This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Lex Sokolin is Global Fintech Co-Head at ConsenSys, a Brooklyn-based blockchain software company.
It looks like we haven’t gotten very far! It’s been ten years of magical internet money, and the best we can show for it is Twitter tipping?
On the other hand, maybe we have gotten really far! Decentralized financial protocols are pumping out unfiltered peer-to-peer trading, margin lending, and synthetic structured products. Financial manufacturing machines are converting cash money into virtual money, and real estate, cartoon cats, regulated securities, with hundreds of millions of notional corporate bonds and payments and invoice securitizations done by the world’s largest banks on public, private, and open source blockchains.
Of course, there also are the people who have been sued and gone to jail, or lost their life savings, or disappeared, or paid $24 million in fines for unregistered security offerings. There are the Ponzi schemers and the pyramid marketers and the Twitter botnet kings. A grain of beautiful truth has been placed squarely on a throne of artifice and innovation theatre, spinning wildly while people yell their unbridled emotions into the abyss. Rat Poison Squared! Code is Law!
China’s sword of blockchain and AI will ring against the shield of American regulation in the century to come.
And then we have power. America is flexing its black letter law and alphabet soup of pre-war regulatory bodies. The CFTC and the SEC agree to split securities from commodities, unless they are moving around a bit and regulated by FinCEN or touch New York State and its BitLicense. Don’t forget that if you do banking or lending – looking at you, hot DeFi stuff – the Office of the Comptroller of the Currency (OCC) may think you are a bank, and their lenient fintech charter was overturned in court. European power has been slightly more amenable, with its Brexit stroke encouraging each side of the body to compete for most favourable tintech nation.
But even hungrier power is around the corner. Facebook, looking at its 2.3 billion users and seeing Ant Financial in the rear mirror, has maximized the attention its artificial intelligence machine can syphon. After solving the problem of online loneliness and the human need for friends, it seeks to liberate human-kind from poverty and launches Libra. To date, Facebook has been a techno nation. Now it tries to be a state, and both the Americans and the Chinese notice. Unlike the former, the latter grab risky innovation as a national priority – putting hundreds of billions of yuan to work on next-generation infrastructure. China’s sword of blockchain and AI will ring against the shield of American regulation in the century to come.
Progress is like water
So yeah, nothing’s really happened.
What I mean to say is that progress is like water. It flows around the barriers of human society, washing away at the soft parts in our beliefs and structures, and then, just at the right time, collapses away some arcane thinking in favor of the new. Sometimes, like in AI, it takes 50 years of little drips and multiple false starts to get anywhere meaningful. But once you arrive, the technology is everywhere. Also, sometimes, like in crypto, there is a magnificent spotlight on the industry. We have been lucky to work with a technology people can easily own and trade. It has been our greatest weakness as well.
Hundreds of billions of dollars have poured into making the distribution of financial products easier. Yet, nothing real has changed in the manufacturing of financial instruments, until now.
When I look at the next decade of blockchain-based systems and decentralized protocols, I see far less focus on the asset class, and far more focus on operating progress within the chassis of human technology. To build a capital markets business that treats software units of bitcoin, ethereum and the rest as financial instruments is a great first goal. I would posit that we are already there. From custody to exchanges to broker/dealers, and eventually integrated robo-advisors and fintech apps – this stuff is being solved fast, and by companies large and small. Between Fidelity’s institutional solutions, Coinbase’s American consumer dominance, and Binance’s global presence, we have the initial use-cases covered. These stacks are hundreds of competitors deep, with many doing strong work. Yes, more merchants should accept BTC or DAI or USDC. But this, too, shall come to pass.
Each day I wake up with an obsession. It is a simple one: all financial services infrastructure will be powered by open source programmable blockchains. Over the last decade, hundreds of billions of dollars have poured into making the distribution of financial products easier. Just look at your phone, from Revolut to Robinhood to Venmo to Betterment to Sofi and TransferWise. These apps have broadened the retail footprint and collapsed pricing in everything from banking to investments. And yet, nothing real has changed in the manufacturing of financial instruments, until now.
Think about our financial infrastructure— how we make deposits, or underwrite loans, or invest our pensions— and how it is governed by entirely separate regimes and supported by disconnected software platforms and value chains. Massive public companies like Visa, FIS, Fiserv, Envestnet, Temenos, Broadridge and others power the hum of institutional finance. Some of their infrastructures are so old that developers who understand the code that these systems are written in have mostly retired or passed. Just Google COBOL!
Hundreds of billions of enterprise value and trillions in money flows are waiting for the type of digitization that only blockchain-native companies can accomplish. At ConsenSys Codefi, which I co-lead out of London, we are focused on building this bridge using public and private ethereum. In the beginning, industries are comfortable mutualizing their data and the standards around them. Next, they contribute workflows and intellectual property into these shared systems. Tokenization follows, giving the workflows a meaningful object with which to interact. This is where most of the world is today.
But tomorrow, tokens are not just representations of some chunky legal document sitting printed and signed on a corporate lawyer’s desk. They are programmable, fully-featured financial instruments that perform corporate functions, distribute dividends, enable governance, rebalance portfolios, adjust risk exposure, provide provenance and audit data, self-administer, and instantly settle. They can live in your enterprise cloud, and in your phone, and on printed-out QR codes. This tomorrow is much closer than you think.