Blockchain – Crypto

Figure, the Lending new unicorn powered by Blockchain
  • Efi Pylarinou

Figure, the Lending new unicorn powered by Blockchain

Figure, the Lending new unicorn powered by Blockchain 800 450 Efi Pylarinou

Figure, the Lending new unicorn powered by Blockchain

Figure is a Blockchain 4 Finance unicorn cofounded by Mike Cagney, the founder and ex-CEO of Sofi, and his wife June Ou (ex- CTO at Sofi).

It is a 2 year old well-funded San Francisco-based startup focused on changing the entire lifecycle of Loans and beyond. From loan origination, to servicing, and securitization. They started servicing the needs of homeowners who have most of their wealth locked in their homes with the so-called HELOCs (Home Equity Line Credit). 

Crunchbase reports an eye-popping total funding amount of $1.2billion. 

This includes a credit facility of $1billion from investment bank Jefferies and WSFS Financial Corporation, the parent of WSFS Bank. This financing facility (May 2019) is custodied and serviced on the in-house Blockchain that Figure Technologies has developed, called Provenance Blockchain.

In the summer of 2019, Figure Technologies launched its $20 million Reg D security token offering, the HASH token, also using the Provenance Blockchain. Figure Technologies is eating its own dogfood.

Figure Technologies presents a huge global opportunity in private markets. They estimate savings (for the market segments) via their Provenance blockchain for non-securitized loans or corporate bonds is in the order of $100 billion ((Provenance benefit figure)). Figure`s revenue estimates for those two categories are $33billion each (Provenance Opportunity figure). 

Their in house blockchain is permissioned. The participants are: The members that transact on the Provenance blockchain (which include the HASH token holders), the Node hosts, the administrator, and the omnibus banks that take care of the fiat bridges to the Provenance blockchain.

Their consensus model is from Hyperledger but their will soon be migrating to another more scalable and secure model. More details in the Provenance white paper.

The HASH token is a great example of a hybrid token that would not be possible in the current financial infrastructure. HASH has equity like attributes and voting rights. 

HASH token holders receive directly (digitally) fees from the members that transact on the Provenance blockchain (are you salivating while looking at the Provenance Opportunity figures?). They also vote for the administrator. 

Also HASH has staking functionality for the nodes. Each node has to put up a stake of HASH on which they will earn the return for their services. 

Details regarding the allocations and the economics are found the Provenance white paper.

Figure Technologies is a B2C venture with a flagship product, Figure Home Equity Line. They have already added two new products this year, a student refinancing and a mortgage refinancing product. Sounds like SOFi`s product line? 

US consumers will be getting familiar with Figure`s new mascot “Blockchain,” a puppet created for Figure`s video ads aiming at the masses who should consider the benefits of HELOCs on the Blockchain. 

The race is on in the lending space. New disruptors disrupting the grown up lending Fintechs.

One of the Top 20 AI Blockchain projects – Numerai
  • Efi Pylarinou

One of the Top 20 AI Blockchain projects – Numerai

One of the Top 20 AI Blockchain projects – Numerai 800 578 Efi Pylarinou

One of the Top 20 AI Blockchain projects – Numerai

LiveTiles brought to my attention 20 AI Blockchain projects through a great infographic.
Numerai is one that I profiled in 2017 backed by Fred Ehrsam, Joey Krug, Juan Benet, Olaf Carlson-Wee and Union Square Ventures.

One of the Top 20 AI Blockchain projects – Numerai

Numerai is creating a meta-model from all the Machine Learning (ML) algorithms developed by “the crowd” with cryptographic data. Numerai aims to offer a platform that generates alpha in a novel way. It wants to structure a rewarding mechanism for its traders that not only eliminates the typical competitive and adversarial behavior between them but actually, penalizes them.

 The Big Hairy Audacious Goal of Numerai: network effects in Quant trading  — Efi Pylarinou

Numerai is a unique venture. It remains the only hedge fund built on blockchain and using ML and data science in a novel way. The novelty lies in changing the incentive and compensation structure of the fund manager. 

Numerai launched on 21st February 2017, 1 million Numeraire tokens (NMR) that were airdroped to 12,000 anonymous scientists. The NMR token was awarded to the thousands of data scientists for creating successful machine-learning based predictive models.  Once the data scientists are confident of the predictive ability of their model, they can stake their NMR and earn additional NMR if they are correct.

Numerai involves a staking mechanism.

In March 2019, Numerai reported that $10miilion had been rewarded up to date.  Thereafter, NMR tokens were awarded as rewards to users of its platform. Bear in mind, that if a participant stakes NMR and their model doesn’t perform, the staked tokens are burnt. 

According to Numerai, the NMR token is one of the most used ERC20 tokens. By end of 2018 reporting 25,000 stakes of NMR. 

One of the Top 20 AI Blockchain projects – Numerai

And almost 200,000 models submitted by data scientists around the world for competition to crowdsource the best prediction models.

Numerai in March raised $11mil from investors led by Paradigm and Placeholder VCs. Numerai is a very rare case because this fund raising is not for equity but for NMR tokens. 

Numerai token is a utility token and investors just bought $11million of NMR tokens. The proceeds will primarily be used to drive the development of Erasure, a decentralized predictions marketplace that Numerai launched.

Source: CoinmarketCap

What does this mean in plain worlds?

Numerai was not a protocol but rather an application – a hedge fund. Erasure will transform it into a protocol. This has several significant implications. 

  • NMR becomes a token on the protocol and can be used to build all sorts of applications on top of Erasure.
  • Numerai becomes decentralized. The NMR smart contract will no longer be controlled or upgradable by Numerai but by NMR token holders. So, NMR becomes a governance token.
  • Numerai will have no authority on the supply of NMR tokens. 

Numerai is being transformed into Erasure. It is being upgraded to a protocol. It becomes much broader than a hedge fund, as all sorts of prediction and data markets can be built on the protocol. The vision is to always to be a token that is actually used. Which brings to the spotlight the lack of transparency around data measuring use of protocol and Dapp tokens.

Source: LiveTiles

  • Efi Pylarinou

Can Facebook pull off a 60% attack on the LIBRA network?

Can Facebook pull off a 60% attack on the LIBRA network? 800 411 Efi Pylarinou


Can Facebook pull off a 60% attack on the LIBRA network?

This is a question asked because LIBRA is the brainchild of Facebook. As a result, a lot of people in the developed world are cautious about whether LIBRA will be a force for the good. The people that don’t forget Cambridge Analytica, fake News, propaganda, and what Chris Hughes, Sean Parker or Chamath Palihapitiya said; will be concerned and cautious.

David Siegel founder of Cutting through the noise pointed out that 60% of votes are needed in order to make a change in LIBRA. I like to think of this as the 60% attack nightmare. Which is what prompted me to look closer to who bought a seat at the table. This raised yellow and red flags for one-third of the members.

Libra Network

Adapted by @efipm from: Crypto Diaries: Facebook reveals the White paper for its stable coin Libra

Each founding member `coughed up` $10million (expected). The 7 financial sector members are established companies which should be seen as the magic power of the LIBRA association as they will be able to use the LIBRA coin as they want in their established networks.

  1. Visa
  2. Mastercard
  3. Paypal
  4. Stripe
  5. PayU [2]
  6. Mercado Pago [3]
  7. Calibra – Facebook link

The 4 members from the Blockchain space, raise questions in my mind. BisonTails is as new as it gets startup, setup in Oct 2018 in the US to focus on blockchain interoperability and has only $5.3mil in seed funding. Anchorage is a US start-up launched in 2017 focused on digital asset custody for institutional investors with a Series A funding completed (total funding $17mil).

Where did Bison Trails find the $10million membership fee to participate in the LIBRA association? Why did Anchorage decide to spend 60% of its total funding up to date, on its LIBRA membership?

Coinbase and Xapo, are well established in the crypto space.

Including an equal `weight` from the VC world,  honestly, makes me want to watch closely the governance of the LIBRA association only because incentives become unclear and this wouldn’t work on a corporate board with `no-conflicts` of interest. 

The 4 members included – Andreessen Horowitz, Union Square Ventures, Ribbit Capital, and Thrive Capital – from the VC world are also as heavyweights as it gets.

ten fintech unicorn hunters - LIbra Network

Source: Ribbit, A16Z Lead Fintech Unicorn Hunters, CB insights

Andreessen Horowitz is an investor in Bison Trails (one out of seven) and a lead investor in Anchorage. Thrive is family to the Facebook family through Instagram. USV is family to Coinbase, and on and on. 

The 3 members from the e-commerce space –Booking Holdings, eBay, and Farfetch, are another source of power for LIBRA to become a stable coin that scales. However, I only know Farfetch as an online luxury fashion e-commerce business and I am not clear how this ties into financial inclusion and the underbanked.

More outreach to established markets with the two online hailing businesses – Lyft, Uber; Spotify, the music unicorn; and the two telecoms – Vodafone and Iliad. 

Another flag raised with the inclusion of Iliad, a troubled French telecom whose stock price has been in a steady bearish trap over the past 2yrs (-47% yoy). Is this just another billionaire whose legacy depends on the success of LIBRA? The founder and still majority shareholder of Iliad is billionaire Xavier Niel, who loves challenging the corporate establishment and is the founder of the StationF, one of the biggest startup campus.

For the 5 members that are non-profit organizations, I can only but ask how they `coughed up` the $10mil. Could it have been arranged as a loan or some other side trade arrangement? Three flags go up (albeit light colored) for Kiva, Mercy Corps and Women`s World Banking.

The remaining two non-profits – Creative Destruction Labs and Breakthrough Initiatives –  seem odd in the LIBRA family. How did a university tech incubator `cough up`$10mil? The Why is probably that they aim to become a venture studio that builds part of the ecosystem needed to make the LIBRA stable coin scale.  But Why does an extravesical think tank with Mark Zuckerberg on the board, participate in LIBRA?

Creative Destruction Lab;

is a seed-stage program in North America launched in 2012 by the Rotman School of Management (the business school of the University of Toronto) for massively scalable, science and technology-based companies.

Breakthrough Initiatives

is a scientific non-profit launched in 2015 with several programs that aim to answer big questions, like life beyond earth, through scientific and technological exploration, probing the big questions of life in the Universe. The Board has two members: Yuri Milner, who funded the initiative and Mark Zuckerberg. Stephen Hawkins is still listed.

Efi Pylarinou Quotations Pointer

is a 60% attack on the LIBRA network possible?

David Marcus, spearheading the Libra project for Facebook, had to denounce rumors that the $10 million buy-in got the validating firms access to transaction data (Decrypt).

There are 28 seats around the LIBRA table for now (similar to the way Stellar started off with 30 nodes). The LIBRA coin is not a Facebook coin. However, governance in an association is legally non-existent. Dianne Schepers, a legal executive, explained to me that foundations are supervised by the Swiss Federal Supervisory Board for Foundations (ESA) and are required to be registered in the commercial registry and provide an annual report. Associations are not subject to any of these requirements. 

So, for now, we need to be clear that it is in good faith and only by giving the benefit of the doubt, that the LIBRA association has a dream and we should be watching their execution closely.

As Bernand Lunn said to Swissinfo.ch the day after,   in What does Facebook’s Libra cryptocurrency aim to achieve?: “Facebook has been hugely successful making money from accumulating people’s data and then selling it. It’s hard to see them completely changing their stripes.”

How will the LIBRA association untaint the LIBRA coin so that it is not seen as a Facebook coin?

Additional recommended Sources

  1. Verum Capital, a Blockchain advisory boutique, Your guide to LIBRA
  2. Jameson Lopp, How will Facebook`s `Blockchain`really work
  3. Joel John`s The LIBRA hustle
  4. Meltem Demirors, `Ask not What but Why`
  5. David Siegel`s videos on LIBRA

[1] Recorded webinar on youtube

[2] PayU has a large footprint in Latam and India that goes beyond payments.

[3] Mercado Pago the financial arm of MercadoLibre an Argentian company incorporated in the US (NASDAQ: MELI) running various online and e-commerce businesses. MercadoPago is a tech enabler with a significant footprint in Latam, for online retailers to provide their customers with payment solutions to pay in installments

[4] Source from Crunchbase

[5] Kiva, Kiva Microfunds is a 501 non-profit organization founded in 2001 in San Fransisco that has arranged $1.3 billion of loans in 78 countries. They have a 96.9% repayment rate which makes them one of the most successful microloan NGOs.

[6] Mercy Corps is another US NGO focused on humanitarian aid launched in the 1980s it boasts over 5,500 volunteers members.

[7] Women’s World Banking a US-based NGO supporting microfinancing institutions

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Mathematics and nature's way
  • Efi Pylarinou

We use language and law to collaborate; now is the time for Mathematics and nature’s way

We use language and law to collaborate; now is the time for Mathematics and nature’s way 800 533 Efi Pylarinou

We use language and law to collaborate; now is time for Mathematics and nature’s way

Christine Lagarde moderated a panel with two Central bankers (European Central Bank and CB of Kenya), an incumbent (JPMorgan) and a disruptor (crypto fintech company Circle). The topic was “Money and Payments in the Digital Age.”

CCN covered the panel discussion with a narrative of `In crypto we trust`. Coindesk covered it with a rhetorical question narrative of `In Math we Trust?`.

I had the privilege of attending the talk of Dr. Zhang on the topic “In Math we Trust” and moderating a session with him at the LCX Blockchain Series, in Vaduz, Liechtenstein. Dr. Zhang, was a renowned Chinese American scientist, a physics professor at Stanford and I remain inspired by his narrative. [1]


The powerful origin of the narrative `In Math we could Trust`

Let’s go back to the Greeks where thought leadership of all theoretical and foundational concepts started. Dr. Zhang spoke about Archimedes, his Eureka moment which permitted gold to become a medium of exchange. He spoke about the 2nd law of thermodynamics which states that the natural world is mostly in disorder and rarely in order (consensus state). In nature, order and consensus can only exist in subsystems. And when this happens it happens at a cost. In physics parlance, in order to reach order and consensus in nature, there needs to be some entropy (disorder) produced and dumped outside the subsystem for it to reach consensus.

Let’s tie this to the computing world. In distributed computing, the Fischer-Lynch-Patterson theorem is the analog of the 2nd law of thermodynamics, and proves that there is No deterministic algorithm that can be a master algorithm for the system to reach consensus. So, once again science like in nature, proves that to reach consensus we need to pay a cost. This is where the Proof of Work, an old cryptographic concept, comes into play.

One way we can reach a consensus regarding transactions is by using Proof of work. This is a way, to reach consensus on the Temporal Order of transactional data. The cost we pay is the amount of electricity we burn to solve the puzzle (which is on the other hand easily verifiable). Consensus on time-stamped verification of transactional data, can be reached through this process that dumps entropy (electricity in the case Bitcoin Blockchain) outside the system.

In Math We Trust

Our world historically has been oscillating between centralization and decentralization.

Looking back in history for more evidence: The circuit switch technology created the then seemingly indestructible monopoly of ATT. This monopoly was only destroyed form the decentralized TCP/IP protocol that gave birth to the internet and to the gradual adoption of VOIP. As the internet became the dominant technology, several other monopolies grew out of the content generated on it; e.g. Google and Facebook. And now, we are in the beginnings of what Paul Nunes coins as the next Big Bang Disruption.  Blockchain is threatening the powerful giants built on the first open source protocol, the internet, with a wave of data decentralization.

The internet has evidently increased connectedness. However, its design is not a collaborative one. The world that is built on top of this open protocol, the internet, is not a world that is fairer and that builds trust. The “trading” or any exchange of information on the web, is not collaborative. The central entities, the Googles and Facebooks, are the ones that are organizing the information and the data on the web. The first, step in the process of decentralizing the web, is to break these data monopolies.

Blockchain is a decentralized mechanism in which trust is built-in with mathematical formulas. As Plato preached, mathematics is the ONLY internally consistent language. As Nick Szabo preached, in his God protocols, mathematics is the language of God. God in this context is the entity that acts in the interest of everybody.

Blockchain protocols are presenting us with an opportunity to build on protocols with built-in consensus mechanism governed by math. Mathematics governance guarantees fairness and trust.

Dr. Zhang argued in this speech that we humans have developed languages and law in our attempts to organize and collaborate in societies and reach consensus on various issues. He now believes that we are stepping into the most advanced era in which Mathematics will be trusted in order to reach consensus. Admittedly from all the sciences (social, political, physics etc.) mathematics is the branch of knowledge with the highest level of consensus and in which we trust.

Dr. Zhang emphasized that we live in a world that is based on theoretical mathematics that were developed with no real-world application in mind and are now being used in all sorts of experimentations as we are in the early stages of the blockchain development. From hash functions to more such `abstract first` math concepts. 

  • Public/private key based on elliptic curve
  • Cryptographic hash function
  • Zero-knowledge proof. Zk-snark and Zk-stark
  • Secure multi-party computation, differential privacy
  • Formal verification
  • Homomorphic encryption
  • Dag, directed acyclic graph: money grows on trees!

Source: from Dr. Zhang`s talk; see full video here.

The choice we have is to `Trust in Math` and the laws governing nature

Look at the 2nd law of thermodynamics, nature, and the lessons from the earlier tech disruption waves. Once we embrace the dynamic, digital, and unstable world we live in; we will realize that we have a great opportunity to embrace theoretical mathematics in designing governance and the Internet of value.

It will be a trustworthy design with inherent instabilities as in nature and as outlined in the 2nd law of thermodynamics. We have to move away from the belief that forced consensus mechanisms like regulations can provide stability. We have to become like nature.

`Swarming of bird flocks, murmuration of starlings, ant colonies, animal herding, fish schooling, bee hiving, so on and so forth. Thousands of them moving in perfect harmony, as if each one knew exactly what to do to produce the collective spectacle that they were so skilled of enacting in nature.` excerpt from A Marriage Made In Heaven: AI & DLT

CASI

[1] I delayed this post because of the unfortunate and sudden passing away of Dr. Zhang late last year.

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The first investment bank to tokenize its own real-estate holdings - ReitBZ
  • Efi Pylarinou

The first investment bank to tokenize its own real-estate holdings – ReitBZ

The first investment bank to tokenize its own real-estate holdings – ReitBZ 800 590 Efi Pylarinou


The first investment bank to tokenize its own real-estate holdings – ReitBZ

Banco Pactual (BTG) from Brazil is the first `Shark` that makes my Davos prediction true.  The next generation of structured products, asset-backed by illiquid real estate, is being designed as we speak in the labs of incumbent banks.

ReitBz Logo, Brazil

Reitbz is its name, and is I believe the first security token (STO) backed by a traditional investment bank. $10 for one ReitBz token. No US or Brazilian citizens.  You can pay with ETH or USD pegged coined Gemini Dollar.

I am excited because this comes from Brazil and not Manhattan or Canary Wharf real estate. Second, because ReitBZ is backed by distressed real estate that BTG Pactual has access to, as they have been a leading investor in Latam real estate for many years. They manage over $2billion and earned the Euromoney award for Best Real Estate investors in 2017 and 2018. Of course, in this phase they will tokenize only $15million worth from their holdings.

An Emerging Markets leader in real estate investing, issues, backs and manages the STO.

The real estate portfolio to be tokenized by BTG, has is a niche focus in three ways:

  • Real estate foreclosures by developers who were denied financing post-construction.
  • Real estate returned by buyers that couldn’t afford a bank loan after construction.
  • Real estate owned by companies that filed for bankruptcy or judicial recovery

ReitBZ is a transparent structure to invest in deal flow that is not accessible easily.

The funds raised will not be held by the BTG but by a smart contract on the Ethereum protocol[1]. The management of the investment process (purchase, management of the assets, sale) will be done through Enforce, and entity that is 10yrs old. Blockchain technology reduces the costs of a traditional real estate investment fund substantially (custody, bookkeeping, fund admin, structuring etc). The exact savings, I guess will be reported once the structure is live. What is unclear to me, is whether these savings are higher than the tax benefits that investors enjoy through traditional REIT structures (which undoubtedly have much higher costs in structuring).

As the devil is always in the details, keep in mind that on the one hand the funds are kept in the smart contract but on the other hand all decisions are made by BTG/Enforce. They are looking to buy assets at a 30% to 40% discount and over an 18month period, they aim to restructure them and sell them. They estimate that the restructuring process involves 10% to 20% costs. Once the property is sold at a profit, the managers will decide to distribute on a prorated basis the profits via dividends, which will take the form of Airdrops.

You can read the white paper and the one pager on their site ReitBZ.io.

The fee structure for Enforce is in the White paper (p.18)

  • 1% on the funds allocated to buy a given Target Asset
  • 10% on the net collection arising from the sale of Target Assets (i.e. sale value, reduced by all costs related to the real estate, fees and taxes)
  • 30% performance fee on the amount exceeding a 15%/year post-tax hurdle rate of the Target Assets portfolio

An oscillation between centralization and decentralization is normal. Market forces will determine the sweet spot.

Look at the ReitBZ to realize the structure`s positioning. As in the conventional world, you should always read the covenants. I take this opportunity to highlight the Petro structure which is collateralized by Venezuelan oil resources. The question arises as to how the structure protects the investor to actually be able to access the collateral. Same questions arise for the ReitBZ structure. Real Estate in Brazil, of course, valued and traded in Brazilian Real,….

Cost savings for the investor in complex structures that pool illiquid assets are not that obvious. Again, this is from experience from the financial engineering conventional world. All the setup costs may be lower for digital assets, but what about the fees of BTG/Pactual (seems to me borrowed from the old world much like the crypto hedge funds have done) and what about building in tax efficiencies? The truth is that we will need a few iterations of STO asset-backed structures to figure out how to optimize them.

[1] The legal structure is in the Cayman Islands.

Sources: LATIN AMERICA’S BIGGEST INVESTMENT BANK LAUNCHES SECURITY TOKEN, Bicoinst

Margin lending with no Counterparty risk– the Dharma open source protocol
  • Efi Pylarinou

Margin lending with no Counterparty risk – the Dharma open source protocol

Margin lending with no Counterparty risk – the Dharma open source protocol 800 533 Efi Pylarinou


Margin lending with no Counterparty risk – the Dharma open source protocol

In November 2017[1], I spoke to Nadav Hollander in California, the founder of Dharma.io, who had just “graduated” from Y-combinator. At the time, he described his vision to create on the blockchain a tokenized marketplace for loans. In February 2018, the Dharma open source protocol went into alpha testing.

Developers could easily use the Dharma libraries to:

  • Allow would-be borrowers and lender to generate open loan requests for debt agreements of any kind
  • Allow lenders to fill loan requests, formalizing a lending agreement with a borrower
  • Allow users to manage their lending portfolio by making repayments, collecting collateral, trading their debt tokens, etc.
  • Earn fees by underwriting debt agreements generated by Dharma protocol
  • Earn fees by relaying debt agreements between borrowers and lenders

Source Hello, Dharma.js

Dharma didn’t ICO because Hollander believed that token models were very immature right now. Hollander says “I’d rather build a community of constituent users and, only if and when it makes sense, issue a protocol token.” For now, Dharma open source protocol has no native token, but each loan that is created is a token itself

Fast forward to today, February 2019, one year later and Dharma raised $7 million from big investors including Coinbase Ventures who naturally are interested in crypto lending markets, especially for traders. Dharma has already launched the Dharma Lever product (in alpha mode) that deploys smart contract’s to offer margin loans for crypto traders from high volume investors.

No counterparty risk (smart contract risk, since assets are held there).
Instantly, at very low cost.
Lower borrowing rates than centralized exchanges.
Compatible with all wallets.

Margin lending with no Counterparty risk– the Dharma open source protocol

Dharma is in the same league as Maker – be your own bank or Defi[2] – that allow us to borrow against our Hodlings. Dharma involves no DAI and accommodates several cryptocurrencies beyond ETH. They are even looking to add WBTC soon which went live on Ethereum just last week.

WBTC – Wrapped Bitcoin is an ethereum-based token that is backed one-to-one by a regular bitcoin BTC.

It is already listed on several DEXs[3] including Radar Relay, Kyber Network, and AirSwap.

Dharma is changing the crypto lending space with their Lever offering that eliminates counterparty risk and replaces it with smart contract risk.

Margin lending with no Counterparty risk– the Dharma open source protocol

The Dharma Lever is one way to mitigate systemic crisis due to the domino effect of counterparty failures.

[1] I introduced Dharma in my Feb 2018 post Bonds & loans on the Blockchainalong with Tzero and Nivaura.

[2] Defi = Decentralized Finance, see more here.

[3] Read more about DEXs in `Are Decentralized Exchanges part oft he bottom up decentralized monetary policy?`

WhenBiance WhenSix
  • Efi Pylarinou

A world of #WhenBinance & #WhenSIX

A world of #WhenBinance & #WhenSIX 1200 800 Efi Pylarinou


A world of #WhenBinance & #WhenSIX

Stock Exchanges are the fastest and most efficient data-processing large scale system that we humans have designed so far [1].

Stock exchanges need roughly 15minutes of trade to determine the effect of a piece of news – political, scientific, ecological, societal etc – on the prices of shares.

WhenBiance WhenSix

DLT technology may change this but the How is up in the air.

In Stock exchanges and listed assets  – Part I I looked at Nasdaq`s use cases. In this second part, I am sharing insights on the pulse of the securities markets as they reshaped and get pulled (down or up) by DLT technology. As mentioned in the Foreword of the SIX white paper The Future of the Securities Value Chain, one of the reasons to look into this topic is to sharpen our understanding of what the relevant future may look like and to seek feedback and open a conversation.

With DLT technology there will be a boom in what is tokenized or securitized in traditional parlance. There is no disagreement on this front, just on the degree maybe and the when. However, the devil is in the details as always. How will this happen?

If we all agree that there will be more securities out there, what will happen to Primary markets, Secondary markets and the post-trading processes? The 64page SIX white paper, describes eight possible scenarios with enough details – as they know how these markets operate currently – and in their Summary two pager they pick the two most likely ones. Of course, opinions will vary on the likeliness and this is where it gets interesting.

The way I see the world right now, is that

we have moved from #WhenMoon #WhenLambo to a world of #WhenBinance.

Even at LyCI online webinar presented by Richard Olsen, CEO of Lykke, the question of #WhenBinance for LyCI, was asked. Day traders and speculators naturally want listed assets but through the accelerated evolution of digital assets over the past two years, we have actually realized that investors also continue to attribute value to the listing of an asset. #AndTheIrony is that this signaling effect comes from the conventional investment culture and Not from the P2P progressive culture that Satoshi Nakamoto made technologically possible.

#AndTheIrony is that for now, both retail and institutional investors in the digital assets world perceive listing as a measure of fundamental quality. Whether it is about cryptocurrencies, utility and payment tokens, asset-backed coins (commodities, real estate, revenue sharing), security tokens etc. listing makes them more valuable.

The way we are plowing ahead to increase adoption of digital assets, we are consciously or unconsciously, making sure that LISTED ASSETS WILL CONTINUE TO BE THE DOMINANT STRUCTURE IN SECURITIES MARKETS.

In such a world, we could see growth in issuing marketplaces for digital assets of all sorts, but continuously tied to the new digital exchanges. As we speak there are several issuing marketplaces launched for digital assets: Securitize, TokenSoft, Neufund, Desico, Mobu, …. And more than needed exchanges to list these assets. At the same time, incumbents like SIX and Nasdaq, are building infrastructure to prepare for a position in the digital assets boom. Most, if not all, of these initiatives, will deploy permissioned central ledgers that deviate from the Satoshi Nakamoto core principals.

Right now we are heading straight into a future for securities that is based on permissioned central ledgers and in which listed securities remain the only way to unlock full value and then some. We will have reduced costs, reduced intermediaries, a larger pie of digital assets but we will have not changed this:

Exchanges will remain the fastest and most efficient data-processing large scale system that we humans have designed.

A Satoshi Nakamoto fully aligned world, is one in which exchanges disappear simply because listing does not add value. In such a world, all issuing marketplaces are open and not permissioned. Issuing becomes ubiquitous. Imagine a world in which either on Amazon or Wechat, even retail can issue a security or a token, and investors can directly access these. This requires to move Fintech crowdfunding venues like Angelist and Crowdcube, and P2P lending venues like Prosper and Lending Club, onto protocols like Harbor, Dharma, or Swarm. Then to get all large corporates (BMW, Johnson & Jonhson, ect) the software to issue and trade P2P within their ecosystems – i.e. DEX software. But before all this can happen, we need to solve the Digital Identity issue for both individuals and entities.

In a Satoshi Nakamoto fully aligned world, Exchanges become obsolete.

[1] The view of the Austrian school of economics

Money is a claim on an Institution and the reason for change
  • Efi Pylarinou

Money is a claim on an Institution and the reason for change

Money is a claim on an Institution and the reason for change 1000 655 Efi Pylarinou


Money is a claim on an Institution and the reason for change

Axess Think Tank, a Geneva based think tank organised a great event focused on four themes

  • The future of money
  • The Regulatory landscape
  • ICO-STO and Capital markets
  • Blockchain and the Token economy

I had the pleasure of moderating the last two panels.

One of the takeaways from the entire event, was around the issues of cryptocurrencies issued from Central Banks or some such.

When you have a board member of the SNB Andrea Maechler, a senior research advisor to the BOE Michael Kumhof, a research fellow of the Fed St. Louis & Professor at univ. of Basel Aleksander Berentsen, a research fellow of the UCL Center for Blockchain Technology Daniel Heller; there is a lot to absorb from their talks and panel discussions. Add to that the moderator Michel Girardin, from the Univ of Geneva and Jean-Pierre Roth, the ex Governor of SNB, in the audience.

They agreed that payments are the very heart of any economy and that we live in a world that customers expect payments to be like WhatsApp messages.

The SNB is actually following the innovations around payments, whether Fintech or Bitcoin originated. Andrea Maechler, emphasized that the SNB`s mandate is to support and promote cashless payments and this done through SIX. Fintechs that hold a FINMA payment license will be granted access to the SIX system.

Regarding CBDC`s they have concluded that it is not a tech issue but rather a policy issue. The SNB believes that while there are advantages, the main disadvantages, make CBDCs a no-no for the SNB. They see that a CBDC would increase the risk of bank run and would make monetary policy ineffective when it is actually mostly needed.

This is where Aleksander Bernesten actually stepped up and provoked the thinking. He firmly believes that Central Bank electronic money would increase financial stability. Give access directly to the CB to all.

His motto is that:

The Censorship resistant attribute of Bitcoin, is priceless!

He makes things simple by focusing on this attribute. Since there is no free lunch, we have to choose between

A Censorship resistant database which is inefficient and slow

Or

An efficient and fast centralized database which is not censorship resistant

He thinks that a central bank decentralized currency has no meaning at all. Forget about a Fedcoin type of idea. However, he proposes that Central banks issue electronic money for all! So instead of having the authorised commercial banks exclusively access directly the CB, we should all have direct access to the Central Bank. Forget about the RTGS system.

For those that want to understand more details read The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies

Note: By joining Axess think tank you can access the video recordings of this high quality and more. Check it out here.

Don’t forget that currently

MONEY is a claim on the Central Bank or a commercial bank!
Will this change? How and when?
The Why has been answered: For a Censorship resistance monetary system.

 

[1] Central Bank Digital Currency

Stock exchanges and listed asset assets Part 1
  • Efi Pylarinou

Stock exchanges and listed assets – Part I

Stock exchanges and listed assets – Part I 1100 736 Efi Pylarinou


Stock exchanges and listed assets  – Part I 

“At the time of its Series E fundraise in May 2018, shares of Circle were worth $16.23 a piece at a valuation of $3.01 billion, but in January 2019 shares are available to be purchased at just $3.80. To be sure, it is not clear how many shares are being offered at this new price, nor is it clear if any shares have exchanged on the platform at this price. This share price implies a $705M valuation.” excerpt from Prop Shares are Hard to Sell: Shares of Crypto exchange Circle are being offered at a massive discount.

The Austrian school of economics view is that

Stock Exchanges are the fastest and most efficient data-processing large scale system that we humans have designed so far.

Stock exchanges need roughly 15minutes of trade to determine the effect of a piece of news – political, scientific, ecological, societal etc – on the prices of shares.

Whether this will change with DLT technology and when, is up in the air. For now, we have old and powerful institutions running these data-processing systems and it wont be easy to steal their Cheese.
The Frankfurt Stock Exchange is over 400 yrs old with a market cap putting it in the 10th position globally. The London Stock Exchange (LSE) and the New York Stock Exchnage (NYSE) are bother over 200yrs old and are in the 3rd and 1st respectively by market cap. Just a few blocks away from the front runner, there is NASDAQ only 45yrs old and with a 2nd ranking in market cap.

The 29yr old Australian Securities Xchange (ASX) ranking 14th in size, is actually the bravest in that they were the first to explore DLT technology for their settlement and post trade activities. Digital Asset has been their partner, with whom they have been designing a replacement of their Clearing system CHESS since 2015, which they actually own (not the case for other stock exchanges). The full launch has been pushed out again from 2020 to 2021.
The architecture of this system maintains the messaging-based interaction with its participants and does not require them to have to run a node on the network in order to participate.

“We are often told by many, including other market infrastructures, ‘You’re so brave that you’re going first, you’re using DLT’ — we actually genuinely consider it brave to embark upon a large transformation program and not adopt this technology,” said Cliff Richards ASX`s executive general manager of Equity Post-Trade Services.

[1] Data source from the Visual Capitalist as of April 2017 – Comparing the largest Stock exchanges

Stock exchanges and listed asset assets Part 1

NASDAQ is the most active stock exchange by being involved in several different DLT initiatives that are however, recent.  In Spring 2016, in a post about Fintech in action on Western stock exchanges, I had mentioned Linq, a private blockchain company focused on private securities issuance. Linq allowed unlisted private companies to represent their share ownership digitally and securely. Later, Linq and Chain, a blockchain services provider, used DLT to register digitally ownership of private shares.

In May 2017, Nasdaq partnered with CitiConnect for Blockchain and took Linq to the next level. They went through a seamless end-to-end transactional process for private company securities.  Payment and reconciliation magic via DLT.

In October 2018, NASDAq also partnered with the Azure blockchain service of Microsoft. The aim is to integrate it in order to improve buyer-seller matching, management of delivery and payment. The key advantage they present is that this deployment will allow for interoperability with customers using various blockchains.

What really caught my attention is the Nasdaq`s use of DLT technology in their newswire services. They are starting to use smart contracts for time-sensitive data like corporate announcements, press releases, regulatory filings, etc and the associated valuable meta-data. Nasdaq seems to have filed for a patent around this  – Nasdaq Gets Patent for Blockchain Newswire to Solve Gaps in Audit Trail Gaps and Errors!

For me this latest use case, can be big.

Distributing meta-data through smart contracts and giving access to it on a pay-as-you-go way, will be a huge business for stock exchanges

and Nasdaq can dominate in this.

[1] Data source from the Visual Capitalist as of April 2017 – Comparing the largest Stock exchanges

[2] Here’s what to expect from ASX’s blockchain-based CHESS replacement

[3]  Chain was acquired by Stellar in Sep 2018

[4] Microsoft to Integrate Blockchain Offering Into Nasdaq Services Following New Partnership

[5]Nasdaq Wins Patent for Blockchain-Based Newswire Service

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

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