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Where Finance Finds Its Future
Is it the destiny of Blockchain to become the Open Infrastructure?
A Future of Finance Webinar that investigates whether the adoption and impact of Blockchain could be accelerated by pursuing an infrastructural strategy that lowers the cost of adoption, recovers the openness of the early Internet and facilitates inter-operability between different networks. A major economic mystery is why a general-purpose technology such as digital computing has not transformed productivity. After all, the marginal cost of producing further copies of software is effectively zero. Part of the answer, despite 25 years of the Internet and open-source software, is that software lacks an open infrastructure akin to the electricity grid or the road network. A true infrastructure is a shared and (crucially) open means to many ends. It creates value obliquely rather than vectorally, by enabling third party businesses and entrepreneurs to create new and innovative products and services on a reliable and low-cost foundation. Instead, the value created by digital technology is currently being privatised, chiefly by the massive data extraction platforms such as Facebook, Google, Microsoft, Uber and Airbnb, which have used network effects to build powerful monopolies. Although they do provide platforms for third-party businesses to advertise and sell, they take a turn on transactions, extract data from transactions for sale to third parties and suppress innovation through a combination of patents, purchases and the blight cast on innovation by their sheer size and invulnerability. A true infrastructure would spawn a constant series of innovations, as the electricity grid did and does (including, ironically, digital computing). And there are now signs that just such an infrastructure is coming into being in the financial markets. Open Banking and Open Finance are prising open the closed customer bases and data sets of incumbent firms, presaging the emergence of an Open Data economy in which customers rather than companies drive the evolution of economies. Forward-thinking financial institutions (such as LSEG) are embracing this shift from data platforms to open data networks by introducing their clients to third party product and service providers via a blockchain-based network. Blockchain is an obvious rather than inspired choice to fulfil the role. It is intrinsically decentralised and networked. At its heart lies the concept of simultaneous data-sharing. So Blockchain is the natural infrastructural underpinning of the networked markets that are now primed to succeed the platforms controlled by the large technology companies. Unfortunately, Blockchain has until recently succumbed to the same supply-side economics that has prevented previous digital technologies from transforming productivity: networks are fragmented by incompatible protocols designed to privatise and protect the profits of successful blockchain ventures. But there is work in hand today that is enabling blockchain to rediscover its original vocation. Efforts to bridge protocols by agreed data communication standards is one part of it. But there are also collaborative public-private enterprises such as the LACChain Alliance in Latin America, Alastria in Spain and the Blockchain Services Infrastructure (EBSI) in the European Union (EU) which aim to provide open, low cost blockchain infrastructures to innovative businesses.
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145. The first priority in data is to manage the compliance risk
33:09A Future of Finance interview with Peter Gargone, CEO of Ntier Financial Services.Data is now at the heart of every efficiency initiative in financial services: investing, trading, operations, risk management and compliance. The advent of blockchain and artificial intelligence (AI) and machine learning (ML) technologies are altering the nature of the relationship between data and technology, even as they make it easier to solve some age-old problems in data aggregation and management. Peter Gargone is CEO of Ntier Financial Services, a company he set up more than 20 years ago after experiencing at first hand the challenges investment banks faced in managing and using their data. Dominic Hobson, co-founder of Future of Finance, spoke to him about how regulatory demands are revealing new opportunities in the processing and integration of both internal and external data.
144. UNTITLED GEN aims to become the Aladdin of the digital art market
55:45In the minds of many, the digital art market is indelibly associated with Non-Fungible Tokens (NFTs), which boomed and then bust in 2021-22, accompanied by the further taint of money laundering and insider dealing. But art was digital long before OpenSea sought to democratise it and its future remains sufficiently rosy for Sotheby’s to have launched a peer-to-peer digital art market of its own in the Spring of 2023. What digital art has lacked is what the art market has lacked – namely, data on which to base valuations – and with less excuse than its analogue ancestor. After all, the digital art market is as surrounded and saturated by digitised data as any other market. But until now the digital art market has lacked not only its equivalents of Bloomberg or Reuters to provide the relevant data but the equivalent of BlackRock Aladdin to aggregate and analyse it. UNTITLED GEN, a quantitative investment advisory firm that is using artificial intelligence (AI) and machine learning (ML) to sift digitised data for information useful to digital artists and digital art investors, has emerged to plug the gap. Dominic Hobson, co-founder of Future of Finance, spoke to Clemens Wessendorff and Simon Zimmerman, the co-founders of UNTITLED GEN.
143. InvestaX founder agrees that tokenisation is synonymous with institutional DeFi
56:20InvestaX is a tokenisation platform for real and privately managed asset funds based – where else? – in Singapore, the financial centre that is doing more than any other jurisdiction to turn the idea of tokenisation into a reality. Like others in Singapore, including the regulators, the founders of InvestaX believe that DeFi innovations such as automated market-making have an institutional future – and not only because their experience dates back to the ICO boom of 2017-18, that intensely creative period in which the origins of tokenisation lie. To be part of its institutional future, InvestaX has secured operating licences from the regulators and chosen to work with regulated institutions on both the cash and custody sides of its business. And they are operating in the most progressive financial eco-system on the planet, where institutional DeFi is being built by regulators and regulated. Dominic Hobson, co-founder of Future of Finance, spoke to Alice Chen, co-founder, chief operating officer and general counsel at InvestaX.
142. The mint that manufactures notes and coins in digital form
48:53130 central banks around the world are now exploring the merits of issuing a Central Bank Digital Currency (CBDC) but as recently as 2015 not a single one was doing that, even though the idea of digital money dates back to the 1990s. The founders of eCurrency, on the other hand, a Dublin-headquartered company with deep roots in Silicon Valley, have been thinking about CBDCs ever since the great financial crisis of 2007-09. Unlike Satoshi Nakamoto, however, their concern was not to use technology to create a trustless, peer-to-peer alternative to the failed fiat currency system controlled by central bank and commercial bank intermediaries, but to rejuvenate central bank money by making it available to households and consumers via the Internet. eCurrency now offers a technology that enables central banks to mint a purely digital form of fiat currency that functions as a bearer instrument – an Internet version, if you like, of physical notes and coins. Dominic Hobson, co-founder of Future of Finance, spoke to Jonathan Dharmapalan, CEO of eCurrency.
141. What are you doing about regulated Stablecoins?
01:04:25Download the Future of Finance Stablecoins Paper NowRegulated banks are waking up to the threats and opportunities created by the decision to bring Stablecoins within the regulatory perimeter. In both domestic and international payments and securities markets, regulated Stablecoins offer liberation from the status quo as well as the threat of disintermediation. Where doing nothing is not a survivable option, understanding exactly what is going on is essential to the formulation of a viable strategy.What topics were discussed?Have Stablecoins escaped their origins in the cryptocurrency markets?What makes Stablecoins unstable?Are Stablecoins a vector of contagion that threatens financial stability?How do tokenised deposits differ from Stablecoins?How do Stablecoins create credit?Could Stablecoins develop into a shadow banking system?How will Stablecoins inter-operate with central bank digital currencies?For banks, are Stablecoins friend or foe?Do Stablecoins threaten non-bank incumbents in the payments industry?How are Stablecoins being regulated in the major financial centres?What is the capital treatment of Stablecoins?Must non-bank issuers of Stablecoins secure banking licences?Are Stablecoins the future of international and/or domestic payments?Are Stablecoins the key to the growth of tokenised digital assets markets?Are Stablecoins an end-state or an intermediate stage in the evolution of money?Download the Future of Finance Stablecoins Paper NowThe panelGilbert Verdian CEO at Quant https://www.linkedin.com/in/gverdian/Amarjit Singh Partner | EMEIA Assurance Blockchain Leader | Financial Services at EY https://www.linkedin.com/in/amarjit-singh-jeet/Ricardo Correia Senior Technology Executive at R3 https://www.linkedin.com/in/ricardo-m-correia/Keith Bear Fellow at the Centre for Alternative Finance at Judge Business School, University of Cambridge https://www.linkedin.com/in/keith-bear-2b7407/Moderated by Dominic Hobson Co-Founder at Future of Finance https://www.linkedin.com/in/dominic-hobson-49b8222/140. FundGuard offers asset managers a new way to fix their rising cost problems
50:21The asset management industry has grown fat on a quarter-century of exceptionally loose central bank monetary policies. Ever-rising asset values have allowed managers to largely ignore shrinking fees, rising costs, failed outsourcing and offshoring arrangements and a long-term secular trend from high margin active investment strategies to low-margin passive alternatives. But now a combination of rising interest rates, the reversal of quantitative easing and geopolitical and market uncertainties have exposed a fragile business model, putting profitability on a downward trajectory. The threat has woken asset managers to the need for radical change. Vendors that once found it hard to interest the industry in new ways of generating revenue and cutting costs are getting more than a hearing – they are taking on clients. One of the newcomers is FundGuard, a Cloud-based software as a service platform for investment management and administration whose initial mission is to transform an area that once seemed immune to technological change: fund accounting. Dominic Hobson, co-founder of the Future of Finance, spoke to FundGuard president John Lehner.139. Montis is scripting more than one possible future for CSDs
01:44:05The existence of Montis, which is building an infrastructure to support the issuance, settlement, safekeeping and servicing of digital assets, is a measure of the transformative potential of tokenisation. Yet Montis is also a measure of the curious lack of interest of most established central securities depositories (CSD) in tokenisation, as threat let alone as opportunity. The newcomer, unaffected by apparent setbacks in the CSD industry such as ASX and ID2s, is backed by a widening array of engaged incumbents as well as issuers and investors and operating in an increasingly supportive legal and regulatory environment. Dominic Hobson, co-founder of Future of Finance, spoke to Martin Watkins, chief executive officer at Montis Group Limited, about why Montis exists, what benefits it brings, what products and services it offers, how it is working with regulators and within evolving legal regimes, and how its positioning and strategy has adapted to the changing shape of the tokenisation opportunity set.138. SDX is betting on openness to accelerate the adoption of tokenised assets
46:13SDX, the exchange for digital assets built and operated by Swiss stock exchange SIX, is working to accelerate the tokenisation of financial assets in Switzerland, Singapore and Germany, three locations whose legal and regulatory environments are accommodating of the new method of raising capital. Interestingly, the SDX strategy is an open one that looks to embrace competitors as well as issuers and investors as the company builds a network of networks of tokenisation platforms and their users. Dominic Hobson, co-founder of Future of Finance, spoke about the SDX strategy with Alex Kech, who took up the post of Head of Digital Securities at SDX in November 2022.137. Stablecoins are not the destination but a stepping stone on the journey towards programmable money
43:53It is easy to fall into the trap of treating monetary innovations such as Stablecoins in isolation, or as a final destination, when innovation is in fact constant and individual innovations are merely components of much larger secular trends driven by technology and the interaction of technology with the wants and needs of households and businesses. One organisation that has not made this mistake, and places Stablecoins firmly in the context of a financial system evolving towards programmable money, is Quant. Dominic Hobson, co-founder of Future of Finance, spoke to Gilbert Verdian, CEO of Quant, about what he sees in the Stablecoin phenomenon.