Lykke: the early pioneer in the next generation of Global Digital Asset Marketplaces

Lykke has been ahead of the curve in the Capital Markets 3.0 evolution, in multiple ways. I confess it is difficult to put an order to all the aspects of the Lykke venture, simply because it is a Big Hairy Audacious one.

Lykke is open-source (if you fancy, go to Github here and download here). And maybe retail like you and me, doesn’t care, but it is a big deal in the 4th industrial revolution. Open source is the first pre-requisite to hope for network effects. Financial markets and especially, asset trading has not been used to business models with network effects. On the contrary, it has been operating in proprietary mode either on the data side or on the modeling side.

Lykke is real, live and way beyond beta mode. You can register on the Lykke App and not only get quotes for several cross pairs (from fiat exchange rates to crypto crosses) but you can also see the order book real time!

Lykke seems for now, like an FX trading app that keeps adding more crosses. True that it keeps adding more “assets” to its menu of capabilities; the most recent one being Ether crosses. True that it also has some commodities like Gold, Palladium etc; and some less known colored coins like the Solar colored coin, the Tree colored coin etc.

Lykke isn’t just another trading app using the colored coins protocol. Lykke wants to become a global marketplace for all digital assets. All the magic is hidden in the new understanding of “Digital assets” and “marketplace”.

Coming from an upbringing in the old world, we can imagine mapping “Digital Assets” to fiat currencies, all sorts of financial instruments typically issued by businesses (currencies, public or private equity shares or bonds from corporates or governments ect.). Such thinking is a linear extrapolation from current reality; i.e. take shares in a public company or gold in a vault and create a digitized version of it.

But Lykke is going after the new world that is allowing for the creation of new asset classes, the true digital assets, the tokenization of all: e.g. utility tokens in the protocol layers that are being built as we speak (e.g. Tezos TEZ, Golem GNT etc), or tokenized values like the TREE colored coin which entitles the holder to a Mangrove tree CO2 certificate or the TIME colored coin from Chronobank which is a labor market; or tokenization of business processes like the IATA token.

Lykke wants to be the global marketplace with the new understanding. They want all business to be launched and executed on their app. When I say all, I literally mean all. The Lykke app wants to be the center of the world. Whether you are a retail individual (investor, trader in the old sense, or not) or a business (to be built or grown up with complex business processes) or a government; Lykke wants to serve your needs. The accelerator they launched recently, will grow the ecosystem and have the desired network effects. Lykke is open of course, to all sorts of business partnerships, for example, the recent partnership with Splendid, a Swiss student loan lender, for servicing international students via blockchain transfers, a process which cuts costs of such cross border transactions and simplifies the process.

Lykke is using the colored coins protocol, not the ERC20 token standardization which has become the most popular software during the recent ICO boom. The colored coin protocol is of open-source and requires programming to be used (one of the reasons that the ERC20 standard has been massively adopted is the ease of use).

The colored coin foundation started in 2013 and is based on the Bitcoin ecosystem. Currently, there are 4 entities that have joined the consortium: Lykke, Colu, Bitt, and Etoro. Bitt is the venture focused on the launch of the Barbados Dollar on the blockchain with the local central bank. Colu is an Israeli venture focused on standardizing the colored coin protocol and the development of their mobile wallet. EToro the social trading platform just recently announced a pilot crypto-wallet that aims to tap into the ICO market.

Lykke’s approach

The exchange that Lykke has created is running on the colored coins protocol. What differentiates it from the newly launched (only beta version running) Bancor venture which broke the record in terms of ICO funding, is that it Lykke’s exchange is based on a P2P matching process whereas Bancor claims to have a secret sauce that creates liquidity and allows for automatic price discovery without requiring a counterparty (which is a breakthrough). Lykke is on the colored coin protocol and Bancor is using the ERC20 standard.

BNT (the $153million ICO) are utility tokens for their exchange (to be built). LKK the colored coins trading on the Lykke app (for now) are not utility tokens but equity shares. 100 LKK coins represent one share in the Swiss registered and regulated company. Lykke is going international in Asia but is not yet available in the US.

The shares of the company have surged in the past months (read more about this from the CEO Richard Olsen here).

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Lykke was early in using the ICO funding mechanism. They placed their first public shares last October and raised CHF1m and in February-March this year they innovated in placing 1yr forward Lykke shares (LKK1Y colored coins) raising CHF2m. They are leading the way in showing others how Capital markets 3.0 can work on their app. I expect that they will be innovating more going forward.

Their most recent innovation already operational (for now only for Bitcoin) is the Offchain Settlement integration on their exchange. This makes the network faster but still has the safeguards of the blockhcain.

Disclosure: I am a shareholder of the LKK coins and look forward to the experience of the first Digital annual shareholder meeting on the 29th of June, were more than 3000 shareholders from 87 countries will come together and vote. Stay tuned.

The race has picked up speed at the protocol layer and at the Dapps layer (payments, exchanges etc). Lykke was live early with a stunningly simple UX and will now has to compete with the recent “white papers” and “MVPs” that are getting piles of funding to accelerate their development. The Lykke “Go-to-Market” strategy is taking the regulatory route (i.e. obtaining exchange licenses in Singapore and the US, payment licenses and even investment licenses in Europe) and aiming to become the center for exchanging value for everybody (from consumers to businesses).

The invitation to join the great global conversations referring to Lykke on the Fintech Genome, is open. Join to learn and contribute here.

Efi Pylarinou is a Fintech thought-leader, consultant, and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

Wrap of Week #23: Ethereum mining and more, SparkUp, Hive, Insurtech, IRTA & Watson

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A great Fintech DogFooding story in SME equity fundraising: SparkUp

logo new

The future has arrived and the pipeline of ICOs is active. Keep in mind that this glove does not fit all.  Capital Markets are being re-shaped left and right. We are following the process as it evolves.

How to raise funding, especially for small businesses, remains “The challenge” for the entrepreneurs involved at all stages of their business development,

despite the multiple alternatives, like Alt loans from Kabagge or Sofi, equity crowdfunding from Angel List or Circle Up, equity financing from investment boutiques like FT Partners or Zelig Associates, or equity financing from Corporate VCs like Google Ventures or Citi Ventures, or traditional VCs like Accel Partners or Bessemer.

SparkUp’s value proposition is empowering small business owners to raise funding

whether it is at the early stage or even later when ready to tap into the public markets. It is also empowering investment managers that are looking to leverage their data.

Jeremy Ley is the French young co-founder and CEO of Sparkup, whose disruptive energy one cannot ignore. I spoke to Jeremy last week because SparkUp caught my attention, as they are

“Eating their own Dogfood”, which means they are fundraising using their own AI sales technology that taps into their own network to quickly and effectively do the fundraising.

SparkUp is not an investment bank. SparkUp is not a crowdfunding platform. SparkUp is a sales technology tool with a focus on financial securities.

It is in the same space as CustomerMatrix or Salesforce with their AI CRM system. However, these technologies have a broader scope and are used mostly to improve revenues and sales pipelines in businesses. SparkUp has a laser focus on the sale of financial securities for SMEs, which is a multi-billion dollar opportunity.

SparkUp can tap into your existing business network with their AI CRM and generate leads faster and more effectively. They received their pre-seed funding in 2015 (1.1M€). They are operational currently in France, the UK and Norway. They have contributed to 7 equity public offerings, signed 8 Investment Managers with 3 Bn+ in assets under management and facilitated the equity fundraising of 40+ SMEs.

The average size of equity financing for SMEs is currently around 150k€ and rising. The value that SparkUp brings to the SME market is obvious since it remains a hugely untapped opportunity. SparkUp has its own online diagnostic test that allows SMEs to very quickly (3min!) estimate their fundraising potential, a digital process that improves the efficiency of SparkUp in serving prospects (i.e. not wasting time on SMEs that are not worthy clients).

Publicly trading companies that could benefit from a boost in retail demand or companies IPOing, are the ones using SprakUp. SparkUp can “smartly activate their databases” which results in improved retail distribution in a cheaper way than ads on online brokers or other digital strategies. In addition, brokers can use the SparkUp sales technology on a revenue sharing basis, to leverage their databases and sales people.

Investment managers have been using SparkUp to cross-sell more of their products with the smart use of their databases.

SparkUp is already operating in France, the UK and Norway. They are currently looking to fundraise funds for the R&D development of their algorithms and their scaling up. SparkUp will accomplish this by tapping into its own network and through algorithms identifying contacts at the right level, emailing them, managing the project of fundraising with its own technology. They are an AI CRM that serves the specific purpose of raising funds and currently, demo-ing live its use. This is a great example that we have not seen neither in the crowdfunding space (i.e. still looking for a crowdfunding platform that has crowdfunded itself) nor in the Market place lending space (i.e. an MPL financing its growth by borrowing on its own platform).

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

 

 

 

Wrap of Week #22: Ether, ICOs, 0x, Numerai, Neos, Jude, US regulation

What a week again! Exciting topics, new names, and our insights.

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Check also the latest topics that include ICOs, WealthTech, Lending, Insurance, bitcoin & blockchain, Web 3.0, API, etc.

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The Big Hairy Audacious Goal of Numerai: network effects in Quant trading

It was Jordan Hauer, CEO of Amass Insights , who introduced Numerai to the Fintech Genome community, earlier this year in a conversation thread around AI in wealth Management.Screen Shot 2017-06-05 at 07.33.56

What is the mission of Numerai?

Numerai wants to crowdsource quant models from Data scientists that develop better ways of trading financial securities. Numerai is creating a meta-model from all the Machine Learning (ML) algorithms developed by “the crowd” with cryptographic data.

Numerai aims to offer a platform that generates alpha in a novel way. It wants to structure a rewarding mechanism for its traders that not only eliminates the typical competitive and adversarial behavior between them but actually, penalizes them.

How Numerai works?

Numerai hosted 12,000 data scientists earlier this year in a tournament. The data used for the predictive models, was encrypted. The participants were anonymous and the aim was to provide ML algorithms that improve Numerai’s investment calculations.

Numerai was initially compensating data scientists with Bitcoin, based on their contribution to the performance of the meta-model. They have now, changed their reward mechanism in order to create a collaborative reward mechanism. Their Big Hairy Audacious Goal (BHAG) is to be the first use case of creating network effects in finance.

Imagine a world in which proprietary data is not the secret weapon, profitable traders are not adversarial and competitive, and there is a financial incentive mechanism that makes traders collaborate to create an even better trading algorithm.

This the BHAG of Numerai: a blockchain world that can solve the classic prisoner’s dilemma by creating a cryptocurrency that is structured in a way that incentivizes “the prisoners” to keep each other out of jail.

This is exactly the aim of the new cryptocurrency that Numerai recently issued, the Numeraire token issued over the Ethereum blockchain. Each participating data scientist receives some Numeraire tokens based on their historical performance. At this point, the new world that Numerai is designing starts.

Numerai introduces a staking mechanism that is the heart of their BHAG!

The data scientist with send his Numeraires to the Ethereum smart contract along with a confidence prediction. Now the predictive model is live and the data scientist will be rewarded based on actual (not historical) performance and his/her confidence prediction. If the predictive power is poor, his/her Numeraire token is permanently destroyed by the smart contract.

As a result, data scientists can only gain by building models that perform well on live data, and stand to lose on models that overfit the past. Their compensation is denominated in Numeraire, which is linked to all the stake payouts which will increase over time.

How is Numerai different?

A data scientist who is getting compensated in Numeraire, has an incentive to invite another data scientist to participate in a tournament, who has the potential to improve the network. This is the collaborative mechanism at work, even though the process is anonymous and decentralized. This is Numerai’s BHAG part 1, which if successful it could become the first business model in finance with network effects.

Numerai’s BHAG part 2, is creating a mechanism of true alpha generation by crowdsourcing algorithms based on actual performance not back testing. Numerai’s target audience is data scientists who can master non-contextual data sets.

Numerai is unique also because they introduced their token, Numeraire, in their already existing platform, without launching an ICO! Numerai has control over the issuance of their tokens and has the right to introduce new features of the token. In their first tournament, Numerai paid out 1 million tokens; the maximum supply is 21 mil Numeraires.

Numerai is backed by Fred Ehrsam, Joey Krug, Juan Benet, Olaf Carlson-Wee and Union Square Ventures. Watch their intro video about their BHAG with Numerai investors Andy Weissman and Fred Wilson of Union Square Ventures; Joey Krug of Augur and Juan Benet of IPFS and Filecoin.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Wrap of Week #21: BlockchainBitcoinCrypto, Quantopian, RIP Global, Insurtech, Nubank, Neon

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Fintech solutions in Quant land – Quantopian

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Quantitative trading isn’t a new idea by any stretch of imagination. Searching for the Holy Grail in quantitative trading continues to fascinate both financial professionals and all sorts of scientists (physicists, engineers, mathematicians, etc). Data scientists are used to handling data sets and modeling them, knowing that their prediction model WILL NOT affect the hypothesis or the phenomenon that they are modeling. However, this is NOT true in financial markets.

I see four types of challenges in quantitative trading in financial markets beckoning solutions that have existed forever:

  1. The amount of Subconscious biases amongst Financial professionals developing and implementing quantitative strategies, is significant.
  2. Acting as adversaries on a Survival TV show, is the modus operando?? amongst Financial professionals.
  3. Allocating capital towards quantitative strategies is a process dominated by subconscious biases.
  4. Network effects has had no place in developing superior quantitative trading strategies-products.

As you already sense, I am focused on the human-related issues of quantitative strategies-trading. Don’t forget that even if we end up overweighting quantitative strategies in the allocation of our capital resources (as individuals and as institutions), we are still depending on humans that are coding, fine-tuning, adapting, etc these algorithms.

In this post, I will revisit Quantopian, a Boston-based Fintech that I covered in the very early days of my Fintech content creation journey. Check out Quantopian – DIY open-sourced trading algorithms and a crowd-sourced hedge fund. At the time, Quantopian had received around $23mil in funding (by March 2015). Today, they have another $25mil from Point72 Ventures, Bessemer Venture Partners, Andreessen Horowitz (source:VentureScanner). More importantly, they have partnered with Point72 Ventures who has promised to allocate up to $250mil to quantitative strategies managed by Quantopian.

At the lunch organized by the Swiss FinteCH association, the Director of Academia of Quantopian Delaney Mackenzie, said that Quantopian is now allocating to 17 strategies that are benefiting from the first batch of capital from Point72. This is crowd-sourcing quantitative strategies not crowdfunding, in action.

The lunch gave me the opportunity to understand the kind of people Quantopian is looking for, the kind of strategies they seek, and the way their business works.

Quantopian has currently, around 130,000 users from which they crowdsource strategies. This is a platform that can give the opportunity to non-professionals to validate a hypothesis that is coded into strategy. Quantopian is avoiding subconscious selection hiring biases, by giving the power of algorithm filtering to a machine. Quantopian has automated the process of creating a short-list of algorithms and authors-coders. Their platform at this stage is

Acting as a Discovery platform for Talent that is left unexploited for various reasons.

This may include academic staff that may have one-off brilliant strategies, data scientists that have no access to high quality financial data, young techies that are unbiased from the traditional financial modeling frameworks. From the current 130,000 user base, Quantopian has detected concertation of talent: (a) geographically, in 5 countries; (b) educationally, with tech related backgrounds; (c) in gender, men rather than women. The gender imbalance is actually an area that Quantopian, whose role is at the same time educational, wants to improve. They are currently, exploring various initiatives that can improve that split as they genuinely believe that that kind of diversity can improve the quality of the diversification they are looking for.

The kind of strategies that Quantopian is looking for, are Alpha-generating algorithms.

They have been concentrating in the US market due to the maturity and the availability of data for back-testing, live-testing and validating.

Quantopian offers a 10% payout to the “author-coder” that is selected and allocated capital. This is 10% of the net performance of the author’s algorithm; a rate probably above the average “bonus” of a proprietary trader but lower than most hedge funds (which come with other kinds of risks and responsibilities).

Quantopian is fairly open-source for the most part of the journey of its users. So, any user, for example, can build on top another user’s code (permission from the other user needed). Users own their own IP during the phase of coding, tweaking, and back-testing. Naturally, there is an inherent trust towards Quantopian who would not jeopardize its brand name, by stealing the IP from any user. This kind of relationship (based purely on trust and with the user-coder in the driving seat), comes to a halt once the code-algo is selected and ready for capital deployment. At that point, there is a boat-load of legal agreements that coders-users and Quantopian sign to license the IP to Quantopian. This is the point that Quantopian shares profitability of the strategy and reaps the benefits of creating an alpha-generating crowdsourced quantitative investment firm. What is important here to bear in mind, is that Quantopian has to keep up the game of “feeding algorithms” that continue to generate alpha, in a financial world that is affected by the trading patterns themselves.

Quantopian is addressing two out of the four challenges, I mentioned earlier. It is addressing both subconscious biases 1 and 4, traders themselves and those allocating capital to traders.

Stay tuned for a totally different approach to generating value using quantitative methods.  Next Tuesday.

Efi Pylarinou is a Fintech thought-leader, consultant, and investor. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.