“Tokenomics” – Is it time to revisit the crypto anarchy and achieve collaborative financial services?

Over and over again we hear naysayers of bitcoin and cryptos, highlight issues like volatility and lack of regulatory controls that has led to eroding credibility. The ICO boom of the last 12 months has added to the fire with too many firms raising too much capital without intrinsic value. But surely, decentralization and Blockchain conceptually have legs? What are we missing?

Tokenomics

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About four years ago, when I wanted to learn about Blockchain, I read up on whitepapers, watched Youtube videos of Blockchain experts and interviewed founding teams. At that time, most teams who were founding and leading Blockchain firms typically had strong technology experience, often very little industry experience.

I have a lot of respect for founders who are technologists – I used to be one. However, a deep understanding of the business problem at hand is required to see the pros and cons of using a technology to address it.

In those days, when a Wall Street Who’s-who joined a Blockchain firm as a CEO, they were largely lured by the hype and didn’t quite get the benefits and the challenges of solving the business problem using Blockchain. Most of us didn’t. Times have changed though and we have learnt that the technology has some way to go to be commercially viable and scalable.

Founding teams of Blockchain firms (rather firms using Blockchain) that I meet these days have a different profile to the ones I knew from a few years ago. They are typically business experts who understand the benefits, but more importantly the limitations of Blockchain. One of the CEOs I met this week called himself an “Optimistic Sceptist” of the technology. This approach allows them to make informed decisions on their tech stack, operational processes, regulatory controls and ensure they use Blockchain for the right reasons.

They also seem to have more respect for the incumbent players, legacy systems and processes when they try to implement a Blockchain solution. Many firms realise that an ICO may actually hurt their business model and growth opportunities.

Supermoney a London based firm, led by Joel Smalley are looking to use the concept of “Tokenomics“, but avoid the downsides of cryptos – volatility and lack of regulatory controls. In doing so, they believe, they will be able to bring credibility to the token based ecosystem they are building.

Supermoney take customers money in Fiat currency under an e-money license and generate a crypto token for the value of the fiat. The token then can be used beyond borders in the true spirit of a crypto, while still maintaining its intrinsic value that is now based on the fiat asset. This also means that the token doesn’t suffer from the volatility issue that most cryptos have. With the world moving towards IoT driven micro-payments, Supermoney’s approach sounds promising.

Supermoney are using a private fork of Ethereum and are providing controls and standards such as asymmetric cryptography, multi-signature, hardware wallets etc., to attract institutions to use their solution.

Another firm (can’t reveal their name, YET) I recently spoke to are staying away from an ICO because of the industry they are into – Charity/Aid. They use collateralized tokens to manage volatility, but still keep their e-money (tokens) border agnostic. This allows them to use Blockchain to track the flow of Aid money through various countries. The solution also helps save on FX spreads across multiple international hops that the aid money takes.

The interesting similarities between these two founders are that both of them have been vocal about the limitations of Blockchain, they view it as a means-to-an-end, and are industry specialists in their own ways.

It is refreshing to see CEOs who understand the inefficiencies of the ecosystem they operate in and want to collaboratively work with regulators and existing players to resolve pain points in their value chain.


Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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