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Efi Pylarinou

The leading Artisans of today, from Davos, WEF2019
  • Efi Pylarinou

The leading Artisans of today, from Davos, WEF2019

The leading Artisans of today, from Davos, WEF2019 1200 800 Efi Pylarinou

‘Globalization 4.0’ was the theme of the World Economic Forum this year. Naturally, the future of work, sustainability and smart technologies and living, were amongst the topics addressed.

The leading Artisans of today, from Davos, WEF2019

What struck me was that the Davos crowd clearly ranks Jack Ma as the only visionary leader. This is the first time that someone from the East wins the hearts of the global business world which has long been dominated from the developed Western world.

This is the business man that has made Techfin reality. This is the business man that was an outsider to a controlling political system and who has become wise in a Yoda like way.

The leading Artisans of today, from Davos, WEF2019

Just before taking the trains to Davos, I saw the announcement that Alibaba bought the German-based Greek starup, Data Artisans, founded by Greek entrepreneur Kostas Tzoumas. The company specializes in the fields of data analysis, fraud detection and direct communication with consumers. Its customers include Netflix, Uber, Zalando, ING, and Alibaba.

When I looked at all the other acquisitions that Alibaba made in 2018, five in total, they are all related directly to e-commerce for various products. Data Artisans is a clear data play and the other related acquisition that I could spot over the past two years was Visualead, a software company focused on the research, development and enablement of IOT technologies using Visual QR Code.

Only when I came back from Davos and looked into Data Artisans, did I realize that Alibaba was one of Data Artisans clients before being acquire, but most importantly that it is an Open source Big data technology company!

Apache Flink is the open source stream processing framework developed by Data Artisans  that unifies real-time event-driven applications and real-time analytics.

Alibaba has contributed to Flink code over the past 2 yrs. 

`Stream processing is the processing of data in motion, or in other words, computing on data directly as it is produced or received.` excerpt from Data Artisans

Efi Pylarinou Quotations Pointer

Stream processing trained by an e-commerce giant
+
IOT future of smart cities

is the killer combo

Jack Ma`s recent yodaism has been focused on smart people, management of people, and human superiority. While there is no way to hack his success, there are many insights to gain from the narratives he chooses to share in important events like the WEF.

Previous Keynotes

Personally, I have been contemplating on the title of the Penny Power`s new book `Business is personal` (I haven’t read it yet). As a result, I was drawn to Jack Ma`s comments during the WEF around people  and business.

  • “When I hire people, I hire the people who are smarter than I am.”

  • “To manage smart people you have to use culture, the value system, [so] they believe [in] what they do. If you just want to use rules and laws and documents to control and discipline them – that’s how you control stupid people,” 

Jack Ma is devoting now his time in educational work.  We have to wait to see what that means. In the meantime, the forked version of Apache Flink, is called Blink, and is capable of handling the requirements of such a large scale platform like Alibaba. Blink is running on a few different clusters, and each cluster has about 1000 machines. Real Times processing, search capabilities, and machine learning at this scale, is not a trivial computational task.

Open source technologies have to become the basis of the 4th industrial revolution which includes IOT. Alibaba is already working on designing that future.

Jack Ma, has departed from Alibaba, but the people listen to him. He still believes and preaches that we people have hearts that can`t be built in machines. His comments on smart people and managing them in teams, made me ask again the open question:

Q – `How far can decentralization go in our society?`

A1 – Does this need smart people to collaborate? A difficult task.

A2 – Will this happen because smart people don’t collaborate? An oxymoron.

Rethinking is what we all need to do.

Listen also to the thought provoking discussion of Dr. Guenther Dobrauz-Saldapenna and the `Rock`n`Roll Plato` Anders Indset in `Outhink the Revolution`.

“Our Leaders of today need the philosophy of the past, paired with the scientific knowledge and technology of tomorrow” – Anders Indset

1. Source: http://www.atimes.com/article/hire-smart-people-as-stupidity-is-incurable-says-jack-ma/

2. Read more details in https://www.da-platform.com/blog/blink-flink-alibaba-search

Blockchain digital wallet users worldwide
  • Efi Pylarinou

Digital Wallets to pay or to hold assets, will become more popular?

Digital Wallets to pay or to hold assets, will become more popular? 800 531 Efi Pylarinou

There are 32million Blockchain powered wallet users according to Statista as of Dec 2018.

Blockchain digital wallet users worldwide

Source: https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/

While this growth is stunning, there are millions of people that still don’t understand the difference between these blockchain powered wallets and the digital wallets aiming to overtake the payment industry (replace plastic and other methods).

Wallets, purses, and handbags, have been female accessories and there is no sign of change on the horizon. Physical possession of IDs, credit cards, and cash, has been centralized in these accessories for ages. Men have been resisting the wrappers and filling front, back pockets of trousers or inside pockets of jackets. There is no adult that hasn’t been tormented by a misplaced, forgotten, or stolen “pack of personal” stuff (IDs, plastic, cash). Being able to take care of these possessions is a sign of maturity that any parent trains their teenager and delegates when it seems kind of safe.

The 24/7 mobile world seems to have moved part of the “pack of personal” stuff (IDs, plastic, cash) onto our smartphones. Digital wallets from Google, Apple, M-Pesa, and the likes are gaining traction and offering consumer banking kind of conveniences instead of cash and/or plastic. This is no shortage of mobile digital wallets even though end-users don’t seem to be spreading the word. I have yet to meet someone that looks at me in the eye and says “You cannot not have a mobile digital wallet! How can you live without that kind of accessory?”.

Digital Wallets
Digital Wallets
Digital Wallets
Digital Wallets
Digital Wallets
Digital Wallets
Digital Wallets

Some are counting on the fact that they are centralizing the multiple credit cards or store cards for us. Others are marketing loyalty programs either from our banking service providers or credit card providers or e-commerce stores. More recently, mobile digital wallets that aggregate and exchange value across various loyalty programs market themselves as creating more value with such interoperability.

All these kinds of Digital wallets are simply a digital interface to access centrally managed accounts through a mobile phone. There is no genuine innovation in these kinds of services since security issues inherent to centrally managed accounts remain and the cyber vulnerability of such third-party trust mechanism is not mitigated. The costs that these third-parties incur in order to handle the promises of maintaining deposits and accounts, keep increasing.

True wallets are those that enable each of us to hold bearer assets (like cash or cryptoassets) without needing a central third party to hold and possess these assets, and at the same time be able to transact with these. The true innovation here is removing institutional risk.

The finance future that is being built right now is offering the ability to hold any digital bearer instrument directly.

A user’s wallet will be able to hold a variety of financial instruments; cash, equity in a company, commodities, or even non-monetary instruments such as identification documents, school records, and driver’s licenses.

This world is the one that Jaxx and Shapeshift are shaping up. Their wallets aren’t just an interface to a bank. Their wallets are not just another account with an institutional provider. They aim to offer control directly to us and we can choose to trust our smartphone, our hardware wallets (Trezor, Ledger etc), or our hard copies etc.

Once they manage to scale, they will become the darlings of the regulators because who doesn’t dream of a world with reduced cyber institutional risk. The world of this next decade, will get rid of the need for reconciliation between financial service providers, a complex, and expensive process.

Fintech innovation started as a war between start-ups and financial institutions. This culture is clearly not the flavor of the day anymore.

Today we are seeing the emergence of another type of race. Will it be some branch of AI that solves the complex problems around legacy financial processes (like reconciliation between financial providers or vulnerabilities of accounts etc)? Or will it be cryptography that replaces centrally managed processes all the way from central banks to financial service providers?

The Digital Wallet User Experience will have to pass the toothbrush test.In “Consumer Banking”

7 mega waves in the Blockchain Economy and the dams holding them back In “Bitcoin & Blockchain”

Blockchain Digital ID and the vision of a Refugee Bank In “Bitcoin & Blockchain”

A look through Morgan Stanley’s WealthDesk platform
  • Efi Pylarinou

Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform

Incumbent Robo-advice platforms, software, products: A look through Morgan Stanley’s WealthDesk platform 1300 867 Efi Pylarinou

A race for a holistic advisory system is on, albeit at the pace of the financial giants that have accumulated assets under management and have thousands of advisors using their tools and services. Morgan Stanley is less vocal than JP Morgan, Blackrock, Vanguard, Fidelity.

What caught my attention in November is the “WealthDesk” rollout which is an integration of Morgan Stanley’s Goal Planning System, their investment screening dashboard and their portfolio construction tools. Empowering advisors to deliver a holistic service even though fees continue to be under pressure. Add on to that, the integration of the Blackrock Alladin risk management software into the WealthDesk platform. Alladin was previously only available for institutional investors. Now, advisors using the WealthDesk platform can perform scenario analysis for their clients and discuss alternative investment strategies with clients. Empowering advisors in this way, gives them a strong value-add headwind compared to competitors.

Even though UBS has a partnership with Blackrock’s Alladin risk management system, it is not integrated in its advisory platform. It operates separately which makes it difficult for advisors to offer the same fast and customized service as the UBS MD of managed solutions can.

In the Dec 3, Autonomous Next newsletter where the BlackRock’s $120 million buy of Envestnet stock and Morgan Stanley’s platform, is discussed; I can only agree with the Lex’s statement that it is “…surprising that the best way to sell iShares is to give Morgan Stanley some high quality roboadvice software.”

Morgan Stanley’s platform shows how challenging it is to upgrade and integrate tools and services in a way that empowers the intermediaries and delivers a holistic service to the end client. The tools are there, the business models are not the problem. What is challenging is getting alignment internally for the optimal tech integration that will produce the X factor in customer service. Morgan Stanley’s experience of this journey, indicates that it may take others at their level 3-4 years to catchup on this holistic integration.

Morgan Stanley WealthDesk also integrates the new version of the so called “Next Best Action” Machine Learning system to their 16,000 RIA. This system has been around for several years but as a rule-based system suggesting investment options for advisors and their clients. A system that every single bank with a wealth management offering has and that we all as clients wonder which is “best” (as if that is the right question in the first place, since none of these rule-based systems could be customized).

Morgan Stanley’s “Next Best Action” is using Machine Learning to support advisors in increasing engagement. The success of this tool will be measured by its effectiveness in enhance the dialogue with the client whether it is through in person meetings, phone calls or pure digital channels.

Like me, most of us are sick and tired of emails with pdf attachments of several analysts covering Alibaba (that I care about accumulating) and not knowing how to make sense of that. All of us, are realizing that only because of KYC stringent requirements, advisors look to  incorporate our life events and goals into an investment proposal. Morgan Stanley’s “Next Best Action” system is using ML to advice clients what to consider based on life-events. For example, a client had a child with a certain illness, the system could recommend the best local hospitals, schools, and financial strategies for dealing with the illness. The system monitors and learns from the reaction of the client to the “Recommendations” and based on the client responses, improves the quality of ideas each day.

Read more about the investment in: BlackRock buys Envestnet’s love for $123 million to crack its ‘open-architecture’ platform and sets stage for another juicy Envestnet acquisition

incorporate our life events and goals into an investment proposal. Morgan Stanley’s “Next Best Action” system is using ML to advice clients what to consider based on life-events. For example, a client had a child with a certain illness, the system could recommend the best local hospitals, schools, and financial strategies for dealing with the illness. The system monitors and learns from the reaction of the client to the “Recommendations” and based on the client responses, improves the quality of ideas each day.

In a way, the system thinks for the advisor on a daily basis and presents relevant information and continuously improved recommendations. The advisor has a choice and can send customized emails and texts to clients. The system in a few seconds finds the clients’ asset allocation, tax situation, preferences and values.

A look through Morgan Stanley’s WealthDesk platform

The system is empowering the advisor and this is where the potential of widespread adaptation lies. Never forget that tech adoption is always more of a cultural issue rather than a technical one. In machine learning, the more the system is used the better the next best actions are.

If the community of the 16,000 Morgan Stanley advisors make the “Next Best Action” their ally, then MS will have an edge and a loyal army taking care of their clients.

This not some version of robo-advisory focused on best on-boarding and low fee execution. It is enhancing a hybrid wealth management offering in a way that offers a cutting-edge (value) to those using Morgan Stanley as a platform provider (i.e. the advisors) and the end clients.

Morgan Stanley has established its tech center in Montreal – Montreal Technology Centre. It has grown to 1200 tech employees focused in innovation in low-latency and electronic trading, cloud engineering, cybersecurity, AI/machine learning, and end-user technologies.

Barron’s reports that it took MS about 6yrs to develop the “Next Best Action”. The main KPI is customer engagement.  The other five variables monitored are: cash flow, brokerage business volume, new advice clients, the level of banking business, and account attrition.

Part of this article appeared in Machine Learning for RIA loyalty and customer engagement; by Morgan Stanley

Is Sustainability your driver? Stop Borrowing from the Future.
  • Efi Pylarinou

Is Sustainability your driver? Stop Borrowing from the Future.

Is Sustainability your driver? Stop Borrowing from the Future. 1300 650 Efi Pylarinou

Sustainable Finance and Investing, remains misunderstood. Language remains tricky, inaccurate, and subject to interpretation; which inevitably makes Mathematics the only Language that can be trusted (100% internally consistent) [1].

Looking at Sustainable investing, there are different approaches to qualifying.

  • The first sustainable investors, negated sectors like tobacco. This is the exclusion approach.
  • Then came a portfolio management approach, based on which ESG factors are used in traditional investment process always with the aim to optimize risk/return.
  • Lately, impact investing is more direct and explicit, by choosing companies that aim to generate measurable environmental and social benefits (alongside the financial return).

As I review a UBS Global Insights report (What’s on Investor’s minds, Vol.2, 2018) it struck me that Investing is lagging big time in the Shift in Values that is affecting other areas of our life. UBS looks at how our personal values (I would say, the shift in the hierarchy of our personal values) is driving major decisions in our lives. Their statistics show clearly that the Sustainability theme is driving our spending decisions, our willingness to pay a premium, our donations to charity, and even our choice of employment.

Source: UBS Global Insights report

Sustainability, however, factors considerably less (below 40%) in our investment decisions.

Sustainability investing varies considerably by market. The number of investors with more than 1% allocation to sustainable investments in Singapore and Switzerland are only 35% and China, Brazil, and the UAE + Italy, are in the 50s% and 60s% (probably more investors with smaller amounts).

Source: UBS Global Insights report

The expectation for growth is also very different. In the US and the UK, there are weak signs of a sustainable investment momentum. Whereas investors in the UAE and China, are largely convinced that this is the way to invest.

In Brazil, which has also a high sustainable investing adoption, there is a strong expectation that returns will outperform traditional investments.

Looking into the UBS report, it is clear that there is a lot of interest that is sitting on the sidelines and that advisors and influencers can play a major role in tipping these non-adopters over. We need to invest in converting these non-adopters because we cannot afford to continue borrowing from the future.

Join me, as I will be moderating a panel on Sustainable Finance at the Fintech+ event on October 1, in Zurich. I will be discussing with Sabine Döbeli, CEO of Swiss Sustainable Finance, Oliver Marchand, founder and CEO of CARBON DELTA, Anna Stünzi, researcher and co-lead of the foraus programme „Environment, Energy and Transportation“, and Rochus Mommartz head of Responsibility Investments. Come to participate in this exciting discussion, as I will be asking some tough questions around this topic that touches on a much broader issue:

Shift in values and technology

[1] A major topic that is worthy of a longer interactive discussion.

Originally published:  https://dailyfintech.com/2018/09/25/is-sustainability-your-driver-stop-borrowing-from-the-future/

What has changed a decade after the financial crisis?
  • Efi Pylarinou

What has changed a decade after the financial crisis?

What has changed a decade after the financial crisis? 1300 865 Efi Pylarinou

What has changed a decade after the financial crisis?

Here we all stand about a decade later from September 15, 2008, when Lehman Brothers filed for Chapter 11 bankruptcy protection and when the tremors of the subprime crisis continued to shake the grounds where we built our homes, our pensions, and our dreams. Collapses, rescue plans, and a wave of socializing the costs of failures of several financial institutions; can describe in a nutshell the economic policies that have followed since. Bernard Lunn started the week with Do you remember where you were on 15 September 2008? and inspired me to reflect back too.

On Sep 15, 2008 I was living in Montreal and McGill University had asked me to teach Real Estate Finance with a one month notice (a part-time practitioner engagement). No textbook could reflect the unfolding reality. Freddie Mac, Fannie Mae, Ginnie Mae, the three GSEs (Government-sponsored agencies) were going to be restructured and it was exciting to understand the complexity of the evil mortgage-backed structures rather than the outdated textbooks.

Outside the university, everybody was affected, from end consumers, homeowners, corporates and the globalized economic activity whose Gas is mainly credit. The trusted institutions – the Gas stations – through which Gas is distributed to the people and to businesses of all sizes, have since created since a bottleneck that continues to choke the global economy. Over this decade, 2008-2018, we have seen (in retrospect) how this Gas station monopoly was affected by Central Bank policies that on the one hand, increased their inventories of Gas (more money has been available for banks to borrow from the Central Banks) but at the same time, new Regulations (changing the rules of the game for banks without consulting them) has led to these Gas stations shrinking their franchise network, reducing their willingness to provide service to their customers, and overcharging them/us.

Outside the university, everybody was affected, from end consumers, homeowners, corporates and the globalized economic activity whose Gas is mainly credit.

These licensed Gas stations who are led to dis-serve their clients but still hold a monopoly (granted by central governments) have led to movements like Occupy Wall Street and to lots of innovations around financial services – Fintech. From peer-to-peer lending, crowdfunding, to robo-advisors, and freemium PFM apps; and to Bitcoin. Let’s not forget that the genesis block of Bitcoin had hardcoded the title of London Times newspaper of Jan 3, 2009

“Chancellor on brink of second bailout for banks”

The hash of this genesis block is

000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f

There is a strong belief that this is no coincidence but a clear message of the failure of the financial monetary system which is designed and managed by states. A credit system based on the fractional reserve system and thus, creating Gas (Credit) out of thin air. A Credit system that can and will change the rules of Gas (Credit) creation and in the name of saving the financial system, it will pass on the costs of these bailouts onto taxpayers. Andreas Antonopoulos keeps reminding his audiences around the world, that a decentralized p2p network like Bitcoin is incompatible with fractional reserve banking and that Bitcoin is born out of the failure the latter system; Hello from Argentina (that is my addition and not Aantonop’s).

As traditional Fintech continues to make inroads – albeit by partnering with the licensed Gas stations or obtaining such licenses themselves – and as decentralized protocols, like Bitcoin, or God protocols (as introduced by Nick Szabo before even the internet was mainstream) are being tested left and right (still in early stages); what has happened to the branded Gas Stations over this decade and what has actually been accomplished regarding the Big Black Swan that haunts us since 2008  – The “Too Big to Fail” Black Swan?

What has changed a decade after the financial crisis?

Congratulations to the Central Banking system for reducing the size of the Big Wall Street houses – the Sell Side. The Wall Street Journal reported this week that their assets have shrunk 6% over this past decade.

Congratulations for kicking out from Wall Street all CEOs from the previous era. Jamie Dimon maybe one of the few, still standing strong.

Congratulations for dethroning Wall Street from being the Mortgage Kings.

#AndTheIronyIs that we need to make sure that we “Feed the Fink”, we network with Jamie Dimon and all those that were “cleaned up”, and we get our mortgage from our phone.

Blackrock, Vanguard, State Street, and Fidelity, have doubled their assets since 2009! They manage close to $17trillion and Vanguard brought $1billion a day of new money last year[1]. I call this the mushrooming of the Buy-side. Let’s all make sure that we “Feed the Fink” and we know from which direction the Black Swan may appear from.

Vikram Pandit, Citibank CEO until 2012, now founder of the Orogen Group investing in Fintech; Blythe Masters, the designer of Credit Default Swaps (CDS) at JP Morgan, now CEO of Digital Asset Holdings; Brad Katsuyama, protagonist in Michael Lewis’s book, now the co-founder/CEO of IEX Group; Susan Estes, MD at Morgan Stanley, Deutsche Bank and Countrywide Securities Corp, now the president/CEO of OpenDoor Trading. Let’s be all clear that financial engineering is not dead and experience remains a valuable asset.

Non-bank lenders have become larger than Citigroup or Bank of America lending businesses. The WSJ journal reports[2] that US non-bank mortgage originators have grown from 9% to 52% over this past decade. Let’s all shop for homes in a new way (not from a bank but a kiosk or our favorite social app). And let’s make sure we know from which direction the Black Swan may appear from.

Growth in less regulated areas. From assets under management, mortgages, and experienced human resources.

Markets are still plagued from Black Swans that belong to the bread of “concentration of power and illiquidity risks”. From miners accumulating power of digital assets to the Buy Asset accumulating i-shares and passive AUM.

Markets overall continue to shift resources rather than reinvented themselves. #WhereMortgages, #WherePeople but same financial instruments designed and sold by the same people in different packaging and at different POS. Banks have been forced to downsize and be risk-averse and the Sell Side has taken over along with Fintech startups.

#WhereGas – #WhereCredit is where we can look for true innovation. Too early to see a newspaper title like:

“God Protocols on brink of privatising State Gas (Credit) monopolies”

inspired by Nick Szabo and Eric Lombrozo.

This post has elements of cynicism mixed with insights. Readers are left to distinguish the ironies from the insights.

[1] How Banks lost the Battle for power on Wall Street, WSJ Sep 7

Robo-advisors: What are the fact and figures telling us?
  • Efi Pylarinou

Robo-advisors: What are the fact and figures telling us?

Robo-advisors: What are the fact and figures telling us? 1300 813 Efi Pylarinou

Robo-advisors: What are the fact and figures telling us?

I am listening to my followers and readers. I see that Linkedin is not the first choice of quality content producers in the Fintech/Blockchain ecosystem. Other platforms like Medium are stealing market share with an accelerating rate. However, Linkedin is a better platform in spreading the word, the message, the vision and in getting others to interact.

My Daily Fintech post from last week Barron’s exclusive Robo-advisor ranking and 3 unanswered questions resonated and the digital KPIs alerted me to that. From double the views on Daily Fintech to 15,000 views on Linkedin but more importantly, several great insights shared in the commentary.

Who said What?

It is grape harvest season in the south of Europe. I’ve harvested the conversations and distilled them (not word for word).

Seth Godin “It’s far more dangerous to fly too low than too high” – “The Icarus Deception” book

Efi Pylarinou – “Doing Nothing in this new era, is Unsafe” – from my  Dec 2015 year end post Digital wealth management and the Icarus deception

Linkedin post with commentary.

Efi Pyalrinou – “We seem to be chasing existing customers instead of growing the customer base”

Richard Turrin – “The incumbents were initially “Robbing Peter to pay Paul”. This maybe continuing.”

Paolo Sironi -“Cheaper costs doesn’t mean, higher value for underserved clients that need help with understanding investing and investment products”.

Vinay Jayaram – “The robo-advisory adoption over the past few years, is mostly evidence of a Lemming effect at play and at scale.”

Lex Sokolin and April Rudin – “The devil is in the details. Qualitative comparison of features remains tricky.”

The facts and figures are not disputed but the true impact from this robo-advisory adoption is not at all clear.

Lemmings are small rodents that have been observed to follow each other as they charge to their deaths- into raging rivers or even off cliffs. They soon become victims of a psychological affliction known as “the lemming effect.” 

By Frits Ahlefeldt

The lemming effect has been frequently highlighted in the investment behavior of managers and is a behavioral reality that we like to ignore. The robo-advisory segment will have to demonstrate that it is not plagued by the Lemming effect. Lest gove it more time.

 

Originally published: https://dailyfintech.com/2018/08/07/robo-advisors-what-are-the-fact-and-figures-telling-us/

EU Blockchain Resolution
  • Efi Pylarinou

In the EU Blockchain Resolution we Trust

In the EU Blockchain Resolution we Trust 1300 797 Efi Pylarinou

In the EU Blockchain Resolution we Trust

It was my name day on September 20th – a significant day for a Greek Orthodox – but I was by no means going to miss the “Blockchain: Building Trust in Society”event with Dimitrios Psarrakis, a Greek leading specialist in European regulatory policy. This was the first event in PwC Switzerland’s joint thought leadership series with the blockchain hub Trust Square. I was not disappointed; on the contrary, both the speech, the panel discussion with Daniel Gasteiger, Founder, Trust Square & Founder, Procivis, Doris Fiala, Chairwoman, Swiss Control/Parliamentary Oversight Committee & President, Swiss FDP Liberals Women, Guenther Dobrauz, Dimitrios Psarrakis; and the party; were unique.

Greeks built the principles of Democracy. Eva Kaili, is the Greek EU parliamentarian that is leading a team with a mission to raise awareness in the European Parliament on the revolutionary potential of Blockchain and how to grab the opportunity to lead in the 4th industrial revolution with relevant and powerful policies.

EU Blockchain Resolution

At the opening of his speech, Dimitrios Psarrakis, spoke about their team work in the EU parliament to educate, raise awareness and understanding about blockchain. They slowly but surely managed to obtain nearly 750 votes in the parliament for the Blockchain Resolution, a long and detailed policy for the EU which is based on the principle that Blockchain holds the potential to build Trust in our society in a different and better way, at many levels.

Driven by the fact that the internet has been a technological development that has undoubtedly created more convenience and connectivity, but has fallen short in creating more fairness and trust; Blockchain presents an opportunity to build trust and fairness in a very different way.

Driven by the belief that Blockchain will restructure several sectors: energy, healthcare, capital markets, Intellectual property etc.; the EU wants to mobilize capital to fund this revolution – the 4th industrial revolution.

The Blockchain Resolution includes several articles and aims to be fully in place in 2019. It has no intention to regulate any instruments – like coins, tokens etc-. It will only regulate the use of them on the newly created platforms. The Blockchain Resolution sees these new digital assets as legitimate instruments and does not attempt to categorize them as securities or commodities. The Blockchain Resolution sees them as alternative investments or contractual arrangements. Therefore, applying the Regulation in the EU for alternative investments, which is fairly flexible, is appropriate. The due diligence process on the platforms should be similar to the due diligence process in crowdfunding.

In Europe there is no consensus on the definition of a Security. Europe has MIFID, without a standard definition of a Security.

The Blockchain Resolution sees digital assets as alternative investments and the regulatory framework that applies is fairly flexible. Europe, through the Blockchain Resolution, wants to create policies that will mobilize capital to fund the next wave of restructuring the way several markets / sectors function.

The view of the EU is to present regulatory principles that are Technology neutral, Business-model neutral, and pro-Innovation.

The main principle is to allow for Disintermediation Economics that build Trust.Such economics promise to (a) reduce transaction costs and create new efficiencies, (b) reduce operational frictions by increasing liquidity, (c) automate monitoring processes with limited informational asymmetries (e.g. agency frictions, moral hazard, adverse selection).

The Blockchain Resolution is brave enough to look into the promise of Blockchain for Public infrastructure. The view is to restructure (a) traditional public services like land registries, licenses, certificates etc. (b) ways to reduce tax evasion and fraud, (c) cross-border transactions, regulatory reporting, data transactions between European citizens via smart contracts.

The Blockchain Resolution just got support from the Strasbourg Plenary.

“Blockchain has united this House, as all the parties in the Committee on Industry, Research and Energy (ITRE) voted in favor of the resolution under the principle of being technology neutral and innovation-friendly in Europe.” “One of the core messages of our text was to signify that the European Union aspires to become the global leader in the fourth industrial revolution,” said Eva Kaili.

The European Commission will be next in November at the European Parliament Blockchain event. This will be followed by the Blockchain and international Trade Report. In December, the Crowdfunding Regulation will be updated.

Some of the recommendations that the resolution makes are[1]:

1

For member States to establish non-profit “innovation hubs” to promote research, education and training among their citizens

2

For the Commission and ECB to identify dangers for the public and incorporate cryptocurrencies into the European payment system.

3

To develop technical standards for Distributed Ledger Technologies

4

Conduct a clear analysis of legal enforceability of smart contracts among EU member States

5

Decentralize the storage of EU citizens’ data in preventing the misuse of data

6

Decentralize infrastructure to ensure no monopolies are held, for instance the storage of nodes and servers

7

Use blockchain for tracking EU funding to achieve greater accountability

8

Evaluate blockchain-based e-voting systems as a use case for the EU

9

The creation of funding opportunities from the EIB, EIF and EFSI 2.0

10

The creation of an Observatory for the Monitoring of ICOs and clarification of utility tokens and security tokens as unique asset classes

11

For any regulations on blockchain to remove barriers and founded on principles of technology neutral and business model-neutral

We live a world in which Trust is lacking, Trust is being re-defined, Trust has to be re-built.

[1] Excerpts from EU Parliament Passes Blockchain Resolution

Originally posted: https://dailyfintech.com/2018/10/09/in-the-eu-blockchain-resolution-we-trust/ 

  • Efi Pylarinou

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions 1000 563 Efi Pylarinou

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

It was 3yrs ago (2015) that I first produced the “Unadvised Assets” infographic – Salivating for Unadvised assets: a videographic and a year later the Digital Wealth management: a videographic update. My message was borrowed from Seth Godin’s Icarus Deception book and it echoed loud and clear to the incumbents that

 

Doing nothing in this new era, is Unsafe

Leapfrogging of the standalone robo-advisors had shyly started and independent financial advisors in 2016 were still staying on the sidelines – US Financial advisers: confused and plucking daisies.

Barron’s just published a great overview of the US sector with The Top Robo Advisors: An Exclusive Ranking in collaboration with Backend Benchmarking, a US analytics firm and publisher of the Robo Report, who tracks 28 current robo providers, a mix of independent pure plays and legacy-owned subsidiaries. Thanks, Urs Bolt for bringing this to my attention, fresh off the press. Backend Benchmarking publishes a quarterly free report that anyone can sign up for (Aug 18 is the release of the Q2 2018 robo report).

Backend Benchmarking put out their first article on Barron’s in the space, also in 2015 Robo Advisors Take On Wall Street. They highlighted the beginning of the insurgency which had begun in 2010 in Betterment (at the time a voice in the wilderness) and that technology was turning asset allocation models into a commodity service. Fast forward to today and the founder of Backend Benchmarking, Ken Schapiro who is a financial advisor, has spent $500,000 funding accounts at 28 robo providers which allow his analytics firm to monitor performance and changes to the robos’ products. They have created a scoring system for all sorts of factors that maybe differentiators in the space. Five out of the eight factors are qualitative, like transparency, customer experience, conflicts of interest, access to human advisors, and financial planning services.

Barron’s exclusive Robo-advisor ranking and 3 unanswered questions

For now, they include 10 service providers, half of which are standalone; based on 2yrs worth of data. They will be adding Ellevest, SoFi, Fidelity, Wells Fargo, and T. Rowe Price in their future rankings. They are choosing not to include Hedgeable and Learnvest, because they are predominantly active allocators.

Performance comparison is presented using their in-house normalized benchmarking which shows Vanguard on the top.

The questions that remain unanswered in my mind, as the sector is crossing the $200 billion AUM, are:

  • How much of these $200billion was unadvised? Maybe we are simply witnessing a shift to low cost passive with better UX? As Lex Sokolin said when covering news and insights on crypto digital lending this week “Imagine if robo-advisors accounted for 36% of new assets raised this year and neobanks had 36% of new deposits,…” (see here)
  • How many “Low intent” end customers have been acquired and at what cost? “Low intent” (a term used a lot from Envizage) prospects are those that don’t know what action to take, for example, how much to save, how much to borrow, how much to invest etc. In other words, how many genuinely and fully “underserved” clients are being served in these $200billion? Because, if it is me and you, moving from being served from one incumbent to a robo-service, then this is an upgrade, it is good in terms of increasing the competitiveness of the market, but its impact in terms of genuine democratization and opening access, is not evidenced.
  • Why hasn’t the culture changed in terms of transparency? Schapiro reports and I believe him, that in several occasions his accounts were shut down with one excuse or another. I have a similar personal experience when we proposed to a couple of standalone robo-advisors in Europe to join the free Investment by Objective service (IBO) and provide real-time performance (anonymized) data towards developing an index and also using that to adjust models – Swiss pictograms for investment performance – Performance Watcher.

Originally published:
https://dailyfintech.com/2018/07/31/barrons-exclusive-robo-advisor-ranking-and-3-unanswered-questions/

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?
  • Efi Pylarinou

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy? 1000 667 Efi Pylarinou

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

It was 2 days before Christmas that Lykke publicly announced it had to switch to a centralized operational model! Up to then, Lykke could claim to have been the only exchange that was semi-decentralized and charging no commissions to its users. Think of a Robinhood for all fiat foreign exchange pairs plus cross pairs with BTC and ETH; with every user storing their own private keys and Lykke using a multi-signature process for storing client funds. So, if Lykke’s key is stolen, each and every private key would need to hacked to get to the funds. Seems wonderland, doesn’t it? Commission free with the security of decentralized settlement. The only centralized piece was the matching engine that Lykke uses to execute the trades.

This past winter not only brought more snow to Switzerland but also made the blockchain scalability issues show their ugly face and force Lykke to switch to a centralized operational mode, as blockchains became slow and very expensive! “Let’s talk numbers: since Lykke Exchange was launched in June 2016, we’ve seen Bitcoin transaction fees increase by more than 24,000%. In first three weeks of December 2017 alone, Lykke has paid more 45 BTC (around USD 740,000) in fees for offchain settlement channels.” Lykke Changes Operational Mode

Decentralized exchanges (DEXs) have not taken off yet, for several technical reasons around scalability and security. And for the other simple reason, that centralized exchanges (like Coinbase and Binance) can grow so much faster so why bother. Lower hanging fruit always has priority.

#AndTheIronyIs[1] is that several crypto businesses that are scaling fast, as the demand and the supply of digital assets has grown over the past year, are focusing on establishing ties with the conventional system as if they were some Fintech looking for distribution channels, low customer acquisition cost, and offering financial services using somebody else’s license.

Since evidently, so-called professional investors, like financial institutions, asset managers, hedge fund managers, endowments etc and the so-called whales, are not begging for fully decentralized services; why bother to fund such true DEXs?

At last week’s 2-day Crypto Valley conference, the first one that had a full academic track and a focus on research and innovation, there were several 30min presentations from blockchain startups that belong to the Web 3.0 generation. The Lucerne University of Applied Sciences was the facilitator and the IEEE computer society involvement made the event a global bestseller.

Kyber Network was one of them and their CEO and founder Loi Luu gave us a great overview of the DEX space. Evidently, the eye-catcher damaging the reputation of centralized exchanges, are the continuous hacks. However, we must never forget that None of these losses have been socialized, from Mt. Gox to the $530million worth of Coincheck in January 2018.

Some of the DEX ventures that have launched already are:

As most of the insights are out of the talk that the CEO and co-founder of Kyber Network, Loi Luu, gave at the first 2day IEEE of CryptoValley conference last week, I will refer to them in a little more detail (albeit last in the list above).

It became clear to me while listening to Loi Luu, that the devil is in the details, so every time we use the term DEX, we should understand the differentiations and the “degree” of decentralization.

The factors that are relevant are:

  • The user on-boarding requirements
  • The custody of funds
  • The order matching
  • The settlement
  • The liquidity
  • The clients/users

IDEX is an example of a partially decentralized exchange because it takes custody of funds and there is settlement risk with IDEX and order matching through IDEX, however it requires No registration.

0X and EtherDelta are hybrid DEXs because they also require No registration, take No custody of funds, the settlement is on-chain, and order matching is through EtherDelta for EtherDelta, and 0X uses an ecosystem of Relayers (DDEx, Ethfinex, Radar, and Paradex). Relayers in simple words, are facilitators for the order book and allow the trade to happen in an 0x smart contract while you remain in control of your private keys (read more here). This latter part makes 0X a hybrid model.

Airswap, is a hybrid P2P DEX, because it has the same characteristics as 0X except it targets P2P users and the order matching is via done via an Indexer (more here).

Liquidity in these DEXs varies. It is high in the P2P DEXs and not so stable in the others.

Kyber Network has a different focus altogether. They want to take on the role of a decentralized liquidity newtork and target not only individual users but also vendors that currently, only accept very few main cryptos. Kyber Network wants to make token swaps an invisible transaction for everybody, be it a wallet, a payment provider, a fund manager, a Dapp, or a DEX. Loi Luu used the example of a OMG token holder that wants to shop from a vendor that accepts ETH only. Kyber Network works with the vendor so that all customers can pay with any token they like, no extra cost, no extra information needed from the client. Same with an app that accepts BTC but client wants to pay with any other token he or she holds.

Melonport, the protocol for fund management of digital assets, that operates with the Melon token, can use the Kyber Network so that fund managers on the Melonport protocol can liquidate and rebalance the portfolio seamlessly.  Kyber Network is the liquidity provider that enables instant token swaps within a wallet, multiple token acceptance for vendors, acts as a market maker to financial dDapps, and increases token usage.

Kyber Network ICO’d last September and has already traction.

Are Decentralized Exchanges part of the Bottom-up decentralized monetary policy?

[1] #AndTheIronyIs is my own Twitter tag, that of course anyone can use anytime, for any kind of incident where the disruptors are choosing to be retrofitted to the status quo.

I started using this tag line during my long talk at #CryptoMountainsRocks in March at Davos, on a “Wall Street perspective of crypto as an alternative asset class”.

It was such a hit, that I decided to keep thinking along those lines.

Originally published:
https://dailyfintech.com/2018/06/26/are-decentralized-exchanges-part-of-the-bottom-up-decentralized-monetary-policy/

  • Efi Pylarinou

Misery, Velocity, and the Github for the new financial analysts

Misery, Velocity, and the Github for the new financial analysts 1000 667 Efi Pylarinou

Misery, Velocity, and the Github for the new financial analysts

With or without a Finance 101 course in your history, it is normal to gravitate towards known metrics and analytics for the new asset class of cryptocurrencies and tokens. Technical analysis is being used left and right for long and short-term trends, by all the crypto-exchanges and the new “research” subscription sites. Metrics that can be categorized as fundamental ones are being discussed as we speak on Twitter chats, at conferences and businesses are being built to serve this conventional need. Institutional appetite, the recent surge of M&A between Wall Street incumbents and crypto, increased listings on exchanges of derivative (structured products and futures) is also beckoning for more of the conventional structure.

The market is looking for crypto economists, cryptoanalysts, and all the models, tools and ways that we built over the years for stocks, bonds, derivatives, etc. I shared publicly my thoughts on “A Wall Street perspective of Crypto as an alternative asset class” at the CryptoMountains Rocks unconference in Davos in late March. It had strong elements of a stand-up comedy to make sure that the 40min on stage (stuck in a chair due to my then fresh injury) was not going to put the audience to sleep.

New technical tools from incumbents

From the incumbents’ world, we already have Thomson Reuters that has a developed a Bitcoin sentiment gauge for traders in collaboration with MarketPsych Data, a sentiment analytics company using behavioral economics using NLP and ML. These sentiment gauges will be developed for other cryptocurrencies soon.

Fundstrat Global Advisors, a traditional independent research, and strategy US firm, has developed the Bitcoin Misery Index (BMI) which is designed as a trading tool for investors to take advantage of volatility in BTC exchanges. BMI is calculated on a scale of zero to 100, taking into account factors such as volatility and the number of winning trades out of the total. When the indicator is low, the buying opportunity is at its best, and vice versa. Thomas Lee, the co-founder of FG says “When the bitcoin misery index is at ‘misery’ (below 27), bitcoin sees the best 12-month performance. A signal is generated about every year,” “When the BMI is at a ‘misery’ level, future returns are very good.”

Source: Fundstrat March 9, 2018

Fundamental tools 101

The book of Chris Burniske and Jack Tatar “Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond” published last October is a must. The authors cover the basic fundamental framework for thinking about cryptocurrencies.

First, we all agree that their value has a utility component and a speculative component. You can think as the speculative part, as the number of bitcoins that are held out of circulation as an investment.

The utility component can be captured by estimating the actual usage. For example, if 100,000 merchants are using bitcoin for their international trade transactions and those average 100,000USD per trade; then the number of bitcoins needed are 1.25milBTC (at a rounded price of $8,000/BTC). This is an estimate of the current utility value.

Then, we need to consider the velocity of Bitcoin, much like we look at GDP and divide by the money supply. We can start by making assumptions about the remittance market and if we expect that bitcoin may be used for 20% of that market, then say the global remittance market is 500billion then divide by max amount of bitcoin and get a value. Then assume, bitcoin grabs 10% of the gold market as a store of value, you do the same calculations.

Finally, one has to decide a discount rate. Based on this kind of framework, one can get some theoretical boundary valuations.

The one metric that is now floating around (despite its limitations) is the NVT which is seen as a PE analog from the stock market. The NVT ratio measures the dollar value of a crypto asset transaction activity relative to the network value. This is a simple way to compare how the market values one unit of on-chain transactions across different networks. Generally speaking, a “low” NVT indicates an asset which is more cheaply valued per unit of on-chain transaction volume. The main shortcoming of NVT is that it is lagging and it is not a powerful short term indicator (which, unfortunately, now is more in focus since the speculative component is overwhelmingly higher than the utility component in most cryptos). Willy Woo, who analyses crypto assets discusses thoroughly the nuances around using the NVT ratio charts or the smoothed out NVT signals by Dmitry Kalichki.

Source: http://charts.woobull.com/bitcoin-nvt-signal/

More on Fundamentals

Digital Asset Research is a startup that wants to become a top independent cryptocurrency research player.

In their standardized research reports, they include many indicators of the new fundamental metrics. These give metrics around inflation, actual usage from developers, the network, and the competitive landscape. Ivan on tech is not the only one, that has been using raw data and stats from the Github to analyze altcoins.

The first decentralized and or crowdsourced fundamental research platform with data and analytics are just being built as we speak. I will cover these in an upcoming post. If you know of any such ventures, please note them in the comments below.

Notes: Next year’s CryptoMountainRocks is on 21-23 March in Davos of course. Skiing in the morning, talks and battles in the afternoon. Watch the recording of my talk here:

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