Part 1 of a Future of Finance interview with Vadim Sobolevski, co-founder of FutureFlow.

Many business decisions are baffling. But on the face of it none is as bewildering as the decision by banks, asset managers, wealth managers, private banks, insurance companies and FinTechs to spend hundreds of billions of dollars a year on Know Your Client (KYC), Anti Money Laundering (AML), Countering the Financing of Terrorism (CFT) and sanctions screening checks that are not only expensive but useless. The answer is that regulated firms are buying insurance against the wrath of the regulators, and data vendors are delighted to provide it by plying them with high-priced but ineffective data on bad actors in financial markets. Dominic Hobson, co-founder of Future of Finance, asked Vadim Sobolevski, co-founder of FutureFlow, whether there is a better way.

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Future of Finance interview with Lisa Fall, CEO at BSTX and Jay Fraser, Head of Strategy at BSTX.

BSTX is the first exchange based on blockchain to be fully regulated by the Securities and Exchange Commission (SEC) and licensed to operate on a national scale. It took the founders of the Boston-based exchange years to get there but they were clear from the outset that fully regulated status is the key to success. It certainly makes it easier to engage regulated brokers and market-makers as well as institutional investors. So does allowing those trading firms to communicate with each other via the FIX protocol and clear and settle trades through the traditional securities and funds clearing house (NSCC) and the American central securities depository (DTC). Dominic Hobson, co-founder of Future of Finance, spoke to Lisa Fall, CEO, and Jay Fraser, Director of Strategic Partnerships at the Boston-based exchange.

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It is easy to portray the tokenisation of securities as a mortal threat to central securities depositories (CSDs). In principle, security tokens issued on to blockchain networks can dispense with all the core functions of a CSD in safeguarding the integrity of issues, maintaining a register of investors, settling transactions in central bank money, distributing entitlements and maintaining accounts for custodian banks acting on behalf of investors. That is why most of the discussion about the future of CSDs since the tokenisation of securities was first broached in 2018 has focused on the escape routes rather than the paths to the future. CSDs could appoint themselves operators or “governors” of the private, permissioned networks that looked likeliest to be adopted by incumbent financial institutions such as investment banks, custodian banks and asset managers. They could run the Know Your Client (KYC), Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and sanctions screening checks to filter the issuers and investors that aspired to belong to these networks. CSDs could offer their classic services to the new classes of asset-backed tokens that were expected to emerge from the real estate, fine art, fine wine and collectibles markets, by developing digital wallets and atomic settlement services. By these means, they could make even the Decentralised Finance (DeFi) markets safe for institutional money. Unsurprisingly, when confronted by such defensive tactics and a diverse range of options that were not strategically coherent. many CSDs seemed unable to act at all. Lately, a more positive outlook has become clearer. Central Bank Digital Currencies (CBDCs), by putting central bank money on to blockchain networks, appears to solve the biggest obstacle to settling security token transactions. Even the adventurous institutional investors, dabbling in crypto-currency and token investing for the first time, have made clear they prefer to do so in the company of regulated financial institutions and financial market infrastructures. At least some of the two dozen or so security token exchanges that have emerged incorporate a CSD function, partly because unreconstructed securities laws and regulation insist upon it, but mainly because institutional money feels more comfortable with it. At this webinar, Future of Finance joins forces with The Africa and Middle East Depositories Association (AMEDA) and sponsors Percival Software, a leading provider of CSD systems, to ask: Is tokenisation the nemesis or the apotheosis of the CSD?

Some of the topics to be discussed:

1. Will tokenisation of securities kill, maim or transform CSDs?
2. Does the current size of securities token markets argue for a masterful period of inactivity?
3. Has the idea of saving issuers and investors money by disintermediation died?
4. Are the costs of post-trade intermediation so high that they warrant disintermediation?
5. Which intermediaries are at greater risk of disintermediation than CSDs?

Panellists

Vipin Mahabirsingh, Managing Director at Central Depository & Settlement Co. Ltd

Chris Richardson, CEO at Percival Software

Andrea Tranquillini, Senior Post Trade Market Infrastructure Executive

Mark Smith, CEO and Co-Founder at Symbiont

Vic Arulchandran, Co-Founder at Nivaura

Moderator

Dominic Hobson, Co-Founder and Editorial Director at Future of Finance

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The Metaverse is notoriously hard to define. Those definitions which do exist describe a digital facsimile of the physical world, which people enter as avatars by donning headsets and hand sensors. Once inside, they walk around, talk to people, attend meetings and events, visit buildings and buy and sell goods and services, just as they do in the physical world. For businesses, it is the last of these activities that matters. For them, the Metaverse is a new way to find customers and sell them things. Indeed, the fact that Facebook has changed its name to exploit the opportunity has prompted many to predict that the Metaverse will take the manipulation of human behaviour to a whole new level (one comparable, perhaps, to The Matrix) and that users will once again be products rather than customers or creators. Already, Facebook has a digital wallet (Novi) and a Stablecoin (Diem) whose original use-case was to enable Facebook users to buy and sell products and services through the social media platform.

Opening branches in the Metaverse will test bankers as merchandisers

Wherever transactions occur, banks can almost always be found, transmitting money or exchanging monies. Nor is there any reason why the products being sold in the Metaverse (and they are sold rather than bought) should not generate sales of other financial products, such as insurance and asset management. However, unlike Facebook, traditional financial institutions have so far failed to convince themselves that they can profit from the Metaverse. Yet there are some obvious moves to make. The fact that Bank of America is using Virtual Reality (VR) headsets to make its salesmen and relationship managers more effective is not Metaversal: it is just a training aid of the type airlines and armies have used for years. But the next step is conspicuous: close physical bank branches, open virtual bank branches in the Metaverse and replace the flesh-and-blood salesmen and women with virtual reality avatars that customers can engage with instead. In fact, this move is so obvious that Kookmin Bank in Korea has already made it, and other Korean banks and brokers are following its example.

Find out more at:

https://futureoffinance.biz/2022/01/31/how-banks-can-make-money-in-the-metaverse/

Among the topics to be discussed at this webinar are:

Is there a sound definition of the Metaverse?

What does the Metaverse owe to the video-gaming industry?

Is the Metaverse best built on blockchain technologies?

Are crypto-currencies, Stablecoins, utility tokens, payment tokens, security tokens and Non-Fungible Tokens (NFTs) incidental to the Metaverse or central to it?

What financial services use-cases for the Metaverse are there?

How do those use-cases vary between (a) banks (b) asset managers and (c) insurers?

How can the Metaverse avoid becoming a series of walled gardens as opposed to a decentralised network of parallel but linked Metaverses?

How can standards best be developed to facilitate data exchange between Metaverses?

How serious an obstacle to progress are the headsets and sensors?

Does the technology currently support the production of compelling content, especially in terms of speed and scale?

What are the major engineering challenges that the Metaverse poses?

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A market in which the assets coveted by investors for use as profile pictures or digital avatars are branded as Crypto-Punks, members of the Bored Ape Yacht or Kennel Club, or as Pudgy Penguins, is redolent of the Pokemon card craze of the 1990s. As it happens, the popularity of these Non-Fungible Token (NFT) collections with gameified nomenclatures has sparked a rediscovery of Pokemon cards, which are enjoying a nostalgia boom. That incidental side-impact is not a surprising one, because the scale of the NFT market is increasingly hard to ignore. In 2021 investors sank at least US$44.2 billion into NFTs, according to Chainalysis. Transaction volumes, total value invested and average transaction size all rose sharply by comparison with 2020. The blockchain data platform bases its estimate on the amount of crypto-currency sent to the ERC-721 and ERC-1155 contracts, the two types of Ethereum smart contract associated with NFT marketplaces and collections.

NFT marketplaces offer art, collectibles, videos, music and sports

The fact that most NFTs are built on Ethereum is a major factor behind the surging transaction costs (“gas fees”) on Ethereum, and the associated interest in the low-to-zero transaction cost alternative of the Solana blockchain protocol. Most of the purchases made are intermediated by a newish breed of commission-based NFT marketplaces of which the biggest, OpenSea, is also built on Ethereum. The NFT marketplaces are akin to crypto-currency exchanges such as Coinbase but minus the custody function (unlike the crypto-currency exchanges, most NFT marketplaces expect investors to own and operate their own digital wallet) and plus (in the case of the most successful NFT marketplaces) a genuinely decentralised model. OpenSea, which currently lists more than 6,000 NFT collections, is the generalist option. Other NFT marketplaces (such as art marketplace Nifty Gateway, which is owned by cryptocurrency exchange Gemini, a parentage that enables provision of a custody service) focus on niches.

The NFTs available are not confined to unique digital collectibles such as Bored Apes (there are only 10,000 available) or Pudgy Penguins (8,888). Fine art, videos, music and physical objects are also available as NFTs. Artist Damien Hirst has sold 9,000 of 10,000 unique, hand-painted, dot-covered works on paper at a price of US$2,000 each. He has given buyers 12 months to decide if they wish to take ownership of the physical work or own the NFT instead. If they choose the NFT, the physical work will be destroyed. Secondary market trades have raised the total market value of the Hirst collection to more than US$500 million. The traditional art auctioneers, whose nose for anything that smells of money is as finely tuned as the most shameless investment bank, have moved into the market. Christie’s made US$150 million from NFT sales in 2021 (US$69.3 million of it from Everydays: The First 5,000 Days, a digital art collage by artist Mike Winklelmann, better known as Beeple). Sotheby’s made US$100 million from NFT sales in 2021, including from sales of Bored Apes.

Among the topics to be discussed at this webinar are:

Who invented NFTs?

What explains the recent growth of the NFT markets?

How can NFTs best be categorised?

What are the sources of value of an NFT?

What are the links between blockchain, crypto-currencies, tokenisation and DeFI?

Find out more at:

https://futureoffinance.biz/2022/02/02/the-good-reasons-and-the-bad-for-taking-nfts-seriously/

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A Future of Finance interview with David Nicol, CEO and Co-founder of LedgerEdge.

The US$124 billion global bond markets seem at last to be taking pole position in the race to unlock the efficiencies conferred by blockchain technology. Much of the effort is directed at the primary markets, where the telephone plays the part it has since the 1960s and the fax and spreadsheet continue in the roles they stole from the telex and the pocket calculator in the 1980s. But the real prize in fixed income lies in the secondary market, and especially in corporate bond markets that have become a byword for illiquidity and price opacity. Enter LedgerEdge, a two-year-old start-up based on R3 Corda technology that is exciting the buy-side as well as the sell-side with its promise of a decentralised marketplace in which it will be possible to find and then buy and sell corporate bonds without expensive information leakage. After making rapid progress since its foundation in 2020, LedgerEdge has acquired its regulatory licence from the Financial Conduct Authority (FCA) in London and is on course for its UK, US and EU launches in the second and third quarters of 2022. Future of Finance co-founder Dominic Hobson spoke to LedgerEdge CEO and Co-founder David Nicol.

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