset class may hold. In her latest post, she gives a balanced perspective on the need to understand both the risks and opportunities involved in enabling emergent technologies such as AI and Crypto. She states that regulators have the responsibility of protecting consumers and investors against fraud, but also be careful not to stifle innovation. Citing lessons learned from the crisis of 2008, she explains 3 crucial lessons. First, the need to reap benefits of new technologies while maintaining trust. Second, the possibility of risk accumulating in unexpected places (eg: synthetic token related products) and thirdly, the possibility of financial shocks reverberating across national borders. Given her experiences as a central bank authority during previous recession, she brings a rather unique perspective on the need for balance in regulating technology. Grab the entire piece here.
10. From Outlier Ventures Research
Make sure you book our research section on the website to stay up to date on the key trends, analysis and insights from the team. We push out new stories once every week. Here’s one from our Head of Research – Lawrence Lundy on data exchanges. If the recent incidents at facebooks point towards anything – it is that personal data will soon be commoditised and actively sold. Marketplaces in the blockchain era would soon make it possible to collect, share and utilise said data for a wide range of applications. Present day data exchanges specialise in specific kinds of data. These are usually sourced from IoT networks or AI data. Lawrence believes that a data marketplace that focuses on enabling the trade of all types of data and acquires the dominant market-share for doing so may well be in Web 3.0 like Amazon is for web 2.0. The piece explains the different kinds of data marketplaces we may soon soo and how they fit in our convergence thesis. While the use of digital assets based games may not have surged, we have good reasons to believe data marketplaces will be a key theme to focus on over the coming years. Learn more about the emerging trend in technology and the reasons why here.