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FQX is a blockchain-based issuance platform for tokenised debt. Founded in Zurich in 2019, the start-up has invested as much time and money in the legalities as the technology and can now offer issuers near-certainty over the status of their security token offerings in legal and regulatory terms across six jurisdictions. The initial focus is on short-term corporate debt, with the aim of normalising the digital registration, issuance, transfer and trading of generic eNote tokens before expanding into longer term instruments and secondary market trading. Once established, the company believes the savings on issuance costs will encourage issuers to use the FQX eNote structure for public issues and private placements, for long-term financing as well as short-term debt, and for repeated returns to the capital markets. Built on a Solana layer 1 blockchain, FQX has also pioneered Stablecoin debt, with an issue denominated in the USD Coin (USDC) for the Hong Kong and Singapore-based crypto-currency lending house Babel Finance - collateralised by Solana coins (SOL). At FQX, Dominic Hobson, Co-founder of Future of Finance, spoke to Benedikt Schuppli, Co-Founder and Co-CEO, and Daniel Killenberger, CTO. 

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Concordium is a Layer 1, Proof-of-Stake blockchain with its own cryptocurrency. So far, so normal. But Concordium also has a fascinating twist: it incorporates digital identification functionality at the level of the protocol. If predictions of the eventual universality of digital identity are even half-fulfilled, this feature will give Concordium an edge over other Layer 1 blockchains as the digital economy makes use of more efficient, privacy-protecting methods of customer due diligence. The company has raised US$50 million from a small group of investors, whose number includes Lars Seier Christensen, co-founder and until 2016 co-CEO of Saxo Bank, who has identified blockchain as a forcing house for entirely new ways of doing business. Concordium also benefits from its relationships with Aarhus University in Denmark and ETH University in Zurich, where academic researchers are working not only technical issues but also on the governance issues which have plagued Proof of Stake blockchains. Dominic Hobson, co-founder of Future of Finance, spoke to Kåre Kjelstrøm, a veteran of Travis Kalanick start-ups Uber and Cloud Kitchens, who is now chief technology officer at Concordium.

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The peer-to-peer system of cash outlined by Satoshi Nakamoto in his famous paper of October 2008 did not mention regulators or regulations. But its ambition of dispensing with trusted third parties did mean jettisoning regulated financial institutions. Nearly 14 years on, only the irreconcilable libertarian wing of the Blockchain industry still considers regulation of cryptocurrencies to be unthinkable. Major cryptocurrency intermediaries are getting regulated already. Two of the major cryptocurrency exchanges (Coinbase and FTX) have multiple regulatory licences and even Binance has secured a licence in France and applied for licences in Bahrain and Dubai. Likewise, of a list of 100 digital wallet custodians, 42 have secured or applied for regulatory licences. Nor is it true to say any longer that cryptocurrencies are unregulated. The Financial Action Task Force (FATF) extended Know Your Client (KYC), Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and sanctions screening obligations to the cryptocurrency markets as long ago as October 2018. Grumbling by cryptocurrency brokers and exchanges about the application of the Travel Rule – which obliges them to share identifying information about buyers and sellers of cryptocurrencies – is merely the latest instalment of this long-running set of obligations. Suspicious Activity Reports (SARs) now have to be filed. Besides, regulators are losing patience with the seemingly unending series of scams, hacks and thefts of cryptocurrency. Since hackers made off with US$500 million of Bitcoins from Mt Gox back in 2014, thefts of cryptocurrency have remained a constant. According to Chainalysis, thieves stole $3.2 billion worth of cryptocurrency in 2021 and another US$1.3 billion in the first quarter of this year, most of it from Decentralised Finance (DeFi) protocols. Chainalysis reports an average of 66 crypto-currency thefts a year since Mt Gox. But thieves are not the only people taxing retail cryptocurrency investors. Almost all the rewards of cryptocurrency trading go to professionals, including via pump-and-dump schemes. So it is not surprising that regulators are clamping down on the sale and distribution of crypto-currencies. Singapore has been particularly vocal about discouraging sales of cryptocurrencies to retail investors but the United Kingdom is now pondering similar restrictions. In emerging market economies, cryptocurrencies are used routinely to bypass capital controls or evade tax.

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A Future of Finance interview with Thomas von Hohenhau and Marcel Fleisch from V Bank.

Liechtenstein is one financial jurisdiction which has embraced the blockchain enthusiastically. It has since January 2020 had in place comprehensive legislation covering all aspects of tokenisation in the shape of the Token and Trustworthy Technologies Service Provider Act (TVTG). The Act is, says VP Bank, one of the factors that has made possible its own rapidly developing asset tokenisation service. The Lichtenstein private bank sees the tokenisation of collectibles in particular as a major new business opportunity in the immediate future – a work of art belonging to a client was tokenised earlier this year - and is already exploring the tokenisation of real estate and privately managed assets too. Dominic Hobson, co-founder of Future of Finance., spoke to Thomas von Hohenhau, Head of Client Solutions and a Member of the Group Executive Management at VP Bank in Liechtenstein, and Marcel Fleisch, Chief Product Officer at VP Bank.

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Cross-border payments are, in the now familiar mantra of the G20, slow, expensive, opaque and inaccessible. This matters because, despite a slowdown in the rate of growth of world trade, cross-border payments are becoming more important, not less. Remittances and e-commerce are more than making up for any shortfalls in exchanges of physical goods. Consultants BCG predict the value of cross-border payments will increase from US$150 trillion in 2017 to US$250 trillion by 2027 – a two thirds increase in just a decade. As it happens, 2027 is the date set by the Financial Stability Board (FSB) for the achievement of four quantitative targets designed not only to cut the costs, increase the speed and enhance the visibility of the costs of cross-border payments but widen access to competitive cross-border payments services as well. The four targets are just one of 19 “building blocks” laid down by The Committee on Payments and Market Infrastructures (CPMI) in July 2020 as the foundations of a better, faster and cheaper cross-border payments system for the world economy. Unfortunately, the targets are also the only product of the 19 building blocks which can readily be grasped amid the miasma of surveys, analyses, consultations, task groups, workshops, liaisons, hackathons and vague but extendable deadlines which surround alleged progress in other areas. Yet fast and measurable progress is desperately needed. Cross-border payments represent a continuous and hefty toll on international trade and capital flows. Transactions can take several days, cost ten times as much as a domestic payment and devour 10 per cent of the face value of a payment. Although the work of the FSB reads as if the problem is extremely complicated – and it is, not least because of the number and range of the parties involved – the origins of this tax on commerce are now well-understood. The CPMI labels them as seven “frictions”: legacy technology; long transaction chains; funding costs; weak competition; fragmented and truncated data formats; complex compliance checks; and limited operating hours. The G20 made fixing these frictions a priority. In many jurisdictions, competition to provide cross-border payments services cannot work because cost opacity means payers cannot distinguish between the costs of different ways of paying; most domestic banks can do no better than take prices from a coterie of 15 major global banks; and non-bank service providers are denied access to the central bank real-time gross settlement (RTGS) system. Likewise, replacing laborious customer due diligence tests with digital identities is an obvious way to cut costs dramatically and speed up the processing of payments, but the FSB now seems more interested in creating centralised data utilities than in re-designing a failed procedure. Allowing assets in one jurisdiction to secure liquidity in another would not only ease cross-border payments blockages but free up resources trapped in excess liquidity buffers, but private sector initiative to solve this problem are unmentioned.

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Part 2 of a Future of Finance interview with Vadim Sobolevski, co-founder of FutureFlow.

No one central bank digital currency (CBDC) is ever quite the same as another. But so far every CBDC project has focused largely on the technicalities of making payments – by or to unbanked consumers or businesses, or between counterparties across national borders, or to prevent consumers and businesses undermining the role of central banks by making payments with alternatives such as cryptocurrencies or Stablecoins. This has confined thinking to far too narrow a range, argues Vadim Sobolevski, co-founder of FutureFlow. He thinks CBDCs have the potential to transform not just the conduct of payments, or even monetary policy, but the implementation of economic and social policy itself. CBDCs, in his view, can and should be used to manufacture credit and direct liquidity precisely where they are needed. He spoke to Future of Finance co-founder, Dominic Hobson.

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