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.

Brian Armstrong, founder and CEO of Coinbase, a 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 years 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 and 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 so.

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 lose 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.

 

T-Zero sings “Love me do” to the SEC with its Blockchain Series A Preferred Shares

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Wonders are still happening in America!

Who would imagine that an online retailer who started out as an e-commerce business liquidating merchandise of failed companies, would be the first publicly traded company offering Blockchain Shares.

Let me introduce to you Overstock, a Nasdaq listed online retailer (OSTK) based in Utah and founded by Patrick Byrne.

Tee-zero (t0.com) is a majority owned subsidiary of Overstock that is focused on using blockchain technology in capital markets. Last summer, we covered the issuance of a private crypto-currency denominated bond that settled on the T0 platform. It was a symbolic move, demonstrating that it is possible to issue, trade & settle (synonymous in the future T0 world), and have very fine divisibility of a bond and fast transferability. The trading activity of this bond was not the point of the implementation.

This December an even more important symbolic implementation happened. After the SEC approved in early Fall the issuance of a blockchain public stock offering; Overtstock will go down in history as the first publicly traded company that offered blockchain shares trading on an Alternative trading system (ATS).

The historic offering: Overstock Preferred Shares

Voting Series B Preferred Shares

  • 560,333 @ $15.68 (roughly $9mil)
  • Trading on NasdaQ OTCQB

Blockchain Voting Series A Preferred Shares

  • 126,565 @ $15.68 (roughly $2mil)
  • Trading on ATS under the symbol OSTKP

The above offering (total roughly $11mil) was handled by Keystone Capital, a conventional broker-dealer that worked diligently and closely with the regulators to obtain the required approvals.

Existing shareholders had the right to participate in the offering as follows: One subscription right for each 10 shares of common stock owned. Each share of the preferred stock has a preferential right to a 1 percent cumulative annual cash dividend.

The symbolic significance of the Blockchain Series A transaction is all about the

Transparency of the transaction and the fact that it boils down to the verification of two blockchain addresses.

What’s next?

I wasn’t an Overtsock shareholder on the required date and therefore didn’t participate in the offering. The broker-dealer, Keystone Capital handled the onboarding of the buyers (existing shareholders that exercised their right to buy the Series A preferred stock) of the digital securities. They created digital wallets and accounts for them and are now continuing to onboard outside buyers who will be matched on the T0 platform to sellers (those that participated in the first placement). Any individual that qualifies under the Title III Jobs Act, can participate.

Nasdaq is watching and probably nodding its head, since a large-scale adaption of such a process is not imminent. However, it is threatening to its core business.

Stock exchanges are one of the main three categories of players involved in capital markets; Brokers and Central Securities Depositaries handling settlements, are the other two main categories. The million-dollar question here, is who of them will embrace the T-zero or some such blockchain based platform and make the other two obsolete?

T-Zero is actually a viable product that targets the capital markets B2B vertical and is out there for the first mover to embrace it. Ironically T-zero is a private blockchain. In addition, this first symbolic implementation was accomplished with the participation and collaboration of market players and intermediaries that will be directly affected should this technology prove to change the capital markets infrastructure. Broker-dealers for example, which were instrumental in obtaining approval from the SEC and effectively laying the seeds for the growth of such an ecosystem of digital assets; will be cannibalized.

At the same time,

T-zero with Keystone Capital, are bringing up to speed the SEC and holding their hand towards Full Regulatory Transparency in public markets.

For me, this symbolic transaction is the first public performance of “Love me do” from T-zero to the SEC. Right at the time that the SEC has committed to a plan to spend $1.5billion to create a consolidated audit trial (CAT), T-zero is echoing loud and clear to them “Love me do”

T-zero can offer a freemium service to the SEC, if they adopt the T-zero platform which will naturally include a Consolidated Audit Trial.

If T-zero manages to seed an ecosystem of publicly traded digital assets (even if it starts small); then I foresee Lykke, the frictionless global marketplace for digital assets, accelerating its growth. Lykke, an open source platform, has started with frictionless, transparent, immediate settlement of FX, ICOs and cryptocurrencies, but is ready to broaden its assets base (anything digital can be on boarded).

The transformation in capital markets is here. Timing is uncertain but the trend is clear.

Sources: T zero news; Nasdaq news

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.

Fintech solutions to problems of #GAFA people

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Happy New year to all. We are all #GAFA (Google Amazon Facebook Apple) people with different passports and IDs.

Our predictions “2017 Tech, Strategic, and Investment trends in WealthTech” are already out there for testing. In this first post of the year, I want to focus on a complicated topic that concerns all #GAFA people (and please stand out, if you are from another planet).

Personal data monetization is the GAFA business backbone and I foresee that in 2017 we will be hearing more about the ethics of monetizing our data in Fintech too.

I also have a wish list that includes seeing more Fintechs focused on “gating” our data, empowering us with a choice, and sharing subsequently revenues with us.

Three picks for a 2017 watch list

I picked three companies that are worth watching because they recongize our problems as #GAFA people and intend to help us.

A Telco

In September 2016, Spain’s Telefonica announced that in 2017 they will roll out a platform to enable their users to manage the use of their personal data from Google and Facebook and WhatsApp. Users will be able to block or require compensation through the OTT platform.

The Spanish carrier Telefonica is involved in many ways in the 4th industrial revolution. Telefonica owns a startup incubator based in the UK, Wayra, focused on digital business ventures since 2012 and offering the potential to access the 300million Telefónica customers globally.

Telefonica Germany (a subsidiary of the Spanish Telco) is launching O2 Bank, a digital bank, in partnership with Fidor Bank. This will allow German clients in a few minutes to open an O2 bank account (Fidor has the banking license which is valid all over Europe). The identity check will be done via a video on the customer’s smartphone. To transfer money, customers have to enter the mobile phone number of the recipient in the address book and select it for a transaction. The O2 Banking MasterCard can be activated or deactivated directly at any time via the app, and the card details can be presented for online shopping, without having the physical card in hand. A financial planning tool provides an overview of their spending and on request they can be notified in real-time of transactions and events by app push messages sent to their smartphone. Smaller consumer loans will be available directly via the app. O2 banking phone contract holders will “also benefit from a variety of perks and add-ons” when using O2 Banking, such as increased 3G or 4G data allowances (Source).  

In 2017 we all need to watch how the OTT platform that empowers users with the monetization of their personal data, will be combined with the O2 Banking services.

A true digital bank

September 2016 was also when SeccoAura started accepting registrations on their alternative way of monetizing personal data. SeccoAura launched in the fashion industry, allowing customers, to earn Tokens if other users “Like” what they are wearing. If “Likes” on SeccoAura lead to a “Buy”, then the SeccoAura customer who wore the “Liked” item, will earn a referral bonus. The concept could be applied to any retail purchase and wealth can be created through these tokens.

We covered the concepts behind this breakthrough business model in Secco Bank and the Future World of MyDigitalAssets.

A chatbot Fintech

Novastone Media is a UK-based tech firm in the space of information security (similar in a way to the space that Symphony, the Wall Street darling, operates in). Novastone Media’s financial services offerings are targeting private banks, financials advisors, robo-advisors, retail banking and corporate banking.

Solutions include secure messaging platforms that empower conversations, increase engagement, offer security and compliance accountability. Novastone Media prospect clients can choose to use their messaging, chatbot, WhatsApp-like solutions, in a more conventional way. That would result in simply offering finserv end-customers protection from #GAFA using personal data.

In 2017, we will be watching whether any Novastone Media finserv client will choose to monetize their customer data securely collected through these solutions and share revenue with the end users.

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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.