The State of Blockchains Q2 2018: The Crypto Markets are Wrong

August 2018

Despite the token bear market, VC, M&A, and corporate blockchain projects are thriving

 

Crypto-assets: The new world is beginning to look a lot like the old one…

Forget what you’ve heard. Despite the negative sentiment and token bear market, if you scratch under the surface, the broader blockchain ecosystem is experiencing rapid growth and maturation. The focus on price of publicly listed tokens is misguided as a proxy for ecosystem health. This quarter we have seen an uptick in #buidling, corporate blockchain projects, and favourable regulatory announcements.       

Although the market continues to be a so-called “winter”, venture capital and M&A activities have both hit new all time highs. 343 deals have collectively raised close to $1.8 billion already this year in venture capital and we have seen 30 M&A deals. As traditional finance has moved in, retail investor interest has dipped. In the second quarter we saw – for the first time – a quarter-on-quarter drop in amount raised through token sales. Although the total sum raised through token sales has surpassed that of 2017, the figure is significantly inflated by the EOS $4 billion and Telegram $1.7 billion raises.

Hopes of Bitcoin rallying substantially in the coming months due to rumors of an exchange-traded fund (ETF) may lead to retail investors continuing to hold on to their existing crypto-tokens instead of investing in token generation events from new projects. However, just like the traditional investment industry we are beginning to see different participants with different risk profiles and return timeframes. Premium projects are choosing to take a mix of capital to ensure a more diverse set of token stakeholders and increase the likelihood of a more sustainable project.   

 

Business and blockchains: crossing the chasm

In the blockchain and distributed ledger technology (DLT) space, enterprises continue to experiment and deploy blockchain solutions into their services. From Walmart integrating blockchains to their supply chains to track food to insuretech providers connecting over 100 hospitals to accelerate claims, the use of blockchains is becoming wide and varied. Some of the biggest companies in the world including consumer Internet companies like Facebook, Google, Ant Financial, and Baidu are all rolling out real-world products.

With million and billion-dollar businesses getting involved in the space, we expect to see a renewed focus on user experience and making it easier for developers and consumers to interact with blockchain technology. Much like the average Gmail user does not know about SMTP (Simple Mail Transfer Protocol), we will soon see blockchain applications being used without users being aware of the technology itself.

Regulators are getting to grips with the innovative potential of blockchains

Regulators around the world are rapidly (for regulators) setting up consultations, task-forces and workshops to figure out how to balance consumer protection and innovation. Most notably, the quarter had the G20’s FSB (Financial Stability Board) suggesting that tokens do not represent a threat to the stability of financial markets globally. They followed up with the comment in July with a framework to help member nations assess the risks involved in enabling token based markets in their jurisdiction.

The FSB framework accounts for risks stemming from public token sales, token based futures and banking infrastructure used to support exchanges. Similarly, the International Monetary Fund’s Christine Lagarde commented on the need to be cautious about strict regulations as they may stifle genuine innovation that distributed ledgers and blockchains represent.  

The ecosystem is maturing. It is growing, becoming more diverse and serving more use cases than ever. It’s an exciting moment if you can ignore the markets.

 

The State of Blockchains Q2 2018 from Outlier Ventures