There is a tendency for people in crypto and blockchain to send around their forward looking estimates of what the year ahead will bring for cryptocurrency and blockchain around this time of year. Usually that’s filled with price predictions and bold statements. In order to break with that, we decided to look back at some of the important developments over 2019.

Stablecoins

One of the big themes of late 2018 and coming into early 2019 was the fascination with stablecoins. In February we presented an overview of the types of stablecoins in the market and the history of the concept. JP Morgan had just announced their plans to launch a JPMCoin which would help their institutional clients transfer balances across JP Morgan. The bank went on to further leverage their Quorum platform and bring hundreds of partners from banks, to large asset managers and corporates into their Interbank Information Network (IIN) which sought, in part, to leverage this token. While it got quite a bit of buzz from the media at the time, this story has been relatively quiet lately.

Part of this could be due to the even more celebrated stablecoin announcement, and arguably the story of 2019: Facebook supported Libra. The project was met with a mix of excitement and worry from the community and regulators. Libra continues to work its way towards a potentially more acceptable proposal which may or may not include a single global currency backed by large currencies. This is likely to remain a story in 2020, but I won’t make any predictions on what will happy, so I guess you’ll need to keep reading.

Securities Tokens

The other big theme in the first half of 2019 was securities tokens, we talked about companies working to offer stocks and bonds built on tokens back in January. Many pundits at the time described a myriad of benefits from this development, and project went on to raise, many others realised the complexities of securities regulation as well as the costs that could not be improved through technology. At the time I mused:

“While, personally, I remain unsure of many of the promises of efficiency and new liquidity which many security token-supporters claim will come as a result of tokenisation, particularly when the cost of regulatory compliance is added on at the service provider level, it would be wrong to entirely discount this phenomenon. Should issuers and investors truly find benefits from tokenisation, service providers who have started to make inroads could benefit in scales which dwarf the 2017 ICO phase by an order of magnitude.”

This continues to be an area of focus for many companies, but has yet to become the thing in crypto, maybe 2020 will be the year that securities tokens come of age.

Regulatory Fall-out of ICO Mania

Closely linked to what we saw as a potential avenue of opportunity with security tokens that attempted to follow the law, we started to see what eventually became of those companies in 2017 that absolutely refused to follow the law, or just put a Band-Aid over regulatory challenges with a number of SEC settlements being announced. In November we discussed social media messaging apps Kin, and the Kik token, as well as Telegram receiving the full force of the US securities regulators. The company behind EOS, Block.One, also announced settlements with the SEC. All of this cast a shadow over the efforts from the industry to categorise who was most likely to be deemed a security, including the Crypro Ratings Council (CRC).

While ICOs and their cousins, SAFTs, seemed to be regulated to history, another form of the same concept had a lot of traction in early 2019, the Initial Exchange Offering (IEO). Though that too seems to have only shifted some of the economic questions, not the legal questions.

While I will still not make predictions for 2020, I will say that given the scheduling of court cases, including Telegram’s day in court, currently set for mid-February, we are not out of the woods yet on this front.

DeFi

If you’re a fan of Ethereum based projects, the unescable trend in 2019 was Decentralised Finance (DeFi). The industry looked beyond purely offering decentralised exchanges (DEXs) built into the smart contracts platform (as well as in other blockchains), and began to focus on offering more complex financial products. This included lending/borrowing, market making and derivatives. This trend, which we covered in March, seems to have made the most ground in 2019. At the time, I said:

“As always, there are lots of unknowns, as well as more than one or two things that have raised eyebrows at regulators and law firms alike. It will be an exciting space to watch develop, and may lead to interesting new innovations, but we’re also very likely to hear of less rosy stories as well.”

Something that, while I won’t make it a 2020 prediction, I still think is likely to be something to consider.

The end of the year saw the largest project in this segment, MakerDAO, shift to version 2.0 and begin to utilise more tokens to support its crypto-backed stablecoins.

Whew!

So quite a year, not sure how your crypto portfolio fared, but hopefully you’re happy with it. All the best, and we’ll see you in 2020!

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

Nearly the end of 2019, which means we’re out there chatting with interesting people doing cool things in crypto and DLT. This time, I caught up with Alex Batlin, CEO and Founder of Trustology.

Colin Platt (CP): Hello, great to speak with you again, it has been awhile. Thank you for taking the time to join us.

Alex Batlin (AB): Hello, thank you, it has been.

CP: Alex, let’s dive straight in, can you tell us a bit about who you are, and what you do?

AB: Yes, sure. I’m the Founder and CEO of Trustology. I’ve had a number of roles before, primarily technology in banking (JP Morgan, Nomura and UBS). I ran the innovation lab for UBS at Level 39 in London, where we did a lot of different projects. Ultimately we focussed heavily on blockchains, our team was responsible for smart bonds, the EEA, Hyperledger and R3. Early on, I connected with Joe Lubin (founder of ConsenSys), and helped launch the Enterprise Ethereum Alliance (EEA). I was also involved in helping R3 in the early days, as well as Hyperledger. I moved to BNY Mellon and worked on blockchain and digital custody.

After my experience in banking, I decided to try the entrepreneurship route and setup Trustology as I had a vision of mass adoption of crypto and believed that secure management of private keys would be a crucial step towards making that future a reality. We started out as a ConsenSys spoke, and then spun out as a separate company. We closed seed funding with ConsenSys and Two Sigma Ventures. The company has now been around for about two years, of which one as an independent company.

CP: So, custodial wallets. Who are they for? and why are they important?

AB: We started out looking to sell key transaction management to banks as a technical product that they could offer to their clients, high-net worth individuals and investment funds. We also spoke directly to funds about how this could function as a custody service. We had vision for enterprise grade, scalable resilient and secure digital asset wallets. They needed to be cheap to operate, which meant that we needed to design our model around low OPEX. At the end of the day, though we all hate to admit it, custody is a race to the bottom. We understand that there is a need to deliver quality service but still have to be cheap to operate, which means low unit costs. We also understood that it had to be institutional-grade, which is more about functionals, with high levels of controls, such as white-lists and blacklists, multiple layers of controls. We’ve spent a lot of time working on how to implement procedures for these types of clients.

In addition, we are also focused on mass adoption as I mentioned earlier. Our vision is that in the future, everyone will interact with blockchains, ideally through tech offered by us.

CP: And what has been the feedback so far?

AB: Our clients have been very positive. We have been told that we have good tech, that is easy to audit, programmable, secure and can be managed at scale.

We’re a bit different as we don’t do cold storage, so we sought to strengthen our solution with insurance. Insurance companies told us that they couldn’t insure the technology, only the service, so we setup a “minimum viable service”. That led us to build a service that anyone can use, all you need to do is download an app from your iPhone, that sets up instruction keys on your mobile device’s secure enclave that you use to securely work with us. This service was enough for us to get insurance. We’ve managed to get Aon, and now have an insurance syndicate, which was a first for real- time wallets.

We’ve also now introduced business accounts, so employers can setup employee accounts with multi-signature capabilities and white-listing of addresses. This has gotten a lot of traction with crypto funds. We’ve also started to get more business directly from HNWI and individuals, as well as with funds and asset issuers.

CP: What other types of projects are you focused on?

AB: We also work with DeFi, DeFi is both a passion and focus for me, and I’m pleased to say we are the first real-time custodial wallet to integrate with MetaMask. This makes it possible to lend, borrow and swap through DeFi apps using Trustology. We’ve seen lots of traction there. Our view is that the world needs more decentralisation in the future, and we are big believers in decentralised finance.

To enable mass adoption, we need to build an ecosystem that is safer, faster, and easier, until then, the industry can only address enthusiasts. We believe that the best way to offer this is through a custodial wallet. We see wallets somewhat like the internet browser for the blockchain.

CP: Talk to me about your experience selling to banks

AB: We’re working on banks and direct sales. We’re always in conversations with banks about the best approach, whether that is to deploy on premise, or to have a hybrid approach. We want to address this client base, and we understand that it will take time for everyone. We believe that working with banks must be on a partnership and relationship basis, which is a major focus for us. This also means understanding that not everyone is ready to buy today, but we want to make sure that we are the partners of choice when they are ready. We believe that our strategy of going directly to clients is a strong proof point that will help them in the future. It gives us a track record, improves the technology and the solution through user input, and improves security as a result. Ultimately it means that we have a better offering for banks when they are ready.

CP: You talked about getting excited about blockchains and decentralisation. What is it about decentralisation?

AB: Resiliency and access. Resiliency and independence of issuer of an asset is important, as we’ve seen with Quantitative Easing (QE), where a single centralised entity has inflated the asset supply. Due to globalisation this can lead to negative impacts on other countries, which may not receive the positive impact that the country doing the QE might receive. Lots of countries rely heavily on foreign currencies and are facing issues.

More nations are also worried about access to SWIFT. We’ve seen a weaponization of access to financial infrastructure. Institutions are increasingly looking for more fair access to infrastructure that cannot be blocked. We hear about this in other areas outside of finance as well, with companies building on platforms then having their access cut off when they become too big, like Uber and Google Maps.

There is also an important benefit around operational resiliency, as centralised services can go down, and in a world of electronic payments this is doubly important. Decentralised systems are better, and offer exponential improvement. More and more decentralisation means more resiliency.  For example, when things go down for electronic transactions you cannot pay for things, and this could lead to people not being able to buy food and necessities. This wouldn’t be possible in a decentralised ecosystem.

CP: What do you think about crypto assets?

AB: Some businesses cannot work without decentralisation. If things are national, then a central bank can act as trust arbitrator. However, as things became more international, thanks to the internet, communications have now also become more international but payments sadly have stayed national. Right now, there is no global central bank to help arbitrate international transactions. The de facto method of trust in value transfer is via the US Dollar, with the Fed acting as the central bank of trust. This was okay when people could trust the Fed, but now that is coming into question. The Euro is one avenue that is being pushed in Europe, but this is simply a zero sum game, shifting global trade from USD to EUR without solving the core issue.

Bitcoin was the first asset to not have a central bank, a truly decentralised value transfer mechanism. I see Bitcoin as a natural evolution of the internet, borne out of need, rather than a protest movement. It solves the problem of international value transfer without a single point of trust. I don’t believe that it will kill fiat transactions, as they are still useful and faster for national transactions. But it could become extremely helpful for international transactions, and could become a backbone for international settlement as networks become faster and  move beyond fiat to decentralised currencies. ETH 2.0, for example, could start to get to the point that performance is good enough for mass transactions done on a lower level of volume.

CP: What about Decentralised Finance (DeFi)?

AB: DeFi itself becomes interesting for global liquidity. The Euro was trying to do pan Europe, but today it still doesn’t work, and is still very national and regional. With DeFi, for the first time, they are genuinely global, and international from the outset. When people gain confidence in the new products, and see that they don’t fail, there will be a slow ramp up. After this we can have more liquidity and things become interesting because global liquidity could be much larger than traditional liquidity pools. As it goes global and becomes trustworthy, more liquidity will flow there, and attract more liquidity. All of this will be enabled by decentralisation, because it is more safe.

CP: Thank you very much, that was incredibly interesting. Always great to hear what you have to say, I wish you and Trustology the best of luck.

AB: This was fun, thanks for having me.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.