12 Thought Leaders Share Insights on Blockchain's Impact on Wealth & Asset Management

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management 800 450 Efi Pylarinou

12 Thought Leaders Share Insights on Blockchain’s Impact on Wealth & Asset Management

Blockchain technology is powering up cutting-edge innovation and experimentation in wealth & asset management. We all acknowledge that digitalization is threatening traditional business models in finance and that it is unstoppable. These threats also present opportunities for wealth and asset managers.

We, The Wealth Mosaic, and I embarked on a journey to provide you with updates and insights on this trend which is evolving, and dynamic. We echo the views of thought leaders and various market players sharing evidence that Blockchain, has the potential to fundamentally change wealth and asset management, both by replacing the infrastructure in the management of existing asset classes and as the backbone for new alternative assets.

We started speaking to players and asking them `How Distributed ledger technology and Blockchain is currently reshaping wealth and asset management? Where is the industry today and how do they foresee things changing in the future?` Along with the products and services of the participants, this inaugural report includes a thought leader from each company that shares her/ his views on these questions.

Now is the time for the wealth and asset management industry to start preparing for the changes in business process and in investment products that are coming from the adoption of Blockchain technology. Surely, some of these will come later and some are already here. Regulation and mass scale adoption takes time. In the current environment, things happened slowly, gradually, but then Suddenly. So, keep learning, understanding the changes that are underway.

The report can be downloaded here. It includes, opinion pieces from ARK Investment Management, the manager of the first ETF that included Bitcoin in its holdings in 2015, and from MAMA, the Multichain Asset Managers Association, a trade association focused on the development of on-chain management.

In this report, we profile 10 solution providers from across the globe, with participants based in Switzerland, Liechtenstein, Luxembourg, the UAE. The companies are — Area2Invest, Chainalysis, Consensys, CrescoFin, DSENT, FiCAS, FundsDLT, Lykke, SEBA Bank, and Securrency.

As this is the first report on this topic it is by no means covering all the activity in the area as the space is evolving fast, with some subsectors maturing (e.g. custody), and other nascent ones emerging (e.g. DeFi — Decentralized Finance). Given the level of innovation in this area, we plan to publish updates and/or sequels to this report on an on-going basis and will make this an annual WealthTech Views report for the sector.

The Wealth Mosaic is the digital marketplace & intelligence resource for the global wealth management sector.Dr. Efi Pylarinou is an ex-Wall Street professional who has become a thought leader and recognized global influencer in Finance.

We hope you enjoy reading the report and look forward to hearing your thoughts. We are committed to building bridges between the old and the new economy. We believe in the fusion of technological innovations in financial markets, in ways that benefit the end customer and the entire ecosystem as a whole.

If you are a solution provider in this space and would like to feature in any of the updates, please do not hesitate to get in touch.

Efi Pylarinou

Founder, Efi Plyarinou Advisory

Simon Ramery

Co-founder, The Wealth Mosaic


Over 100 US SPACs raised over $40billion in 2020

Over 100 US SPACs raised over $40billion in 2020 800 533 Efi Pylarinou

Over 100 US SPACs raised over $40billion in 2020

SPAC Research reports that US companies have raised more than $40 billion through SPAC IPOs so far in 2020. Barron`s reported that in 2019, one in four IPOs was a SPAC, and they raised a total of $13.6 billion for 59 SPACs.

As of the 3rd week of September, there were over 100 SPAC offerings completed in the US through which $40+billion has been raised. This compares to triple the amount of dollars raised in 2018 and close to double the number of SPACs launched. The activity reported from SPAC research shows that there are several SPACs seeking targets and others that have found the private companies that they want to allocate their funds.

Spac Research

July was the month with the Mega-SPAC filing of $4billion. Bill Ackman’s Pershing Square Capital Management went public with a SPAC focused on the tech sector. The shares PSTH-UN launched at $20 and as of Friday`s Sep 18th close, they are $22.13. Let’s see if some Fintech ends up in this SPAC.

SPACs offer a faster way to market, avoiding several costs, and the undesirable price action following most IPOs and the prohibition to release financial information.

SPACs are a fast way for investors to access private companies.

It Has Been a Huge Week for SPAC IPOs. Here’s What You Missed. (Barron`s)

In July, there was also a Fintech focused SPAC IPO on NYSE worth $350million.

Let’s welcome and keep an eye on Fusion Acquisition Corp‘s (NYSE:FUSE.U).

A blank-check company that will focus on businesses in the Fintech or asset and wealth management sectors, with an enterprise value between $750 million to $3 billion. FUSE.U launched at $10 and is now at $10.20.

Hot SPAC Sector Meets Hot Fintech Sector in Fusion Acquisition Corp IPO (Crowdfundinsider)

Another fintech SPAC July noteworthy deal, is the Diginex reverse merger with SPAC 8i Enterprises Acquisition Corp ($JFK listing on Nasdaq). Diginex is a Hong Kong-based crypto and blockchain solutions tech firm. $JFK is a SPAC that raised $76+million in May 2019 and now is facilitating the US listing of HK based Diginex. Keep in mind that Diginex already operates its own crypto exchange called in Singapore under a payments restricted license. It also operates an over-the-counter (OTC) crypto trading desk, Diginex Access, and a “hot and cold” custodian, Digivault.

Crypto firm Diginex is listing on Nasdaq via a reverse merger (The Block)

The acronym SPAC is “Special purpose acquisition companies”. A SPAC goes public and raises money that are kept in a trust. The mandate of the SPAC is to go out hunting to acquire a private operating company (or companies) in a specific sector. It used to be a tech unicorn hunt in the old days.

Marc Rubinstein reports in his latest `SPAC the new black` that Bill Ackman`s latest SPAC structure has introduced novel terms. The basic terms of a SPAC (source) include investors receiving common stock and detachable warrants. The devil is always in the details of course, so the warrant details play a large role (whether they can be exercised before or after the acquisition). Kenneth Squire explains the details of the new $4billion SPAC structure in detail here. The main point is that Pershing Square, the SPAC sponsor, for the first time is not receiving any founders shares. So, Pershing Square will receive compensation only after SPAC shareholders receive a 20% return. In the usual SPAC structure, it is reverse, Pershing Square gets paid first and then the shareholders.

Bill Ackman and Tontine Holdings rewrite the terms for SPACs

Back in October 2017, I wrote about Fintech SPACs as Social Capital Hedosophia Holdings Corp. listed on NYSE in September IPOA.U) and raised $600million. In late 2019 IPOA.U merged with Virgin Galactic (SPCE), in October 2019 focused on human spaceflight.

The second Social Capital Hedosophia fund targeting US tech companies (IPOB.U) was launched this year at the end of April and raised $360million. This was just a week apart from the third fund from Chama IPOC.U.

IPOB.U launched at $10. It just announced a deal to merge with Opendoor, the fintech focused on real estate. Based on the terms announced, the SPAC will inject $414million into OpenDoor and another $600million will come from a group of investors that include major funds (e.g. Blackrock) and Chamath Palihapitiya himself.

The IPOB.U SPAC price has jumped as high as $19 and is settling around $16, as the deal is not finalized.

Back in 2017, I also mentioned the then only pure Fintech SPACs listed on Nasdaq, FNTC and FNTEU. They were both was managed by The Bancorp (TBBK).

FNTC listed on Feb 2015 and raised $100mil and one year later acquired CardConnect, a decade-old private payment processing firm with 60,000 merchants on its platform and over $17 billion in credit card transactions processed to date. The acquisition was based on a valuation of $350 million in cash ($180mil) and stock ($170mil).

FNTEU was listed in Jan 2017 again to acquire a financial technology business. In mid-2018 it merged with Intermex Holdings, a payments fintech focused on Latin America and the Caribbean (NASDAQ:IMXI),

The 2017 post NYSE & Nasdaq fueling the mini-boom in SPACs – The Bancorp leading Fintech SPACs

Robinhood continues to make headlines

Robinhood continues to make headlines

Robinhood continues to make headlines 800 480 Efi Pylarinou

Robinhood continues to make headlines

Robinhood just announced that it raised an additional $320million at the same valuation as the May $280million. This brings its Series F funding to $600 million and its post-money valuation to $8.6 billion.

Total funding since inception (2013) is $1.5billion

There isn’t another pure startup competitor of Robinhood in the US. We could look at Coinbase who is focused only on cryptocurrencies but has aa growing B2B offering in addition to their B2B offering. Coinbase has roughly one-third of the funding and a valuation of around $8billion. 

In a way, we could say that Robinhood has also a B2B business because their revenues from selling order flow (especially options) is growing (see details below).

We could also look at savings Fintechs like Acorns that have also been growing and benefiting during these transformational times similar to other savings and investing apps. Acorns have only raised $207million to date and its valuation is may be approaching the $1billion. 

As TechCrunch remarks, Robinhood has had growing pains this Spring and made headlines with less fortuitous news. 

2020 pain points included app crashes, first time disclosure of sizable order flow revenues (look at the details), and more. 

There is clear evidence that retail trading overall has been on the rise since 2019 and spike during Q1 2020. This is due to so much cash sitting around (M2 in the US is up 23% and we have to believe that some of it found its way into the stock market) and of course to what I have been calling the `Robinhood effect`. In plain words, the extreme commoditization of stock trading.

Scott Galloway is a clinical professor of marketing at NYU Stern university and a serial entrepreneur who has written a great article Robinhood Has Gamified Online Trading Into an Addiction Tech’s obsession with addiction will hurt us all. According to his estimates of the online trading activity rise (mostly based on the rise of account openings not the size of the trades or volume) it is clear that Robinhood is leading this trend. The increase for Robinhood is x3 times, Schwab is x1.6 times, TD Ameritrade is x2.5 times, and Etrade is x2.7 times.

Robinhood continues to make headlines

I have not found any figures that support the narrative floating around that retail trading has had a significant or even leading contribution to the stunning US stock market rally since its bottom in mid-March. 

The figures that we can report is that the order flow business was very strong in Q1 2020 and Robinhood`s revenues from selling order flow is leading the pack. 

Alphacution was the first to report Robinhood`s hidden revenue stream last year. I wrote about this last November in Zero-commission brokers selling order flow are the new intermediaries. Who will disrupt them?

Now, starting 2020 there has been a new disclosure requirement around order flow business practices. As a result, we have concrete figures in hand from the entire industry, incumbents and fintechs. 

Frank Chaparro reported in mid-June` New filing shows Robinhood brought in close to $100 million by offloading order flow in the first quarter`. So, Q1 revenues were $100million for Robinhood and Alphacution estimated $69miilion for the entire year of 2018. 

I have two problems with these increased figures. One is the lack of transparency in terms of the Robinhood`s business proposition and monetization strategy. The narrative that has been left floating for years, is that Robinhood makes money from margin accounts and interest on cash. No Robinhood manager contradicted that or presented proudly their growing order flow business. And of course, since everybody else does it (except Fidelity) why not Robinhood. And this is where the irony comes in. How is Robinhood different than incumbents?

The second problem I have is that the details of the order flow disclosures (see here) show clearly that most of these revenues come from option trades rather than plain vanilla stock order. Needless to say that option trading requires more education and sophistication and is riskier than plain vanilla stock trading. And again all this didn’t matter until it did. 

Sales of order flow from Robinhood`s option trades, outsize plain vanilla order flow revenues. 

In addition, back in December 2019 when Robinhood got fined by FINRA for violation of best execution practices, it didn’t matter. The question is when will it matter?

I rest my case, as I have always had a big question mark next to the value proposition of Robinhood. Evidently, it is around the democratization of retail trading. But I have always struggled to come up with a solid argument on `Why` is this kind needed. I have yet to answer it. I do understand the `Why` for fractional shares, I do understand micro-savings into investing, crowd investing, social trading, etc. and other nudges that over time develop better personal financial habits around investing.  

I also understand various DIY offerings but this Instagram like tool does not address any core financial need. We need to manage budgets, invest wisely, save, plan retirement. What big need is Robinhood and its future roadmap solving?

2020 will leave us with sad realizations around Instagram like capabilities for option trading and cynicism around trading bankrupt Hertz stock and the craze on Robinhood of the Electric vehicle stock NKLA. 

Robinhood`s founder has committed to take care of the issues around options trading. 

Commitments to Improving our Options Offering


That does not answer the customer need – WHY! 

AUM in Digital wealth is not the metric that lived up to expectations

AUM in Digital wealth is not the metric that lived up to expectations

AUM in Digital wealth is not the metric that lived up to expectations 800 533 Efi Pylarinou

AUM in Digital wealth is not the metric that lived up to expectations

From 2016, consulting practices put out their 5yr predictions on the growth of the Robo Advisor subsector, mainly focusing on the potential to gather assets.

It was the time when Vanguard was making its first leapfrogging attempts in a space that Betterment and Wealthfront had brought to market. Personal Capital was also shaping up the hybrid version of `digital investing`. Deloitte, CB insights, Aite Group, and others were predicting assets under management by 2020 (which at the time, seemed far away for all of us).

Predictions ranged between $ 2.2 trillion and $ 3.7 trillion in assets to be managed by Robo-Advisory services by 2020 and $16 trillion by 2025.

Permit me to take the mean of the range predicted for 2020 (trillions of USD are being transferred from the government to the `people` anyway as we speak) and round it up to $3 trillion for 2020.

2020 — Well we are in the second quarter of 2020 and we are just reaching $1 trillion. A recent report by BuyShares says we are heading to $987billion. So, we are at 1/3 the 2016 prediction even though the S&P500 is up 30+% and the Dow is up 28+%, since Jan 2017.

What is more remarkable is that the current 5yr outlook compiled by BuyShares and based on Statistica data, predicts that in less than 5yrs the AUM will grow x2.4 times, reaching $2.4trillion.

AUM in Digital wealth is not the metric that lived up to expectations

At first sight, it may seem to you an optimist outlook. It is actually, a heavily discounted view from that set out back in 2016 when the sector started attracting more VC investments and incumbents. The first predictions were from 0-$3trillion in less than 5yrs and then from $3trillion-$16 trillion in the second 5yr phase (x5+ times).

And now this study is saying, let’s cut the 5+ times growth rate in AUM to more than half. And let’s cut the AUM managed over the next 5yrs by 85% (we had said $16trillion and now we say $2.4trillion).

Let’s step back and look into the mirror as if it is 2025. Of course, digital onboarding and automated asset allocation offered currently via ETFs will be 100% an option everywhere and probably free.

The more interesting and meaningful question is about the evolution of the ETF market itself which has been the bread and butter of all the digital investing offerings (lumped under the `robo-advisor` umbrella be it with or without human advisory services); and whether artificial intelligence will actually transform digital investing.

1️⃣ Will `robo-advisors` continue to build their businesses mainly using ETFs? Their low-cost core value-add has been interchangeable seen as a win for passive investing and mainly via indices.

2️⃣ Will the 12% of the $4.7trillion ETF market (based on 2018 year-end data, see here) grow and to what extent?

3️⃣ Will active ETFs grow given the current macro environment? ANTs are just emerging and are a step back from the transparency trend and the zero-commission trend. ANTs are active non-transparent and on average their expense ratio is 70bps. Their position reporting is much better than mutual funds (quarterly). Their cost-adjusted and risk-adjusted-performance will have to be seen going forward. They are currently only 2% of the ETF space (see here).

4️⃣ Will artificial intelligence finally take over the asset allocation and the decision of switching between direct indexing or stock picking or momentum.

A few facts to consider:

1. The ETF space grew sustainably in 2019. Statistica reports $6.18trillion by year-end of 2019. That is a 30% increase. Of course, by the end of Q1 2020, the ETF global industry experienced a c. 16% drop ($5.4trillion) which was 100% due to the drop-in asset values. ETFs actually experienced in Q1 net inflows of c. $120billion. These were inflows during the major March selloff. Source

2. An update on my calculations of the assets under management by digital wealth services points to a c.30% increase (by 2019 year-end), which matches the ETF increase. Source

3. The actual role of artificial intelligence in all the Digital wealth offerings, is still minimal. Even the large incumbents with sizable digital wealth AUM, like Merill Edge or Vanguard, are still in the initial phase of digital transformation in wealth management. Vanguard actually has done very little on the needed digital integration front. Merill Lynch is probably ahead with its new CEW — Client Engagement Workstation — that integrates market data, client information, account servicing tools and some narrow artificial intelligence tools (chatbots).

For 2025, we should be making predictions of the extent that Artificial intelligence will be making better decisions for my asset allocation than I do, or my private banker, or my financial advisor, or my digital wealth service provider.

What has gone wrong in Fintech that pushed the original projections of $16trillion AUM in 2025, to $2.4trillion?

Where are the trillions of currencies that are being transferred, going to end up?

Isn’t the digital transformation of the mutual fund industry what will happen over the next 5yrs? Whether it is through DLT as an infrastructure of the mutual fund administration or by the tokenization of fund structures or the disintermediation of the European banks who dominate mutual fund distribution or all of the above? And won’t all this lead to an exponential growth of the `Digital wealth` AUM?

Humans and Machines in uncertainty

Our journey of Humans and Machines in managing Uncertainty — Part I

Our journey of Humans and Machines in managing Uncertainty — Part I 800 600 Efi Pylarinou

Our journey of Humans and Machines in managing Uncertainty — Part I

The conversation around the interaction between data, algorithms, and humans never stops.

Once again, A crisis like no other!

The COVID19 induced crisis, of course, provided us with an ideal setting to use more data, test and train algorithms, and experience our and their strengths and weaknesses in the investing arena.

Once again, A crisis like no other is actually the title of an AQR article at the end of March. The 20+yrs old quant king has suffered after a very difficult 2018 (the so-called Red October) which led to large outflows and over 1000 layoffs- Investors pull billions from quant king AQR as performance slumps — Financial News.

There has never been a better time to bring up the conversation on whether Data (fundamental, conventional and alternative) made a difference during this crisis. Did algorithms help and in what way? And what about the interaction of humans with Data and algorithms?

Fundamental macro data is essential, and this will never change. What can and should change is the time lag and that not all data sources are trustworthy. We need to build a real-time information system aggregating trustworthy data, that starts with fundamental data and extends to the currently coined `alternative data`. Eventually, we will get rid of the alternative data term, all together.

Lykke recently launched the Open Initiative project which is a competition with a CHF50k funding award. This is led by Richard Olsen (founder & CEO of Lykke), Christopher Giancarlo (Cofounder of the Digital Dollar and ex-Chairman of CFTC), and Ashkan Nikeghbali (Chair in Mathematics at UZH)

One of the four different thematics of the competition is focused on building a Real-time information system. Lykke proposes a Wikipedia like system (in certain aspects) with revenue streams built on Blockchain and accessed via APIs. This vision merits a separate article.

In May, as an advisor to AxessThinkTank the Geneva-based ecosystem with a vision of becoming a distributed knowledge hub, we embarked on the first step of a journey focused on `Humans and Machine to manage Uncertainty`[1]

I had the pleasure to moderate a 50 minutes digital discussion with a diverse group of experienced professionals that work as quants with data and algorithms focused on investing intelligently. Watching the recorded discussion will provide you with the full insights and color from each participant.

There was a consensus more or less than the demand for alternative data, as expected, spiked during this crisis because everybody needed to access the situation in real-time and needed real-time measures. Investors, traders, portfolio managers, pensions, who were already using some kind of alternative data, needed more and relied heavily on high-quality real-time data. The reliance on such alternative data and on actionable techniques to access exposures and make intelligent predictions, skyrocketed. New entrants in the alternative data space, flocked as they needed to manage risks and exposures.

The panelists uniformly confirmed the increased need to manage thematic and narrative risks. In plain words, humans needed to understand their exposure to airlines or to China during the crisis and in the new normal. They needed to ask the data and the machines what the impact of COVID19 would be in real estate. And on and on….

Humans continue to be in charge of narrating the topics of interest or at stake. The machines need to be able to offer actionable insights and forecasts.

There is an increasing need for real-time and continuous re-assessment of this kind of complexity through lots of high-quality real-time data of all sorts. Machine learning and adaptive trading algorithms that reflect and retrain gave confidence to humans in certain asset classes (e.g. commodities) during this highly uncertain period.

Building trust between humans and machines, has always been essential and will continue to be. The recent crisis was a painful but valuable experience that built more trust in humans as to what machines can currently do and with what inputs.

There has been an improvement in actionable techniques that allow humans to extract signals towards generating alpha by combining high-quality real-time data and adaptive algorithms. There has been a better and larger offering from providers, of data, insights, algorithms.

The panelists were from the following companies:

Ravenpack is a leading data analytics platform headquartered in Spain. I was using their free Coronavirus dashboard during the lockdown which had lots of alternative indicators (panic, media hype, fake news etc).

You can check out their research around sentiment impact and sentiment investment strategies — here. Ravenpack highlights that negative sentiment has more predictive power for asset prices than positive sentiment.

CueMacro, a UK based alternative data consulting practice. Saeed Amen, the founder of Cuemacro, is the co-author of the upcoming book on The Book of Alternative Data. It is a book covering ways of leveraging alternative information sources in the context of investing and risk management.

RAM is a macro hedge fund in Geneva that emphasizes the complexity and alpha generation potential of combining structured and unstructured data (see article here).

Macrosynergy is a UK macro hedge that is currently acting as a fiduciary quant house for long term institutional investors. They are combining fundamental data and insights with algorithmic trading.

Predictive Layer is a Swiss company focused on predictive Analytics and forecasting applications. Their algorithms adapted to this crisis and offered insights that only machine learning can produce in a timely fashion. Their value add was clear in the commodities space during this crisis.

The journey `Humans and Machine to manage Uncertainty` continues. Yves Carnazzola, the president of AxessThinkTank, and myself are leading this initiative in the spirit of building a distributed knowledge hub around this thematic.

This will include a variety of additional digital conversations around this thematic, surveys and storytelling landscape reports of the space. If you are a stakeholder in this space and would be interested in taking part in this journey with us, please email us so we can provide you with additional information and details.

[1] I have been a moderator in certain tracks of the Axess Think Tank biannual physical conferences

Challenges and opportunities — Big Data, Alternative Data and AI in Finance — January 2020

Challenges and opportunities — Diving deeper into alternative Risk premia — June 2019

Challenges and opportunities in Crypto investing — Spring 2018

Stash the robo-advisor with over $300million in total funding

Stash the robo-advisor with over $300million in total funding 800 533 Efi Pylarinou

Stash the robo-advisor with over $300million in total funding

The closing of the Motif and the timing of the $112million funding of Stash, have sparked interesting conversations.

Craig Iskowitz weaved a rich coverage of Motif`s story on May 1st with lots of data and back flashes on how Motif was perceived along its journey. 13 Roboadvisors That Might Become Victims of the COVID19 Crisis is a great read for anyone in wealth management. In the last part he shares a robo-advisor ranking in an effort to start thinking about who will not survive in these markets. The Ezra Group divided 38 providers into to three groups: Market Leaders, Up & Coming and Watch List.

I`ll just pick on the first group `The Market Leaders` only because it contains Stash who definitely has us all looking at why it was able to raise this large amount of funding (Series F) in these market conditions.

Craig includes in `The Market Leaders` the big old names of Vanguard and Schwab that are pure investing giants, along with micro-investing apps like Acorns and Stash and MoneyLion (which is more focused on banking and lending).

He makes a point about the large number of paying clients that these three apps are serving. 15+ million customers compared to 30 million Vanguard clients. These are numbers as of January 30, 2020. We have unofficial evidence already of a spike in account openings across all digital offerings. In the #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi, Bill Capuzzi CEO of Apex Clearing mentioned that they saw a 200% increase in new account opening in March.

For Stash to stay on Craig`s list and to not disappoint their investors, they need to execute well on their re-bundling. They cannot afford to stay only in investing like Schwab and Vanguard. They already started their re-bundling in 2019 and effectively their roadmap to become a fuller stack. They used their Series E funding to partner with Green Dot`s Banking-as-a-Service and introduce a debit card. After one year they have acquired 750,000 banking customers and continue to pay up to acquire more.

Tearsheet reports that Stash reached $1 billion in AUM in February 2020, with 4 million customers on the platform (not clear how many are paying any subscription which ranges between $1-$9 per month with $0 minimum). On the Stash website, they report 4.3+ million customers. However, only 750,000+ are banking customers.

Meanwhile, most of the large standalone robo-advisors are also creating fuller stacks with personal finance offerings — saving accounts, debit cards. Betterment, Sofi, Acorns, and soon Wealthfront, are in the same game.

One of the Stash key recent investors is Lending Tree (unclear if they actually put in money or have a strategic partnership), so they must be planning to add credit to their services. With the dazzling choices of Baas and Saas offerings, there is no secret sauce for almost anything. The trick is the go-to-market strategy that can create network effects. And this is where maybe Stash has one first-mover advantage. Is the optional `Stock-Back` reward program that they also introduced last year something that has actually worked for them?

On May 1, Pulse 2.0 reported that `nearly $10 million Stock-Back rewards have been earned by Stash customers since the launch of the debit rewards program almost a year ago.`

Stash customers earn

`0.125% Stock-Back rewards on all of your everyday purchases and up to 5% Stock-Back rewards at certain merchants with Stock-Back bonuses`

If all $10million stock-back rewards were earned at 0.125%, then that translates to Stash having processed $8 billion in payments through their debit card. That is an average $10,000 per banking customer per annum. If all purchases were at the merchants with the special deals with Stash that gave clients an average of 2.5% stock-back, then it translates into $400million in payments and around $500 of purchases per customer.

Is all this worth the Stock-Back patent?

Stash keeps investing in their Stock-Back program. They introduced 200 more stocks for 2020. Their digital design allows them to change easily the amount of the reward and offer special deals for certain periods and target to different plans of subscription. For example in May, they increased their rewards for CVS, Netflix, Hulu, Spotify, Disney to stock-back rewards of 2% from the usual 0.125%. (Details here) Their picks obviously are the best way to build customer loyalty, as all these are top choices for most people during the lockdown. They also offered 3% for two Food delivery stocks, Seemless and Grubhub only for plus subscription customers.

This kind of customizable service is definitely Fintech innovation.

It would be good to know what percentage of Stash customers actually opt-in their Stock-back reward program. And then, what is the actual distribution of rewards that were paid out amongst the individual stocks like Amazon, Starbucks, Walmart, and the diversified fund which is paid out as a reward when you make purchases at merchants that are not publicly traded and on the Stash list.

Are business analytics of Stash customer behavior confirming that once a customer receives a reward in a stock, they actually become more familiar with the company and allocate more funds to invest in the company? This is the narrative that Stash is floating around as they report that they are seeing an increase in customer deposits. Stash is hinting that there are network effects from the Stock-Back Rewards into their investment business.

It is worth monitoring Stash to see

  • Number of Banking customers growth
  • Average account size growth
  • The Stock-Back reward program growth
  • What value there is in the Stock-Back patent they refer to
  • Any new smart credit offering

Nerdwallet April 2020 comparison shows that the customer acquisition cost for Stash is very high. They are still paying a lot to lure new customers.

Stash Robo-Advisor

The US standalone robo-advisory space is on a journey of rebundling. Stash is the youngest of those that have made a name already and has just become the most well-funded robo-advisor with over $300million total funding.

To keep things in perspective, I have ranked 6 US robo-advisors with their total funding (and one originally Canadian) by age.

Stash Robo-Advisor

An earlier version of this article appeared on Daily Fintech.

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A Digital coin designed to act as store of Value — Ndau

A Digital coin designed to act as store of Value — Ndau

A Digital coin designed to act as store of Value — Ndau 800 533 Efi Pylarinou

A Digital coin designed to act as store of Value — Ndau (XND)

Ndau is not a stablecoin. It is a stateless Buoyant digital currency with a built-in design to act as a store of value. It is less known, as it not conducive to pomp and dump.

Programmable money, like Bitcoin, are available in the market even though the verdict is still out there as to which of the existing cryptocurrencies (if any) qualifies for a digital means of payment, or a digital store of value, or a digital unit of account. Bitcoin is clearly a living proof of an autonomous organization, with no CEO, no CFO, and no board. It went live with a fixed supply and a fixed predetermined monetary policy. The developer and user community has had several disagreements about the direction that the network should take which has resulted in forking the Bitcoin source code.

The fact remains (with its pros and cons) that the fixed supply of 21million Bitcoins cannot be tampered with. The programmed monetary policy allows for new bitcoins to be created only through mining at a fixed rate. This rate is fixed but it decreases as new bitcoins come into circulation and we approach the 21 million supply ceiling. There are proponents and critics to this kind of rigid monetary policy as it has not been tested in economic downturns, in which a flexible monetary policy can have benefits. It definitely sits on the other end of the spectrum from the Quantitative Easing (QE) that Central banks in the Western world have been engaging in after the 2008 Global financial crisis and the 2020 COVID19 induced economic crisis. Devaluation of currencies is a big thorn that is yet another reason that we have been soul searching technological solutions for better stores of value. Data from the Official Data organization and several other sources show that the purchasing power of the almighty US dollar has been dropping precipitously.

Soul searching for programmable money that is enabled by blockchain technology that can mitigate this frightful drop in purchasing power of even the №1 reserve currency is only natural. Can we create a rather autonomous store of value with a tamper-proof and effective monetary policy? The market has not yet decided whether Bitcoin which is stateless and not backed by any real asset, is our Digital Gold alternative. During the recent downturn, Bitcoin and Physical Gold, similar to several traditional financial assets, have not behaved as expected.

One example of a better potential Digital Gold alternative, is the blockchain enabled solution of a stateless Buoyant digital currency, the Ndau. The Ndau (XND) was launched in September of 2018. Its design is to act as a long term store of value and therefore rewards token holders the longer they hold it. Ndau token holders earn Economic Alignment Incentives (EAI) ranging from 4% to 15% based on the number of months of their holdings.

NDU Graphic

The total supply of Ndau tokens is fixed to 30million and there is a programmed market intervention to maintain price stability every time the price moves more than 5%. The supply of Ndau is increased only when demand increases based on a predetermined price curve.

Ndau is the intellectual child of the Ndau Collective. An anonymous group of early Bitcoin enthusiasts more than 20 leading experts from world-class institutions including MIT, Columbia University, Carnegie Mellon, New York University, University of Chicago, and Goldman Sachs and who specialize in disciplines ranging from economics and monetary policy to cryptography and computer science.

Buoyant : Dictionary definition = able to keep afloat or rise to the top of a liquid or gas.

In virtual currency terms, it means a currency whose value rises and whose downside volatility is mitigated.

Ndau: The name comes from en-dow (endowment). The proceeds from the sale of Ndau tokens are kept in an endowment and invested in other asset classes. The purpose of the endowment is to serve as a source of liquidity to support ndau’s price. The investment decisions are taken by the Blockchain Policy Council (BPC), a group of nine digital delegates continuously elected by ndau holders. The tokens are native the Ndau blockchain which uses a proof of stake consensus mechanism.

The corporate entities behind Ndau are Oneiro, which is backed by COSIMO Ventures. Oneiro received a seed round of $3mil initially and in October 2019, another $5million. At launch, Oneiro sold $15million worth of Ndau Tokens (which means a bit less than 1million tokens).

The recent economic downturn seems to have found Ndau at a fragile point on its journey of adoption and therefore was not able to live up to its design.

At issuance Oneiro placed Ndau tokens at a price of $17.26 during a private sale. The price remained stable for a long time (about one year) and then started rising. By early 2020, it had actually risen close to $22 (27% increase). By mid-February 2020, it seems that the price stabilizing mechanism of the endowment couldn’t cope with the tsunami of liquidation that hit all assets indiscriminately.

NDU Graphic 2

This indicates that the endowment was too small to cope with the severe changes in demand. According to their website, the total tokens in circulation had grown to 4.3million. During the worst selloff, the Ndau price dropped just below $6 and by mid-April recovered back to over $11.

Ndau is more actively traded on BitMart launched 2 yrs ago out of the Cayman Islands and with a presence in New York, China, Hong Kong, and Seoul. According to Cointelligence, they are included in the top 20 exchanges by volume.

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Govtech to Trace, FUD, and the Stockholm Syndrome

Govtech to Trace, FUD, and the Stockholm Syndrome 800 563 Efi Pylarinou

Govtech to Trace, FUD, and the Stockholm Syndrome

Two realities and a dream

I first look at a government and citizens that had developed technology when COVID-19 started spreading.

Singapore`s  have developed a narrative focused on `Helping Citizens`

One idea at a time

One-Line code at a time

One pixel at a time

The Singapore government digitalization started in 2016 with an announcement to launch the Government Tech Agency


A long-term plan to digitize the functions of governance and public life.

Singapore has already two kinds of digital IDs

, a digital identity to do business efficiently and safely online with the government.

 simplifies banking transactions by eliminating the need to re-produce documents for verification.

I picked the Singaporean example of  (there are other well publicized ones, like Estonia) because in these `never seen before` circumstances they were able swiftly to launch three new services

A community-driven contact tracing app to help during the COVID19 spread. Own your data and use Bluetooth P2P communications to share your close contacts. Give permission to the Ministry of Health to quickly reach out to your close contacts if you are a COVID-19 patient.

TraceTogether aims to protect families and communities, and stop the spread of COVID-19.

An app to use your zip code and get info on mask distribution points

An app to facilitate the following: If diagnosed with any respiratory illness (even just a cold) you get full subsidy for medical treatment

I then look at a country that has no technology to help its citizens as COVID-19 starts to spread. America has no digital ways to disperse the various stimulus packages for individuals or businesses.

Venmo, Zelle, and Square`s CashApp are offering their help in getting the government stimulus of one-time payments fast to the people. Lending Fintechs are offering their technologies to the US Small Business Association (SBA) who will handle the $350 billion guarantees for loans to small businesses (out of the $2 trillion).

Transparency of money flows (audibility) would have been a blessing in this situation. It would save the government and the citizens from all the moral hazards that were experienced during the GFC. One of the most eye-popping examples were banks that were eligible for favorable loans with subsidies which they subsequently used for share buybacks.

Digitalization of municipalities, states and governments is not only about operational savings but also about Transparency that can allocate capital and manage risks in a fair way.

Let`s hope that one of the positive outcomes from this crisis, will be large scale government digitalization initiatives so that we can deal with the next crisis in a better way. We live in an extremely complex world that is increasingly crisis-prone.

I now wish & hope that through the experience of this crisis, enough leaders will recognize the risks of centralized technology to help citizens. The biggest risk is citizens (we all) falling prey to the me.

As hostages of the Coronavirus, we develop sympathy to all surveillance tools that allow us to eventually get rid of this captivity. Once the Coronavirus crisis is over, we stay captive to the surveillance tools because of FUD (Fear Uncertainty Doubt) and the Stockholm Syndrome. We actually `willingly` change our values and morals. We actually feel a kind of gratitude towards those that developed and offered us the surveillance tools, because they were lifesaving at the time.
We need to focus here and now on the development of decentralized surveillance technology for all. Technologies that allow ownership of data and use of it for various AI-enabled tasks again in a decentralized way.

Let`s shift our focus towards blockchain and AI use cases that serve citizens rather and can safely help us manage widespread risks, like the Coronavirus situation.

Inspired by the  a non-profit alliance with already 65 companies involved from the Blockchain and Artificial Intelligence space. Their first imitative is the  launched on April 1st and bringing cross-industry people to who are in alignment with the decentralization of AI, to work towards a variety of solutions to the problems from COVID19.

Designing the future is imperative. Being aware of the risk of the Stockholm Syndrome is paramount.

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ANTs – Active Non-Transparent ETFs

ANTs – Active Non-Transparent ETFs

ANTs – Active Non-Transparent ETFs 800 400 Efi Pylarinou

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Earlier this year the SEC approved a new ETF wrapper and several companies will be able to launch active ETFs or license the wrapper to asset managers.

Undoubtedly, the growth of low cost, indexing, passive ETFs has been supported by digital innovations in wealth management. However, it is the incumbents that own the lion`s share of the low cost, passive ETF market. Similarly, it is predominantly incumbents that will be launching Active Non-Transparent ETFs.

ANTs are actively managed ETFs that offer all the advantages of the ETF wrapper – digital access, intraday liquidity, tax efficiencies, etc. – for actively managed portfolios. The reason that they have been called `Non – Transparent` is that the managers are not disclosing their holdings on a daily basis but on a quarterly basis. The ETF manager will only disclose real-time his-her positions to the Authorized Participant that is the entity who provides the in-kind redemption process.

Eaton Vance has been the only company that already has such an approved wrapper, the NextShares, which is an actively managed open-end fund trading on exchanges without regularly disclosing its holdings.

ETMFs were launched in 2016 but the growth has been negligible.

Eaton Vance Stock NextShares (EVSTC) – $6mill AUM

Eaton Vance TABS 5-to-15 Year Laddered Municipal Bond NextShares (EVLMC) – $7mil AUM

Precidian received approval in Spring 2019, for their own proprietary NonTransparent ETF structure, the `ActiveShares` which can also be licensed.

In a recent approval, Blue Tractor a 5 year old company also received approval to license its proprietary model, Shielded Alpha, to asset managers who are interested to launch NonTransparent ETFs.

The other players are T. Rowe Price, Fidelity Investments, and Natixis through a with the New York Stock Exchange.

Will the new ANTs planned to launch this month (March), come to market in these tough times? Will they eventually help the actively managed space?

Actively managed ETFs

Actively managed ETFs already exist but they are no more than 2% of the entire ETF sector. They have predominantly been focused on fixed income which is an asset class that the portfolio holdings are not easily replicable. Most asset managers have had difficulties beating their benchmarks and at the same time offering low-cost investment vehicles (even in funds) which has resulted in very low interest in equity actively managed ETFs.

As most opportunities in equities have been in smaller caps rather than larger caps and in international markets rather than US domestic markets, actively managed ETFs in larger-cap domestic caps seem challenging.

ANTs that have been approved maybe (just maybe) will establish themselves especially as investment ingredients that financial advisors embrace. The question is whether financial advisors will stomach the opaqueness of these ETFs. I guess they would if the alpha produced is sufficient but that of course, is a chicken and egg problem.

The only example of fully Transparent Actively managed equity ETFs is the family of ETFs launched by ARKInvest, which I have covered from their early days.

The investment thesis of ARKInvest is Innovation. It offers five actively managed thematic ETFs whose holdings are fully transparent (with a small intraday reporting delay). ARKK is the largest ETF with $1.86billion AUM (Total assets under management for all five ETFs are just over $3billion)

ANTs – Active Non-Transparent ETFs

ARK was awarded by Fund Intelligence in 2019, the ETF Suite of the Year. Cathy Wood, the CEO, has also been disruptive in the way research is conducted at ARKInvest. They have developed an Open Research process that allows them to go beyond the traditional financial analysis by including Theme Developers and experts and holding open debates around their investment themes. More here.

Two picks of noteworthy innovations of ARKInvest ETFs.

  • In the Fall of 2015 ARKW ETF, was the first ETF that invested in Bitcoin through Grayscale’s Bitcoin Investment Trust . I personally remember reading Chris Burniske`s (research lead at the time at ARKInvest) ARKInvest research at the time which was shared openly and led to their investment decision. The ARK Web x.0 ETF (ARKW) listed on NYSE Arca invests in innovative internet technologies including cloud computing, big data, digital media, e-commerce, bitcoin and blockchain technologies, and IoT.
  • Currently, ARKInvest shares openly on its website and on the Github their valuation model of Tesla which is a core holding in three of their five ETFs.
Tesla’s Potential Trajectory During the Next Five Years is their latest thinking around Tesla`s potential and the actual model with its inputs is on the Github here.
ETF Market

The ETF market championed during the February historic market drop

The ETF market championed during the February historic market drop 800 600 Efi Pylarinou

Figure, the Lending new unicorn powered by Blockchain

During the last week of February, market indices dropped precipitously, wiping out trillions of dollars in a historic drop.

I kept worrying about the liquidity issues that robo-advisors could be facing, as I kept fresh in my mind the Betterment/Brexit incident in July 2016! When the unexpected British election results hit the market, ETFs became illiquid and mispriced and Betterment suspended trading for retail on that Friday of the Brexit results for almost 3 hours.

ETFs have been the bread and butter of all robo-advisors. As of the end of 2019, based on my calculations, incumbent and standalone robos accounted for 12% of the entire ETF market (see here). Both standalone fintechs and incumbents use these efficient wrappers to create their portfolios.

Eric Balchunas, reported that history was made on Feb 28th, with the $SPY ETF becoming the first security to ever trade in one single day, over $100billion!

SPY trading volume

ETF Market Graph 1

Several large ETFs made all-time volume records on that same day. For example, $QQQ the NASDAQ tracker reached $28billion and $HYG, the most widely used high-yield bond ETF, reached $7.8billion daily volume.

Overall, the ETF market fared very well in this market blood bath.

The record volumes are a healthy sign. ETFs are used by professionals to get in and out of the market fast and efficiently. I say that the record volumes are a healthy sign, because they were combined with tight spreads and reasonable premium-discount levels; unlike the situation that occurred in the summer of 2016.

Authorized participants (APs) that manage the liquidity and play a significant role in the bid-ask spreads in ETFs, worked wonders in this recent market turmoil. In my 2016 post, I discuss in detail the liquidity risks inherent in ETFs. The bottom line is that the business of APs for ETF, is an operationally intensive business. The Aps create and redeem ETF shares and on average each ETF has 5 active APs. These are typically large US banks but also European banks are involved in the large US ETF market as APs.

We need to celebrate the way in which these entities handled the total record volume of ETFs this past week. $1.2 trillion traded in ETFs! Bank of America, Goldman Sachs, JP Morgan, and ABN AMRO, are some of the major AP players that make it possible for robo-advisors to brag about serving smoothly end customers.

ETFs proved themselves in the February downturn that goes down in history as one of the most severe drops in a short time. It has been compared to the 2008 crisis, as it wiped out close to $5 trillion in value in public stock markets.

ETFs overall experienced $24billion of net outflows! This is peanuts compared to the overall drop in equity values. This shows that that retail ETF holders, HODLed; the high ETF volumes indicate that professionals used ETFs to manage their exposures.

Stay tuned for a March update, by month end.


ETF liquidity risks are more complex than at first sight.

There are ETFs that target illiquid markets (e.g. equity exposure to the Egyptian stock market; or specific bond market).

There are ETFs that simply don’t accumulate enough volume and therefore the bid/ask spread is wide. This is because the market maker is dealing with a narrow market. There are tons of ETFs that are low volume (close to 30% are reported to trade less than 5,000 shares per day!). Exchanges are giving out incentives to the trading firms involved in market making, to keep these structures alive.

There is also the Premium/Discount spread that reflects whether the ETF itself is trading above or below the NAV of the underlying portfolio. This can happen because of behavioral trends (i.e. the crowd pilling into an investment theme or an investment theme gapping down because of an event that turned it out of favor). This is the type of risk that Betterment tried to protect its clients from when it halted trading during the aftermath of the Brexit.

The last and least understood liquidity and counterparty related risk is one related to the Creation/Redemption process of ETFs. This is actually the secret sauce of these structures, which gives them the intraday liquidity which is lacking from mutual funds and the tax efficiencies. The Creation/Redemption process of ETFs refers to how the shares are created or redeemed. The process is complex and if one wants to understand it, it is explained on here. The hidden risk that needs light shed onto it, is related to Authorized Participants (APs) who are the entities that create and redeem ETF shares and are sometimes the same as market makers; but not always. They are the usual suspects (large broker dealers) and have signed AP agreements with the ETF issuers (see a SEC-registered AP agreement here). In summary, for each ETF, one has to think of the Issuer (e.g. Vanguard, Blackrock), the Authorized Participant AP (e.g. Bank of America) and the Market Maker and the Custodian (e.g. JP Morgan, State Street).

So, one can say that at least Four kinds of liquidity risks are inherent in ETFs. The AP related risk or the risk inherent in the “magic” Creation/Redemption process of ETFs. It is a risk that cannot escape from a Lehman moment in the financial sector. Even if one invests in an ETF that has no direct exposure to the financial sector, through the double liquidity dependence on Authorized Participants and Market Makers of ETFs, the risk is there and real. In August 2015 when the market gapped, ETF prices were not available and active investors, those needing to hedge through ETFs; were facing a void. Passive investors focused on mirroring Indices, were disappointed too. Panic and behavioral biases can turn a seemingly well-functioning market into one that is illiquid, volatile and distorted. All these factors are concentrated in the financial sector. There is no difference from the time of the mortgage structured products crisis and the out of proportion domino effect.

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