Consensus 2019 — less Lambo more real business
The world’s largest blockchain conference, Consensus, was boring this year compared to last. And that is a good thing. Why? Because last year had too much Lambo¹ culture of get-rich-quick— at least for our taste.
This year the long-term greedy showed up. The long-term greedy understand that in order to revolutionize financial services and capital markets you need to build trust. The opportunity to build trust with businesses and consumers exists as incumbent players are still suffering reputational damages from their mismanagement of capital some 10 years ago. That creates an opportunity for decentralized blockchain projects. Fittingly the Economist ran this cover the week before Consensus started.
It constituted a good read on the plane from Copenhagen to New York. Long story short banking is going to be a completely different experience in a couple of years. That resonates well when you are working on the future of B2B financial infrastructure as we are in Tradeshift Frontiers. But enough introduction.
Here are the top 3 trends we observed at Consensus this year:
1) Regulators see the potential
One of the more memorable experiences this year was seeing the CFTC stand and meeting senior economist George Pullen. That probably needs some context as to why.
Last year on the exact same spot where the CFTC had set up shop one of the many (many!) ICO projects that were the first decentralised future of X had their promotion stand. This year the CFTC was there to promote their whistleblower program. Talk about change!
Senior economist George Pullen of CFTC topped that when he gave a recommendation on a crypto show he liked. As in someone from a US regulatory body giving advice on what he found to be a good crypto/blockchain online show. Surreal (and positive!) experience.²
But why are regulators starting to see the potential? Why were they more strongly represented at Consensus this year given that the “Crypto Winter” has taken out many shady projects already? From the talks we heard (SEC, CFTC, panels with lawyers on) three reasons comes to mind:
- Regulators see the opportunity in building rules directly into tokens. This can ensure rule enforcement happens at a transactional level; i.e. you are not able to execute transactions unless (!) they are compliant.
- Governments are realizing that blockchain/DLT — whether it be public or permissioned — will play a central role in the future of global payments. That makes it a security issue because sanctioning tools like for example access to (digital) dollars becomes less effective if open decentralised infrastructure rule the day
- Regulators have realised that if there exist no clarity and/or sandbox environments for blockchain/fintech innovation they can be sure to lose the game on where (physically) the next fintech innovation hub will arise³
For 2019 we thus expect regulators to be more interested in how blockchain can be used for compliant transfers as well as providing more clarity on when something is a security (and when it isn’t!). This in turn will be instrumental towards enterprise development on public ledgers, which brings us to the second point.
2) Enterprise sentiment towards public ledgers is shifting
It is becoming kosher to say “Bitcoin blockchain”, “Ethereum”, “EOS” or “Tron” for enterprises. We are happy with this, since our view is that distributed open ledgers are more interesting ecosystems of innovation than “walled garden” permissioned ledgers. Central observations supporting this trend are:
- EY announced it has developed a tool that allow private transactions on Ethereum public ledger (before Consensus)
- Societe Generale issued the first covered bond (EUR 100m) as a security token on a public blockchain. It was Ethereum. (before Consensus)
- Microsoft announced a decentralized identity tool built on top of Bitcoin. Just to repeat this in case you are the kind of person who consider Bitcoin stupid but Microsoft smart: Microsoft announced a decentralized identity tool built on top of Bitcoin.⁴ (during Consensus)
The fact that enterprises are opening up towards public ledgers can be a huge accelerator in “decentralising finance”. Bringing us to the third major trend.
3) Learn to say “DeFi”
DeFi (decentralised finance) can prove to be the revolution of banking that many people in crypto/blockchain has been looking for. The best explanation of why is:
- Blockchain/DLT has already proven it can revolutionise global payments systems.⁵
- Payments isn’t banking. Payments is about moving money in space “from me to you”. Banking is about moving wealth over time “from future you to you today”. Banking is, in other words, about you receiving a loan in exchange for a promise that you will pay back the loan + interests over time.
- DeFi is about creating a protocol that allows you to do the exact same thing as banking; giving you money today in exchange of a collateral that ensures you will pay back over time.
MakerDao is interesting as they have developed one of the most widely used stablecoins on Ethereum. They are also interesting because of their Collateralized Debt Positions (CDPs), which allows you to issue a loan to yourself. Why that is interesting to us in Tradeshift Frontiers is for another post to dive into. For now it is sufficient to say that DeFi is cool.
Conclusion
Regulators are moving into the blockchain space for the right reasons. They now see the potential and opportunity rather than threats of financial violations and infringements. Enterprises are exploring public ledger technologies showing that sentiment towards public ledgers is shifting. Both those trends are likely to accelerate the development of “decentralised finance”. The word is out — and the word is “DeFi”.
Last but not least New York delivered where Consensus couldn’t:
We did spot a Lambo!
[1] Just in case: Lambo is short for Lamborghini. Rumor has it that some people who became millionaires through crypto spent it on Lambos, c.f. here.
[2] Important note: George did in no way or manner provide official guidance.
[3] Whether or not it is a good idea to load tokens with rules is debatable. However no matter what, it will become possible for regulators to put compliance rules directly into programmable money.
[4] In case you consider both Bitcoin and Microsoft stupid never mind.
[5] Blockchain/DLT has shown: Settlement times reduced from days to minutes. Natively global transfers. No need to sign up with a centralised party to do digital transfer of money.
