Tech
15 months after FTX, confidence in Web3 technology has never been stronger
MANHATTAN, NEW YORK, UNITED STATES – 2021/10/18: BlackRock offices in New York City. Founded in … [+] 1988, BlackRock, Inc. is an American multinational investment management company. (Photo by Erik McGregor/LightRocket via Getty Images)
LightRocket via Getty Images
The increase in institutional interest in digital assets and blockchain technology in recent months has come as a big surprise to many. After the epic meltdown that precipitated FTX’s bankruptcy in November 2022, the cryptocurrency market seemed terminally ill. There seemed to be trust in all the digital assets and the new Web3 technology irreparably damaged.
After 15 months, bitcoin prices are now reaching ever higher highs, thanks to the January approval of bitcoin ETFs by the US Securities and Exchange Commission (SEC). Blackrock’s bitcoin ETF was the Fastest growing ETFs in history to reach the $10 billion mark in funds under management, in less than two months, and is now lauded by many.
Larry Fink, CEO of Blackrock, has become the poster child for digital assets by declaring that “The next generation for markets, the next generation for securities, will be the tokenization of real-world securities and assets,” soon after the end of 2022 The BCG report claims that the potential for tokenization of global illiquid assets will represent an estimated $16 trillion opportunity by 2030.
Blackrock yes just launched a new tokenized fund that offers a stable value of $1 per token and pays daily accrued dividends directly to investors’ wallets in new tokens every month. The fund invests 100% of its assets in cash, US Treasury bills and repurchase agreements. The fact that the product was launched on the public Ethereum network represents a significant milestone for the market.
Last month issued by HSBC a $750 million (HKD6 billion) digital native green bond for the Hong Kong government on its Orion platform, the largest digital bond deal ever with over 50 global investors and in four different currencies (HKD, CNH , USD, EUR).
This recent launch of digital bonds follows a series of digital bonds issued by the European Investment Bank (EIB) over the last 18 months with financial institutions such as Euroclear, Goldman Sachs, SocGen, Santander, BNP Paribas and HSBC, to name a few .
Institutions are now embracing this new generation of technology and the market opportunities that come with it. Movements by financial institutions and their fintech partners to move digital asset projects from PoC to production about smart contracts and distributed ledger technology (DLT) started making headlines last fall.
While the move into digital asset money market funds and vanilla products such as ETFs demonstrates confidence in digital assets for retail clients, it is sovereign debt issued on DLT that is considered the real “first mover” in capital markets . This is the enabler for the next generation of digital financial market infrastructure (dFMI) for states to help digitally transform aging industrial economies into service-based economies and enter them into the digital space race.
How is it possible that digital asset markets have turned around so quickly in less than two years?
A slow burning relationship
Considering the time it takes for large companies to adopt this new technology, it must be recognized that the current interest in blockchain is far from new. Much of the activity taking place now has been in development for much longer than the short 15 months since FTX’s collapse.
The genesis of bitcoin may have enabled the launch of digital assets into the world, but the trigger for corporate interest in blockchain was the launch of Ethereum in 2015. At SIBOS 2015 in Singapore, Swift’s annual conference for institutions financial institutions, the big message was “blockchain is the future of finance”, delivered only to the CxOs standing.
Within a year, reports have emerged that JPMorgan was developing a licensed implementation of a new platform on Ethereum called Onyx. The surprising popularity of NFTs in 2021 marked another turning point for enterprise adoption as brands like Nike and Starbucks began making strategic inroads into Web3.
Over the past decade, public blockchain infrastructure has developed to the point that legacy issues such as scalability and privacy are starting to be better addressed by developers. Nearly a decade later, the 2015 proclamation “blockchain is the future of finance” is now starting to resonate.
While there is still much work to be done, the progress made has undoubtedly been a key factor in rising business confidence factors, even as markets have remained volatile.
Bentzi Rabi, co-founder and CEO of the institutional platform for crypto operations Use itagrees: “Historically, poor user experience in blockchain has arguably been much more debilitating to enterprise adoption than cryptocurrency market volatility. Now that we are starting to overcome some of the long-standing issues like scalability and interoperability, the focus is on improving UX and removing friction.
“The ultimate measure of trust and adoption is when blockchain and digital asset integrations of all types simply flow seamlessly alongside established business processes, delivering measurable improvements.”
From public to private with ZK
A fundamental change that has brought blockchain and business closer together is the advances made in privacy technology in recent years. The concept of trust in the Web3 space has always been centered around the ability to verify facts trustlessly, which effectively means publicly on a blockchain.
The emergency of zero-knowledge (ZK) solutions. has changed the situation, allowing the “trustless” verification of transactions and data without the need to transmit them over the blockchain network.
The most developed use case for ZK technology is currently rollups, used by Layer 2 platforms like Polygon and Immutable X to make Ethereum more scalable. While scalability is undoubtedly valuable to businesses and institutions, privacy applications of the technology offer great scope to make business processes more efficient while reducing compliance and operational overhead.
Mickael Canu, CEO of Ternoawhich is developing a zkEVM platform compatible with Ethereum and Polkadot, explains: “Today, companies collect large amounts of personal and corporate data at a very granular level, which presents enormous challenges in terms of storage, processing, compliance and cybersecurity. ZK technologies offer multiple ways to address the problem.
“Privacy-focused L2 platforms combined with trusted execution environments can help protect the most business-critical data from exposure. Identity solutions mean that personal data, which typically only needs to be verified and not necessarily collected (e.g. with a KYC check), they could be verified using zero-knowledge proof rather than entrusting the custody of documents and information to a company.”
This was announced by the Bank of England last year which was working with identity and payments company Nuggets to develop an identity and privacy layer for a future digital pound based on ZK technology. THE city of Buenos Aires also developed a digital identification protocol in a similar way. Initiatives like these effectively embed blockchain and ZK technology as a trust layer within established, familiar processes and entities.
Taming the AI beast
A key external factor is also set to play a role in solidifying blockchain’s role as a trusted business technology: the rise of artificial intelligence. The proliferation of AI tools and content has been so rapid that questions about the integrity of intellectual property regulations and the transparency of algorithms simply hang in the air.
Blockchain technology offers AI companies a way to fill some gaps by introducing transparency into their data and algorithms via a public ledger. Last year, enterprise blockchain company Casper Labs announced that it was partnering with IBM to develop a solution for transparency and “auditability” in artificial intelligence. The goal is to provide visibility into how AI models use data across industries, including finance, healthcare and retail.
William Simonin, President of Ta-daan ethical data collection and AI training platform that pays users to complete microtasks, believes blockchain poses a gauntlet for AI companies.
“The emergence and spread of AI-based assistants, such as Chat GPT, have opened the eyes of the general public to the power and immense usefulness of AI. In light of this, it becomes imperative to rethink and optimize our data collection methods. This is essential not only to support the rapid expansion of artificial intelligence in the coming years, but also to maximize its potential for innovation and progress,” says Simonin.
The relationship works both ways: AI can help improve trust in cryptocurrency and digital assets by spotting trends and issues in the market that humans may overlook.
Herbert Sim, Chief Operating Officer of the trading platform Webseastates: “Trust and information asymmetry are a big problem for the average cryptocurrency trader. Given the great complexity inherent in the markets, keeping track of all the variables and risks involved is beyond human capacity.
“AI tools are helping to level the playing field by processing large amounts of data to intelligently detect and assess risks and make recommendations or execute operations automatically based on set parameters.”
It may seem to some that the current institutional interest in Web3 technology is driven by another round of tech hype, although it’s pretty hard to beat AI on this front after the last year. It appears that smart money is building the foundation of trust in digital finance with this well-established technology.
Maybe, just maybe, smart money is starting to be part of a new decentralized finance social contract with society, and is proving itself capable of surviving the political and economic volatility that has emerged so far in the 21st century. Sit back, there’s a lot more of this story to come.