Why an inflexible retirement awaits those in the ‘flexible’ gig economy

In Australia, mandatory payments by an employer of 9.5 percent of a staff member’s salary into a retirement fund has become so accepted by the vast majority of Australian workers, that many pay the scheme cursory, if any real attention at all. As a result of this steady flow of payments into the industry’s 500 or so funds, by the end of 2016, regulatory bodies claimed $2.2 trillion in superannuation assets had been accumulated, up 7.4 percent since the previous year.

Today the superannuation balance for those currently retiring is estimated to be $292,500 for men and $138,150 for women. While still considered inadequate for a comfortable retirement, as the system continues to mature then those retiring decades from today are expected to see their average balance lift considerably.

Or will they? They changing nature of work and the rise of the gig economy has many worried that the resulting shift away from permanent employment to contracting and freelancing arrangements is putting significant pressure on this stalwart of Australia’s retirement framework.

While a small number of people engage in the gig economy full time today, the number is growing. In 2015 the Grattan Institute estimated around 80,000 Australians found short-term employment via online peer-to-peer platforms. And while this number is still relatively inconsequential, the freelance economy is booming. According to a study by Upwork, an estimated 4.1 million Australians, roughly one third of the workforce, have done freelance work in the past year.

And while gig economy workers may complement their weekend odd-jobs with a 9-5 during the week, freelancers tend to rely more heavily on contract work. They are also responsible for making their own superannuation contributions – something that tends to come last in the list of financial priorities. And while some freelancers may be in a position to negotiate super contributions, for many this is not the case.

Freelancers, for the most part, can be considered self employed. And superannuation stats for self-employed workers are dire, with roughly half the amount available at retirement compared to corporate employees. The same fate seems to be awaiting those in the growing gig economy.

Regulators and industry bodies are taking note. Reports of exploitation of workers in this space are on the rise, with companies like Deliveroo and Uber under attack in a number of jurisdictions for creating contract like employment structures that remove the need for benefits, like superannuation, to be paid. With more and more younger workers moving into these ‘flexible’ roles, and with more and more traditional businesses copying gig economy models, the long term effect on retirement savings is shaping up to be profound.

These macro-economic forces present opportunities for financial product providers to solve real problems. Default retirement planning – which by and large has been successful in its current state in Australia for a workforce made up of permanent employees – will need to undergo a radical transformation. The good news is governments are starting to take notice of the changing workforce dynamics, and the impact this will have on their future budgets. As a fintech startup, being ahead of this curve ever so slightly and leveraging this national interest approach could be a powerful position to occupy. In the US, Intuit, who forecast 7.6 million American workers will operate in the on-demand economy by 2020, has done exactly this by anticipating this shift and adjusting its product to suit. There is no question other financial startups could ride this wave as well.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

The wave of Gold trading technology is a game changer coming from the West

CME gold


Have you ever thought how much credit Betterment and Wealthfront merit, for the growth in passive investing, for pushing financial inclusion, for reducing costs? Do you realize how much Robos have changed the flow of funds into ETF vehicles?

Now take a minute to look at the early signs of how Blockchain is changing Gold markets. These past few weeks, there has been a series of noteworthy announcements around Gold trading technology.

Who cares?

We are already culturally trusting Gold and therefore, anything that improves Gold’s prospects as a store of value or as a means for exchange, is significant. Gold remains a candidate for a reserve currency and can also be used as trade collateral. Gold inherently has desirable features (e.g. limited supply, fungibility, ease of exchange). However, Gold markets are surprisingly old fashioned.

Did you realize that Gold prices were fixed twice a day via a conference all, up until 2015? Did you realize that only in 2015, Gold trading switched to an electronic pricing system? However, most trading of physical buillion still occurs in the OTC market and pricing is still fixed twice daily via the futures markets.

Did you realize that there is still no reliable real time system tracking the supply-side of Gold?

Did you realize that most physical gold is centrally stored with either government entities (like the Royal Mints) or banks?

There is a lot of room for improvement in the Gold trading market. Anything that can improve price discovery, settlement, counterparty risk, verification of the underlying deliverable, tracking of the supply in the market; is significant.

Any new possibilities to replace “paper gold” with solid backing of physical gold, is also a great improvement in the Gold trading.

Paper gold includes Gold certificates issued by banks and mints that give you exposure to gold, futures accounts, ETFs ect. All these are risky in a flash crash kind of scenario, in which there is not enough physical gold to back Paper Gold.

A small taste of the complex issues from the “paper gold” market:

Owners of gold exchange traded funds (ETFs) would be surprised and worried to discover that certain banks might be lending out gold that they have bought and believe that they own.

The leading gold ETF, GLD has been criticized by many analysts for its extremely complex structure and prospectus. Critics have also pointed out the possible conflict of interest in its relationships with HSBC and JPMorgan Chase which are believed to have large short positions in gold and overall lack of transparency. 

If as has been suggested, European banks are lending gold into the market that has come from exchange traded funds then this would validate the many concerns raised about the gold ETF market. Questions would again be asked as to whether many of the ETFs are fully backed by the gold that they claim to own in trust on behalf of clients.Source

What is the Gold tech innovation?

Towards the end of last year there were a dozen PR press releases about the Royal mint of Canada and the UK Royal Mint experimenting with blockchain technology to essentially digitize the gold they keep stored in their vaults. Bear in mind that is a predominantly institutional market but of course, there is some value in promoting the trustworthiness of a country as a trusted big player in the Gold market.

Right now, it seems that the UK Royal Mint is a front runner as they announced just before Easter that they are live testing trading on a CME platform of a Digital Asset – The Royal Mint Gold (RMG).

This is a partnership project amongst The UK Royal Mint (TRM), CME, Alpha Point and BitGo.

CME, the largest gold futures exchange, is offering the trading platform. TRM has agreed to digitized 1 billion worth of gold that is stored in its vaults. Alpha Point, a blockchain startup, has assisted in issuing a Token (issuer is TRM) representing a piece of the gold that TRM has agreed to digitize. Alpha Point has designed the permissioned private blockchain on which the RMG token can trade. BitGo, has designed the digital wallet that can store these tokens following a multi-signature procedure.

There are others participants that have also launched similar projects (making less noise in the press). Both the Euroclear exchange and the IEX exchange have similar projects announced last Fall.  Euroclear is also experimenting with the digitization of oil. They are collaborating on the digitization of the two commodities with Paxos, a Fintech whose proprietary ledger solution focused on post-trade settlement, is Bankchain. IEX has revelaed less about their moves. They have spun off a separate entity, TradeWind Markets, that is focused on digitizating commodities for their exchange.

Alpha Point is a blockchain tech company that offers a variety of blockchain solutions (more than 20 ledgers and fabrics, ETH, R3, Hyperledger etc plus its own proprietary ledger) with a focus on solutions to digitize, trade, and manage assets with blockchain technology. You can listen to a recent interview on Futuretech Podcast of Igor Telyatnikov, the President & the COO of Alpha Point who explains AlphaPoint’s secure, scalable, and fully customizable platform that can process nearly 1 million transactions per second (recall that bitcoin blcokchains can process 7 transations per second)

RMG is the first token from a government owned entity (issued by the TRM and representing ownership of gold in their vault). We will be seeing, probably by the end of 2017, multiple issuers and multiple tokens trading on various blockchains. Most of them seem to be permissioned and private (I have partial info about this).

There are other tokens issued from private companies, when buying physical gold from them – Digix GlobalCodeTract, and DinarDirham. Digix Global, for example, issues a Digix Gold Token (DGX) that represents the specific gold bullion bought through them and kept in a special, securitized vault. CodeTract’s Gold Token (GCT) or DinarDirham’s Dinarcoin (DNC) are the Digital Gold tokens if when buys gold through them respectively.

Where do we stand?

  • Does such kind of digitization of Gold reduce storage costs and therefore, allow to pass through these savings to investors? I think Not.
  • Does such kind of digitization of Gold reduce the counterparty risk associated with the entity offering the vault services? I think Not.
  • Does such kind of digitization of Gold improve price discovery and eventually lead to the elimination of the price fixing? I vote Yes keeping in mind that it is early stage of such a process.
  • What are the main benefits of the digitization of Gold with multiple issuers-tokens?  Immediate settlement of trades, secure verification of the quality underlying deliverable, tracking of the supply in the market! Replacement of “paper gold” (i.e. certificates or ETFs) by digital gold, which would mean elimination of the inherent risks associated with these derivatives in case of a bear market panic.
  • What is missing? Clearly, gold miners need to get involved in this process so that the digitization starts from there and not from the vaults. Clearly, the current choice of private chains creates interoperability issues.

And before wrapping up this post, I have to draw your attention to China which is testing the “waters” with Micro-Gold platforms. This is Not digitizisation of gold. This is actually growing the “paper gold” market online or via the Internet of Finance.

Tencent issued a new feature on WeChat for Valentine’s day, that allows you to send your loved ones not chocolate, not flowers, but Virtual Gold packets. This is similar to the Red envelope Wechat feature (i.e. digital money).

This feature is through a collaboration with the Industrial and Commercial Bank of China. Essentially users can easily buy and sell gold as an investment from ICBC through the messaging platform.

The minimum amount of gold that can be bought is 0.001 grams – which on February 13 was sold at 28 fen. The maximum transaction limit to buy the gold is 100,000 yuan, which can get gift givers 364.856 grams of gold at current prices. So far, the feature is only available in China.

Once the gold is bought, they can then give out up to 100 gold packets at a time, with not more than 1 gram of gold per gold packet. But for Valentine’s Day, Tencent will increase the limit to 1.314 grams per gold packet, as the numbers 1314 in Chinese sounds similar to the Chinese saying “for the rest of my life”. Source

Efi Pylarinou is a Fintech thought-leader and an investor. 

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Who’s Who in Fintech and Art

This post was inspired by Spiros Margaris whom we all know as a Fintech global influencer but I doubt that any of you know Spiros Margaris the Artist.

Lets indulge together.

A Fintech Influencer who is an Artist

I first stumbled across this piece of Spiros’s artworks.

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Oy Darlin ‘Clementine, 2002: Oh My Darlin ‘Clementine is a series in which I have to go to the Clementine School, my school, my school, and the gym (The Gym). 

Spiros works with media photography and film and has exhibited in Switzerland and New York. His work seems to be inspired by his childhood and his country of origin (Greece). Fintech will have to wait to become more of a memory that the artist feels the need to preserve, rather than a live and active arena that the artist is currently participating in.

Fintech and Art in the Museum of Contemporary Art in Shanghai

 I know First is an Isreali Fintech that uses Artificial intelligence to provides daily investment forecasts based on an advanced, adaptable, self learning algorithms. The company’s algorithms discover patterns in large sets of historical stock market data.
Last Fall, I Know First collaborated with London based artist Fabio Lattanzi Antinori who worked on a piece for a solo show at the Pavilion of the Museum of Contemporary Art in Shanghai. The exhibit was part of “Fortune Tellers” exhibit and featured an interactive sculpture, which reacts to the presence of the audience through capacitive sensing, by producing music, when touched. More specifically, the installation was about creating an interrelation between the volatility of financial markets, particularly the Shanghai Stock Exchange, and the temporary condition of human life.


Currency Design at London’s VA Museum

London’s Victoria and Albert Museum held a #FridayLate event in early April that brought together artists and designers to discuss society’s relationship with money today. Invisible Finance via digital currencies and virtual transactions is clearly changing our understanding of money.

Scrip is a concept designed by NewDealDesign as the ‘tangible future of cash’ in a world in which cash is moving from the physical to the abstract. It is a concept luxury sci-fi wallet! The user would swipe the smart copper surface depending on the denominations he-she intends to spend. A small digital display would show the invisible cash spent.


 A marketplace to invest in Art

Away from pure art and concepts, Arthena qualifies for a genuine Fintech. It started as an equity crowdfunding platform dedicated to the alternative investment asset class of Art. The founders deployed data science algorithms to evaluate the investment products and decisions. Transparency in the art market and bringing this asset class to your mobile, is the way Arthena is designed.

Arthena, has now added a series of funds that individuals and insitutions can invest in. From currently open funds as Rising –Emerging, Established Masters, Blue Chip Artists; to more thematic funds like Emerging NY artists, War & Contemporary Art, Undervalued masters which are now closed.


Mobile art discovery & Reverse Fintech

Artelry is another player in the Art ecosystem that has launched an app for both collectors and artists. The focus is in the discovery phase of the investment process. They are disintermediating galleries and offering a traceable way for Artist Resale Royalties. Transparency is also their core value proposition.

MutualArt, is a global leading source of art market information and manager of the APT (Artist Pension Trust) collection. They just announced that they raised $32 million in funding to launch a new private sales service, adding an offline part to their 100% online service. MutualArt’s new offline private sales service offers collectors, art advisors, foundations, corporations and institutions exclusive access to artworks from the APT collection – currently comprising nearly 13,000 artworks from 2,000 established and emerging artists in 70 countries.

Blockchain for tracking Art, crowdfunding Art

Ascribe is a startup that lets artists register their digital work into the blockchain, creating “a permanent and unbreakable” link between the artist and their work. Focus is really on empowering the artist.

Weifund, is a blockchain-based equity crowdfunding platform developed by ConsenSys. It is a use-case of smart contacts in the Art world.

Mitzi Peirone, a 25yr old model, painter, writer, is making her debut in the filmmaking industry with “Braid”; a psychological thriller that will be the first US feature film to be funded through an equity crowdsale using cryptocurrency.


Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.



Government Bond Innovation: Africa puts the rest of the world to shame


This post is inspired from a hot of the press Fintech innovation in Fixed Income coming from the Rest!

Kenya, made headlines at last albeit a 2yr delay, by issuing the first Mobile-only Government bonds targeting retail!

In this pos,t I will start by looking back at the state of innovation in the Fixed Income market and the stumbling blocks over the past two years. All this is happening in the West.

Fixed Income Fintech in the West

Innovation in the Fixed income part of the Capital structure of corporations and in Government and Agency Debt instruments, has proven tough. Algomi, the UK based Fintech player focused on adding value in

”How bonds are traded”

has been stubbornly working at it and continues to do so despite a couple of setbacks. I wrote about Algomi in the early days of my Fintech expert journey – see Algomi Connecting Fixed Income Buy and Sell side by enhancing distribution. In Spring 2015, in Technologies for the storm in fixed-income I covered all ventures coming from Fintechs or incumbents.

Bondcube was included (a very early stage Fintech at that time) who unfortunately, filed for liquidation last summer. Their transparent platform was focused on large orders, taking anonymous indications of interest from asset managers and investors, as well as banks and brokers, matching them and then executing. Asset managers who constitute the majority of bond holders, were uncomfortable being price makers rather than price takers. Being a liquidity provider is not in their culture. So, in the end, they preferred to call a dealer. Bondcube’s failure on the last step (execution) shows again that Institutional Culture is hard to change (more details here).

Late 2015, I profiled Origin Markets: A Fintech for Corporate P2P Borrowing and Lending (very early stage at the time) who has a laser focus on adding value in

“How bonds are Issued”

Origin is digitizing the MTN (Medium Term Note) market which works through a shelf of private placements (more than $1trillion market). Six investment banks, BNP Paribas, Bank of America Merrill Lynch, Societe Generale and Credit Suisse, have already partnered with Origin.

From the original landscape coverage, OpenBondX out of the US recently joined forces with DirectMatch. OpenBondX has been focused on secondary market trading of US Treasuries (UST) and corporates bonds, whereas Direct Match focuses only on the USTs. The latter is obviously one of the most liquid bond subsectors, but yet on any given day no more than 13% of outstanding Treasuries trade.

The other recent “unification” in this subsector, is Trumid acquiring Electonifie. Trumid was backed earlier by Soros and Peter Thiel and recently received funding also from Credit Ease; and can thus embark on a buying spree. Electronfie, launced in 2015, had been looking to raise capital over the past six months or find a partner.

Canada has seeded Overbond, which claims to be positioned in the “How bonds are Issued” segment by digitizing the primary issuance process. For now, it seems to be a platform that aggregates Bond information, and data. We will be watching their positioning evolve.

All of the aforementioned ventures, are solving problems of the Fixed Income market at the wholesale level, i.e. asset managers, deals etc. At the retail level, investing or trading in single bonds remains an over-the-counter market with lots of inefficiencies. Saxo Bank announced last Fall the launch of a retail bond trading platform for their SaxoGo Trader clients. More info here. However, the word on the Street is that it is not that alive yet.

Fixed Income Fintech in Africa

Kenya is in the spotlight.

Did you know that there are 38 Fintechs out of Kenya, as we speak? Check here.

Kenya has a country rating B+ (as Sri Lanka, Nicaragua etc).

The 10yr government bond offers a 14% yield. Bank deposits are at 7%.

  • The M-Akiba (Swahili translation of “savings”) Mobile-Only bond is a 3yr bond. It offers a tax free 10% semi-annul coupon. The coupon will be paid twice a year to MPESA or Airtel Money.
  • The M-Akiba proceeds are going to be used in infrastructure projects in Kenya. The bonds are un-collateralized lending to the government.
  • The current issue size is 5 billion Kenyan shillings Ksh. ($47.7 million). The government plans to issue up to $48mil in the summer.
  • The minimum purchase order is 3,000 (around $30) much lower than previous levels (Ksh. 50,000 = $480). The bonds can be traded through brokers.

This is a pilot project that the world should watch for a couple of reasons. We are seeing a pilot case of crowdfunding government infrastructure projects by borrowing directly from the same people that will be the workers in these infrastructure projects.

We are seeing the government competing directly with the consumer banking market – i.e. banks – by offering Higher tax-free rates and liquidity. Typically, governments borrow at lower rates even on an un-collateralized basis.

We are seeing an alternative way of educating the people towards increasing their savings.

We will be monitoring the success of this direct retail placement from a government and the upcoming larger issue.

Will we soon be seeing the launch of mobile apps from the US Treasury, the Japanese government, or the Indian government? Stay tuned.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.





Polychain Capital: A hedge fund investing at the Protocol layer of Web 3.0

Today is the slowest day of the rest of our lives.

Entrepreneurs at heart move to launch new projects, new businesses as they are committed to pushing the boundaries of existing business practices. They are driven by their genuine desire to seed the Unimaginable.

Brain Armstrong, founder and CEO of Coinbase, leading app in the digital currency space, is known for his ability to form teams that create value, by hiring entrepreneurs whose CVs may not reflect their potential. Olaf Carlson-Wee, was one of his hires and part of the core team, who is now moving on to launch Polychain Capital that I am so excited to share my understanding of this endeavor with you today. I guess Brian’s intuition while very rewarding in the first phase of building Coinbase as a scalable business, comes with the demise that Olaf had to move to something more avant-garde. Polychain Capital clearly qualifies for avant-garde currently and most probably will need 2 yrs to move to the next phase.


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This is All the info that is on the website of the business that Andreessen Horowitz, partner at Union Square Ventures recently funded with $10million. In this post, I explore this hedge fund, its investment strategy, and how its positioning in the ecosystem of innovation in Wealth management. I will discuss the kind of assets Polychain will invest in, and why it has chosen to do.

The story started in 2014 while at Coinbase, Olaf found himself exploring the potential of Protocol 2.0 ventures, like Mastercoin or Counterparty. This is different than researching companies, simply because they are entities that are not owned by shareholders but rather from birth are decentralized and therefore, the users are essentially the equity owners. The next trigger towards coming up with the Polychain Capital idea, was when Coinbase included Ethereum in the summer of 2016.

Polychain Capital wants to invest in Digital assets at the Protocol Layer, not at the App layer. They are interested in investing and creating value for their institutional investors, at the Protocol Layer.

So the kinds of ventures that they have on their watch list, are

  • Ethereum – a more knowing decentralized protocol that can enable innovation to be built on it, that can attract developers, and that can enable all sorts of applications from digital IDs, file storage, messaging, wallets, supply-chain finance etc.
  • IPFS ecosystem
  • Tezos
  • Rchain
  • PolkaDot
  • Difinity
  • Cosmos

Most of these are early in their life and the million dollar question is which of them will be the enabler for a full stack app creation, or in other words which one will power off Web 3.0. Will proof of stake and proof of work, be replaced by another combo? What is the unimaginable decentralized web going to look like?

What is clear is that Polychain Capital is NOT looking to invest in ventures at the App layer. So, for example, they are not including in their portfolio Melonport, an asset management platform built on the Ethereum protocol, or Augur, a trader’s forecasting tool also built on the Ethereum blockchain.

Polychain Capital is based on the belief that the Bitcoin Blockchain protocol will continue to loose market share (in the digital assets space it has dropped from 97% to roughly 85%). Bitcoin is actually suffering from the innovator’s dilemma and Polychain Capital doesn’t see any killer app built on the Bitcoin Blockchain (these are views of Polychain Capital from the Ether Review #59 interview with founders Olaf Carlson-Wee and Ryan Zurrer).

Therefore, Polychain Capital wants to capture the growth of other protocols that will outperform the Bitcoin protocol (stuck in Innovator’s dilemma land).

Polychain Capital is positioned as a hedge fund because not only it is suitable for institutional investors but it’s investment strategy approach has taken elements for the VC approach and combined them with active trading from the hedge fund world. The way that they will be dynamically managing the portfolio holdings isn’t clear yet (at least to me) but the principle of how they will go about capturing this next wave of compelling innovation, is laser clear.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.


Crypto equity via ICO and the other innovation chasm



Are you a bull or a bear on this question?

– Crypto equity via ICO is the secret to unlocking innovation capital and is the bridge across the chasm between crowdfunding and public market liquidity. This is the bull case.


– Crypto equity via ICO is a haven for scamsters and needs to be heavily regulated. This is the bear case.

Today we shine a light on that question. First we outline the bull and the bear case. Then we ask some experts to give their views. Bias disclosure: I am a bull, but having seen a few waves of disruptive change I know that change takes a LOT longer than people think and that the early unregulated wave of any disruptive change has a lot of what are politely referred to as “sketchy characters” and less politely as scamsters.

The other innovation chasm

The old saw is “if it ain’t broke, don’t fix it”.

The corollary, for entrepreneurs, is “if it is broke, find a way to fix it”.

The innovation capital business is broken.

Most entrepreneurs understand the chasm between MVP (Minimum Viable Product) and PMF (Product Market Fit). The low cost to build MVP increases supply, but real demand does not change that fast, so lots of MVP ventures fall into the chasm (i.e. they fail).

The next chasm is less well understood. This is the chasm between PMF and Liquidity (via an IPO on the Public Markets and failing that via trade sale).

Today, we don’t see this chasm so clearly because there is a very expensive bridge across it – in a few locations. The very expensive bridge is provided by the big PE/VC Funds. Uber has raised over $8 billion and is still supposedly not ready for an IPO. That is an expensive bridge a) for the Limited Partners (aka the LPs aka the real investors who pay the PE/VC Fund Manager their 2 and 20 cut) and b) for the entrepreneurs (faced with all those preferential equity terms that toss founder and management equity to the bottom of the stack).

Not only is the bridge very expensive, but it is only available in a few choice locations. If you are in Silicon Valley, no problem, there are lots of expensive bridges. If you are in New York, London, Singapore, you have a few bridges. Outside those centres you are scrambling and doing so in the knowledge that some entrepreneur in Silicon Valley just raised 10x what you raised and is planning on using that to crush you.

It gets worse. Unless you do your IPO on NASDAQ or NYSE, you will face a discount. Look at the valuation discount of great companies trading on reputable stock exchanges all around the world. So now you have a second very expensive bridge operated by the “bulge bracket” investment bankers (such as Goldman Sachs and Morgan Stanley) who you use to “take you out to IPO”.

So, yes it is broken. The innovation capital business does need fixing. Whether some variant of the ICO is the fix is what we now turn our attention to.

Crypto equity via ICO 101

ICO = Initial Currency Offering.

It makes you think of IPO. That means it also makes regulators think of IPO.

Yet it is C for Currency, not company shares. You buy a Crypto Currency Token that you can use on the network.

Some examples of ventures that have been funded in this way include:

  • Storj
  • Lykke
  • Ethereum
  • ZCash

In all cases, traditional VC were not in control. Sure they could invest alongside everybody else. But they had no information advantage.

The Howey test (from an SEC legal case from 1946) is basically – if it looks and acts like an equity it probably is. Many ICOs fail this test, putting them in the regulatory cross hairs.

Crypto Equity Bear Case

It is very simple to raise money via an ICO. This will bring out honest entrepreneurs who are fed up with the current way of raising capital. It will also bring out crooks. It already has. So far the losers have been people playing with found money. For example if you invested in Bitcoin in 2009, putting some of those profits into Ether in 2014 seems pretty easy, even if you follow it up by losing on the DAO in 2016. It is quite different when Joe Q Public is invested from earnings that took 40 years to accumulate and which he is banking on for a comfortable retirement. If ICO scales, more crooks and more Joe Q Public actors get involved.

Crypto Equity Bull Case

Crypto Equity – done right helps ventures get across both chasms:

  • Chasm 1 between MVP and PMF. The investors are often also the users. They use the tokens on the network. So they help get the venture to PMF.
  • Chasm 2 between PMF and Liquidity. The Crypto Currency Token is traded. Speculators provide liquidity.

The fat protocol thin app thesis

This thesis was articulated by Fred Wilson of Union Square Ventures in August 2016. I urge you to read the whole post and the very informed comments from the community. If you don’t have time, these two pictures paint a thousand words:





The original thinking, from 18 months earlier and, amazingly prescient being  a few months even before the Ethereum ICO, was from Naval Ravikant (founder of Angel List who we have written about here, here and here).

What do the experts say?

The experts we reached out to are in what I call the “Other BBC” space (Bitcoin Blockchain Crypto), so they will be inclined to a bullish case. If you have an alternative view, please let us know in comments.

My questions to them are:

  • Use Case Suitability. Is ICO only suitable to businesses at what USV call the fat protocol layer? This will be very few companies. Or could the ICO, with some modifications and regulations, be used for any company? If yes to the latter, what do you see as the essential modifications and regulations?
  • ICO Lessons. What key lessons should entrepreneurs, bankers and regulators draw from the ICOs that have happened so far?

Use Case Suitability

From Fabio Federici

“I think we need to distinguish between two types of tokens. On one hand, we have the tokenization of equity, where the token does not serve any specific purpose in the product/protocol but rather represents a digital form equity as we know it today. While this will improve liquidity and efficiency, I don’t believe this to be a paradigm shift.

On the other hand, we have decentralized blockchain-assets, ranging from currencies (BTC), over commodities (ETH) to application-specific tokens like Golem (a decentralized AWS) or Storj (a decentralized Dropbox) (see @ARKblockchain). These are just some examples blockchain-based assets, where the value of the network is captured by its users, rather than a centralized entity – and that is what will power the next phase of the Internet. I believe that the most exciting use-cases are yet to come. Just like it was hard to imagine Google, Snapchat or Uber in the early days of the Internet, it is impossible to predict the applications that decentralized blockchain protocols will enable.”

From Oscar Jofre  (see our review of his Korecox venture here).

“I am a bull/bear crossover on this subject because of the lack of oversight even by the industry to make sure proceeds are used in a manner that will not cause a domino affect of disgruntled coin holders in an empty network.

Not everything needs regulations but given that the retail market is just learning of the crypto currency, the industry needs to mature so this can be a very viable method for companies to utilize.  Unfortunately at the moment we are not seeing that and my bear comes out because I am seeing first hand, how companies are using ICO as a form of equity raise and not having a care if the person purchasing their coins makes any return on that investment.”

Richard Olsen of Lykke:

“In future, any company will be able to take advantage of the ICO route. No regulatory changes will be necessary, because Lykke will acquire the necessary legal licenses and future ICOs can happen under the Lykke umbrella, www.lykke.com

ICO Lessons

From Fabio Federici:

“I think it is important to distinguish between the tokens representing pure equity, and blockchain-based assets that serve a purpose in a protocol. While the first is just a digital version of what we know today, the latter represents a new type of asset class.

Also, one should always take a close look at each asset before making a decision, whether it’s building on it, investing in it or regulating it. Many factors play into the evaluation of these assets, from the aforementioned purpose to the fundamentals, the code, the team and many more. We are still in the early days – ontologies and (e)valuation methods have yet to be developed.

The main lesson for me is to keep an open mind and evaluate each token or asset individually. We are in the midst of the rise of a new asset class that will change the world.”

From Oscar Joffre

“ICO’s are here and need guidance. They are not used to harm but to really bridge the large funding gap we have globally for companies.  The industry can choose to be proactive and self-regulate, which in the end will be better than regulators injecting in.”

Richard Olsen of Lykke:

“The new future has started – entrepreneurs, bankers and regulators have understood that ICOs are a new reality and are essential funding tools. They combine cost efficient funding with building a motivated network of supporters.”


Crypto Equity is a gamechanger – if done right.

Those three little words –  if done right – cover a lot of complex detail.

We can leave that to regulators in each jurisdiction to create their rule books. That can take a lot of time and will devalue the frictionless cross border nature of ICOs today. Or the community can create a self-regulatory code of conduct as Oscar Jofre suggests. We have opened a thread on Fintech Genome where this initiative can be crowdsourced.



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Time for the SEC to adopt an Open Research approach

As Bernard Lunn reiterated in yesterday’s post Blockchain needs to become technically boring, much like TCP/IP in depth knowledge has become for internet users.

In wealth management, ETF structures have become technically boring long time ago.

Nobody cares and often most users don’t understand the magic redemption/creation process. Most users don’t even know the instrumental role of Authorized Participants (APs) in the smooth functioning of ETF markets. For those wanting to know more around this topic, we outlined the main risks in Are ETFs Trackers that Fintech can turn into Trucks with No Brakes?

Naturally, the media highlights malfunctions in the ETF market during flash crashes. As robo-advisors have accelerated the growth of low-cost passive investing, mainly through ETFs, we have been following such events which showcase incidents of illiquidity and mispricing. Check last summer’s mis-communication debacle in The Betterment/Brexit incident – What the Fintech Genome community spotted.

At the same time, we don’t get excited anymore by the fact that we can invest in the Japanese stock market (and many other country trackers) while they are even asleep and from almost any location.

ETFs are boring!

Except for the recent disapproval by the SEC of the Bitcoin ETF filed by the Winklevoss Bitcoin ETF, $COIN. We covered the “boring” part of it (i.e. the amendments) last week Wedding announcements pending between Old & New Finance Tribes: Bitcoin in an ETF gown!

We need to revisit the topic after the rejection this weekend, to cover two areas:

1.    What did we learn about Bitcoin trading, during this event

2.    What did we learn about the state of capital markets, following this event.

Mid March Bitcoin trading

Lots of worthwhile observations from the market reaction to this event.

Bitcoin is trading as we speak, with a twelve hundred handle (in USD) which is not that far from where it was hovering before the decision. That shows that the bitcoin market continues to shrug off events (from 2 recent PBOC decisions, to the ETF rejection). Market capitalization is also more or less in line, having recovered from dips, to the $20bil area.

This reflects, in my opinion, the steady growth in customer adoption which is outpacing merchant adoption for the first time. Although we don’t have aggregated comparison data to justify this, we can at least point to the most recent Coinbase results that are impressive in terms of the numbers of users and digital wallets; and to the “color” we crowdsource from our network.

Screen Shot 2017-03-13 at 09.46.42

Bitcoin, behaved very much like conventional assets traded in centralized exchanges, this weekend.

Bitcoin, the P2P digital asset which is settled in a decentralized way, experienced a flash crash following the announcement of the rejection. More importantly, the bid/ask spread widened substantially ($35-$60); the volume dropped and then surged ($17bil-$20bil); the price discrepancies between exchanges were large ($50-$100); and the intraday high-low was very wide ($50-$170).

Screen Shot 2017-03-13 at 09.30.26


Source: CoinDesk BPI exchange

Disclosure: I had sold my Bitcoins before this weekend (with an 80% profit) and managed to re-open a small position at $1,100 (moved into cold storage, to be forgotten).

If you prefer a professional fund manager, making the decisions on your behalf, for your digital currency allocation, there are two alternatives that I can suggest for your review.

Hedgeable, the next gen robo, has incorporated Bitcoin in its asset allocation via a partnership with Coinbase (who provides the digital wallets and cold storage needed). Hedgeable views Bitcoin as an alternative asset, like a currency, in determining the optimal allocation for each client.

ArkInvest, the US based fintech creating thematic fully transparent ETFs, is the first fund manager to invest in bitcoin in its ETF, ARK Web x.0 ETF (NYSEARCA: ARKW). ARK has made its investment through the purchase of OTC publicly traded shares of Grayscale’s Bitcoin Investment Trust (OTCQX: GBTC).

Capital Markets processes are dysfunctional

In a nutshell, the SEC after 4yrs and 6 amendments, rejected the Bitcoin ETF on the basis that they can’t allow an unregulated asset (that is not physical), to be wrapped in an ETF wrapper. As if soybeans, and pork bellies that trade through futures are regulated and cant be “hacked” by weather conditions or viruses.

I cannot but reiterate Ian Goldin’s mantra

“Today is the slowest day of the rest of your (our life)”

Over the next year, there be more digital currencies issued than in the last 4yrs (even if there are no more than half a dozen that gain significant traction). Isn’t this actually how the ETF market has emerged, i.e. a few really large ETFs?

Screen Shot 2017-03-13 at 10.11.43.png

There will be more ICOs listed (albeit small size), than in the last 4yrs. There will probably be an OTC trust publically trading, linked to a basket of digital currencies (e.g. Bitcoin, Ether, Dash, Ripple, ect) out of Europe (not the US).

Looking at the SEC’s archaic process of inviting commentary from the people, a kind of hearing process, around the Bitcoin ETF; I italicized the SEC questions below:

  1. The proposed fund, if approved, would be the first exchange-traded product available on U.S. markets to hold a digital asset such as bitcoins, which have neither a physical form (unlike commodities) nor an issuer that is currently registered with any regulatory body (unlike securities, futures, or derivatives), and whose fundamental properties and ownership can, by coordination among a majority of its network processing power, be changed (unlike any of the above). Moreover, as the Exchange acknowledges in its proposal, less than three years ago, the bitcoin exchange then responsible for nearly three-quarters of worldwide bitcoin trading lost a substantial amount of its bitcoin holdings through computer hacking or fraud and failed.57 What are commenters’ views about the current stability, resilience, fairness, and efficiency of the markets on which bitcoina are traded? What are commenters’ views on whether an asset with the novel and unique properties of a bitcoin is an appropriate underlying asset for a product that will be traded on a national securities exchange? What are commenters’ views on the risk of loss via 56 57 See supra note 3. See Notice, supra note 3, at 25 n.19. 12 computer hacking posed by such an asset? What are commenters’ views on whether an ETP based on such an asset would be susceptible to manipulation?
  2. According to the Exchange, the Gemini Exchange Spot Price is representative of the accurate price of a bitcoin because of the positive price-discovery attributes of the Gemini Exchange marketplace. What are commenters’ views on the manner in which the Trust proposes to value its holdings?
  3. According to the Exchange, the Gemini Exchange is a Digital Asset exchange owned and operated by the Custodian and is an affiliate of the Sponsor. What are commenters’ views regarding whether any potential conflict of interest or other issue might arise due to the relationship between entities such as the Sponsor, the Custodian, and the Gemini Exchange?
  4. According to several commenters, there is a need for the Exchange to provide additional information regarding “proof of control” auditing, multisig protocols, and insurance with respect to the bitcoins held in custody on behalf of the Trust, in the interest of adequate security and investor confidence in bitcoin control. What are commenters’ views on these recommendations regarding additional security, control, and insurance measures?
  5. A commenter notes that the Gemini Exchange has relatively low liquidity and trading volume in bitcoins and that there is a significant risk that the nominal ETP share price “will be manipulated, by relatively small trades that manipulate the bitcoin price at that exchange.”58 What are commenters’ views on the concerns expressed by this commenter? What are commenters’ views regarding the susceptibility of the price of the Shares to manipulation, considering that the NAV would be based on the spot price of a single bitcoin exchange? What 58 See Stolfi Letter, supra note 4. 13 are commenters’ views generally with respect to the liquidity and transparency of the bitcoin market, and thus the suitability of bitcoins as an underlying asset for an ETP?
  6. The Exchange asserts that the widespread availability of information regarding Bitcoin, the Trust, and the Shares, combined with the ability of Authorized Participants to create and redeem Baskets each Business Day, thereby utilizing the arbitrage mechanism, will be sufficient for market participants to value and trade the Shares in a manner that will not lead to significant deviations between intraday Best Bid/Best Ask and the Intraday Indicative Value or between the Best Bid/Best Ask and the NAV. In addition, the Exchange asserts that the numerous options for buying and selling bitcoins will both provide Authorized Participants with many options for hedging their positions and provide market participants generally with potential arbitrage opportunities, further strengthening the arbitrage mechanism as it relates to the Shares. What are commenters’ views regarding these statements? Do commenters’ agree or disagree with the assertion that Authorized Participants and other market makers will be able to make efficient and liquid markets in the Shares at prices generally in line with the NAV? What are commenters’ views on whether the relationship between the Gemini Exchange and the Trust’s Sponsor and Custodian might affect the arbitrage mechanism?Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or · Send an e-mail torule-comments@sec.gov. Please include File Number SR-BatsBZX- 2016-30 on the subject line. 14 Paper comments: · Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

Who actually sent commentary to the very important and well posed issues raised by the SEC? The SEC publicizes this data with names and responses (click here). The list shows very few business affiliations and is really short given the issue at stake. It does include the Bitcoin critic, Jorge Stolfi, Full Professor/Professor Titular, Instituto de Computação/Institute of Computing, UNICAMP, university professor; the Bitcoin proponent –fund manager Chris Burniske, Blockchain Products Lead, ARK Investment Management LLC; Kyle Murray, Assistant General Counsel, Bats Global Markets (the exchange to be listed); and a few more.

Crowdsourcing information, filtering the relevant data, ranking and weighing it by “reputation”, is what should be done by the SEC.

Such Capital markets processes cannot be left anymore to forums that include ranking algorithms of their communities members, to select the “best conversations” (for example, thread on Reddit). Fintech innovation is still very scattered. Sentiment analysis fintechs (e.g. Sentifi), crowdsourced scientific research (e.g. Stanford Daemo), and applying machine learning; are floating out there and need to be incorporated in the decision making processes in capital markets.

This is the kind of micro-services that the SEC can implement in their digitization process. ArkInvest is already using an innovative process in their own research Open Research Ecosystem. The Innovation Ecosystem brings cross-industry innovation leaders together to design and invent their innovation journeys.

Screen Shot 2017-03-13 at 10.38.58.png

Source: ArkInvest

The SEC needs to replace its old-fashioned invitation for comments process, to one that uses technology to make the research process meaningful (not simply procedural, a tick in the to-do-list), efficient, and value added.


Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge Network. Efi Pylarinou is a Digital Wealth Management thought leader.