It's been a dynamic year in blockchain.
Facebook wants to launch its own digital currency Libra in 2020, Donald Trump tweets about blockchain that he's "not a fan", the SEC takes a positive regulatory stance to companies looking to comply with the US Securities laws and takes enforcement actions against fraudulent ICOs.
For the past decade, blockchain as an underlying piece of technology has provided an open and transparent mechanism of capital allocation for a wider audience and subsequently has led to a boom in financing organisations in the sector.
2019 at a glance
2017 and 2018 have shown an exponential growth in terms of number of companies leveraging the blockchain technology and the amount of funds brought into the space. In 2019, we are clearing out noise and witnessing big players jump in.
BIG PLAYERS ENTER
From JPM Coin to collateral management, a lot is happening at J.P. Morgan. The bank has developed its own private blockchain called Quorum. J.P. Morgan aims to provide full audit history, real-time workflow execution and visibility leveraging smart contracts.
HSBC is ditching paper ledgers and moving $20 billion worth of assets to a blockchain-based custody platform Digital Vault to give investors real-time visibility.
Commerzbank, Credit Suisse and UBS went live on the Deutsche Börse-HQLAX distributed ledger technology (DLT) solution for collateral swaps. HQLAX is a financial technology firm built on R3’s Corda, improving collateral fluidity for institutional clients.
Since its launch in 2018, R3 Corda Enterprise has attracted a number of big customers including ING and SIX Digital Exchange. Enterprise-grade DLT solutions provide better scaling and interoperability mechanisms allowing unparalleled collaboration opportunities.
In 2019, we have also seen a lot of collaboration and consortia forming across various industries. In Supply Chain
IBM Food Trust launched in late 2018 is now joined by an army of world’s largest food suppliers.
Pharma giants have joined forces to protect their proprietary intellectual property and data. Melloddy project uses machine learning model for drug discovery and development and blockchain for data security.
Finance, Finance, Finance Novum Insights tracks 9000 blockchain projects and companies. In 2019, more than 300 deals have been made in the space. Among them, about half of the companies were working to disrupt the finance sector raising more than $1.35b in total. Juicy Deals and News
Kraken, one of the oldest crypto exchanges raised $100M in February and added $13M via crowdfunding in June. The exchange is now making it possible for customers to execute futures trading from the mobile app. It has also acquired Crypto Facilities, a regulated futures trading platform, for $100M.
South Korean crypto exchange Bithumb raised $200M. The company's Bithumb Chain will allow users and developers to create DeFi apps.
Anchorage, a crypto custody services company raised $40M. The investors include Visa, Blockchain Capital, Andreessen Horowitz.
Zeus Exchange, a hybrid trading platform based in Singapore raised $2.75M. The platform allows users to trade both traditional and digital assets in a single place at low cost.
Chinese bitcoin mining firm Canaan raised $90M in IPO and is now listed on Nasdaq.
Facebook aims to disrupt the global finance and payments network to make digital currencies accessible to the underdeveloped parts of the world. This promise has been seen in numerous whitepapers until now but never by a centralised corporation which already has access to more than 2 billion people across the globe. The public launch of the platform is in the first half of 2020. Libra coins will be stored in third-party wallet apps or Facebook’s own Calibra wallet that will be built into WhatsApp, Messenger, and its own app. Libra will not be like Bitcoin because it is a stablecoin. A stablecoin is pegged against real assets or fiat currency to curb the volatility of the digital currency. In the case of Libra, Libra has been pegged its own value proportional to the assets kept in reserve by the parent organisation, the Libra Association. The introduction of Libra could potentially unlock a new era of commerce and payments for the social network. Libra is a unit of the Libra cryptocurrency which is meant to stay stable because it is pegged to a basket of bank deposits and short-term government securities including international currencies such as Dollar, Pound, Swiss Franc, and Yen. Libra has set up three criteria for the assets to be eligible for the long-term inclusion in the Libra reserve. eBay, Stripe, Mastercard, Visa, and Mercado Pago have all dropped off Facebook’s libra cryptocurrency project after PayPal announced its withdrawal as government regulators continued to scrutinise the plans. PayU is now the only payments company continuing to back the cryptocurrency. As we look ahead though, there are two major trends worth following: 1) the slow unraveling of ethereum, the second-largest crypto project 2) the seeds of decentralized social media, currently being explored by Twitter and others. Jack Dorsey, Twitter’s CEO, has funded decentralization research and open-source development of bitcoin (via Square, his payments company), nodding to a vastly different future for the web.
While there is a great deal of excitement surrounding stablecoins, the technology is still nascent and further experimentation (and innovation) is expected. A research report published by Blockchain.com identifies 54 stable coin projects working today. Stablecoins are already an important part of the digital assets ecosystem: Tether (USDT) is the second most actively traded cryptocurrency at ~75% of BTC daily trading volume in 2019 (up from 57% in 2018).
Some stablecoins may be viewed as posing greater direct competition to fiat currencies than more volatile cryptoassets like bitcoin; if a stablecoin were to become widely used as a means of payment it may spark a competitive response or regulatory backlash from central banks, which in many jurisdictions have largely remained on the sidelines of cryptocurrency regulation to date.
Amongst the largest live stablecoins, the Dai stablecoin system is currently the only one that by design has a second token, the MakerDAO (MKR) governance token, which may appreciate in value in response to growing use of its associated stablecoin, Dai (DAI).
Initial Exchange Offerings (IEOs) ICOs became the Wild West of venture capital by late 2017 as exuberance took hold. Driven by unfettered growth and profits above all, there was no overseer, no government agency waiting to crack down, and no red tape to stop anyone from promising the moon and trying to build on an idea.
The ICO market got spooked, particularly when the SEC stated in the summer that everything except Bitcoin and Ethereum is likely an unregistered security.
Then came in the market a direct alternative to ICOs which were partially solving the problems of trust and transparency - IEOs or Initial Exchange Offerings. The fundamental difference which separates ICOs from IEOs is that the token offerings of a project in the case of IEOs are carried out in exchange. The ICO format is completely permission-less for absolutely anyone to launch and participate in. There are no gatekeepers. The IEO reinserts the middle man and central authority in the form of an exchange. The crypto exchange administers the IEO on behalf of the startup that seeks to raise funds with its newly issued tokens.
Startups are able to take advantage of the user base of exchanges to obtain contributions in their funding rounds.
Until now, no IEO has been conducted on a decentralised exchange, ‘gas wars’ between sale participants are easily prevented.
IEOs prevent scam since the companies can’t run with the funds collected from the contributors.
The next steps of listing the token on an exchange are automatically skipped.
Listing token sale on an exchange can be expensive. The listing price can go as high as 20 BTC.
Some crypto experts believe that the IEO model contradicts the foundational philosophy of blockchain by introducing a centralised middleman (exchange) in the crowdfunding process. This middlemen charges fees for various assistance it provides. This has created resistance among some named investors to approve IEOs as the next welcoming step in the crypto financing mechanism.
The token prices may face manipulations by the exchange investors as experienced in the case with the ICOs.
Security Token Offerings (STOs)
The Security Token Ecosystem is a multi-layered complex ecosystem. Similarly to traditional financial security system where various parties are involved such as legal, financial and compliance institutions, there is an ecosystem that consists of technical, business, legal, marketing, finance and collateralization to support the deployment of security tokens.
Security token issuance platforms are regulated crypto platforms specifically established for issuance of security tokens. These platforms integrate KYC, anti-money laundering, investor management and securities legal compliance to automate the primary issuance and secondary market transferability of any tokenised asset across all borders.