Over the past few weeks, I’ve been riveted by the ongoing FTX dumpster fire and Sam Bankman-Fried’s very visible mea culpa tour. With an appearance on Good Morning America and a lengthy interview by the NY Times, SBF is certainly not hiding. And the story goes beyond FTX / Alameda, as a number of other crypto focused finance firms (e.g. BlockFi and Genesis) seem to be following FTX into the abyss.
While the crypto industry is busy digging out from the rubble of FTX and trying to survive the current crypto winter, it’s worth asking: but what about the underlying blockchain technology? It wasn’t too long ago that blockchain was going to revolutionize the world – DeFi, tokenization, and of course crypto. Clearly, the original promise of blockchain hasn’t exactly played out as envisioned. That said, I still believe in the potential for blockchain to bring transparency, efficiency and security to high impact areas across the financial world.
When I founded TangoTrade in 2018, our initial vision was to leverage smart contracts on the blockchain to facilitate secure international trade, and displace letters of credit as the de facto standard to mitigate risk for cross-border trade. At that time, blockchain fever was running high. It seemed that every other week there was some sort of blockchain-related conference in San Francisco, and blockchain startups were minting money through token sales.
After diving deep into the technology and the various blockchain infrastructure providers (R3 Corda, Hyperledger, ConsenSys, etc.), we found that the available blockchain technology was not quite ready for prime time (at least for our use case). We ultimately decided to build our product on a centralized database, rather than a distributed ledger. But we closely monitored the technology’s progress, particularly the developments of other blockchain startups focused on trade finance, so we could potentially incorporate the technology in future product iterations.
Looking now at the landscape of blockchain trade finance startups that emerged during that period, it’s mostly a wasteland. Eximchain, a blockchain based supply chain financing startup which raised $20 million in 2018 in a successful token sale, is dead. We.Trade, a blockchain-based trade platform founded in 2017 by a consortium of 9 European banks (including Santander, HSBC, and Societe Generale), has also shut down. Another bank sponsored blockchain initiative, the Marco Polo Network, is reportedly on life support. I could go on, but it’s not a pretty picture.
However, a next wave of innovation is in flight. And surprisingly, the new blockchain innovators are actually the old guard. For example, David Solomon, CEO of blue-chip investment bank Goldman Sachs, just recently penned an op-ed in the Wall Street Journal stressing that blockchain is much more than crypto. He describes how Goldman has used blockchain to facilitate a new trading platform, and recently helped issue a €100 million two-year digital bond for the European Investment Bank with two other banks. He also makes the argument that regulated financial institutions are better positioned to manage the balance between regulation and innovation. In light of FTX’s lack of regulatory oversight, Solomon makes a compelling case.
In addition to Goldman Sachs, Blackrock, the world’s largest asset manager, is also bullish on the potential impact of blockchain on the world of securities. At the recent NY Times DealBook Summit, Larry Fink, Blackrock’s CEO, said “I believe the next generation for markets and next generation for securities will be tokenization of securities through the blockchain”. Tokenisation of securities is when a real-world asset is converted into a digital asset and deployed onto a blockchain-based platform. This process allows for fractional ownership of real-world assets, such as stocks, bonds, real estate and other assets, to be traded and exchanged as digital tokens. Side note: Blackrock invested (and now has most likely lost) $24 million in FTX, so their continued blockchain support is noteworthy.
So, all hope is not lost in the potential of blockchain technology. We have yet to find the killer app for blockchain (beyond, at least, cryptocurrencies), but there has been significant progress over the past few years with real world use cases. Goldman and Blackrock (and startups like Paystand) have started to figure out how to best leverage this still-promising technology to bring enhanced transparency and efficiencies to finance in new and innovative ways. The global impact of blockchain technology is certainly taking longer to emerge, but real progress continues nevertheless.