Blockchain for Wall St, an Event Summary
On Tuesday, November 14th financial industry heavyweights, technologists, academics, and entrepreneurs gathered in Lower Manhattan searching for a nugget of truth or a hot tip for the future at the second annual Blockchain for Wall Street Conference.
The jam-packed event hosted by the Wall Street Blockchain Alliance predictably featured industry insiders describing the emergence of blockchain technology as a disruptive force that has arrived and taken root in the financial industry.
The morning’s keynote presentation by Mark Smith, Co-Founder, and CEO of Symboint (the enterprise Blockchain solutions company) was meant to feature an announcement of a major financial market customer, evidencing of the progress of blockchain technology from the world of PoC and pilot projects to full-fledged deployment.
Unfortunately, the announcement was postponed due to “legal and PR landscape” roadblocks and the audience was left with the familiar refrain of, "news is coming".
Mr. Smith provided a macro perspective on disruptive technologies in financial trading detailing the ways in which the SEC carefully navigated and regulated new technologies such as electronic trading in the late nineties with the Limit Order Display Rule. Using a safe harbor approach to bring emergent technologies under the tent the SEC successfully redefined accepted practices to create an environment for innovation. The electrification of Wall Street began a trajectory of improving visibility and buy-side driven practices that blockchain will likely serve to expand. Similarly, blockchain as order matching tech must be migrated through study, guidance and safe harbor policies of regulators to bolster innovation and become ratified by the market.
The first panel of the day brought together R&D specialist discussing ways in which banks are using Distributed Ledger Technologies (DLT) internally with their own pilot projects. Emmanuel Aidoo Director of Blockchain and Cryptocurrencies Strategy of Credit Suisse highlighted the application of DLT in order to expand the potential customer base of their syndicated loans business by shortening settlement times allowing 40 Act Funds to gain exposure to these products.
Moiz Kohari SVP and Chief Technology Architect at State Street claimed that the days of PoC at State Street were over and while they were not rushing to fully migrate to blockchain based systems, they have determined what the DLT “datalake” structure of the future should look like and will begin deploying the stack in parallel with their existing systems.
Julia Faura head of R&D at Banco Santander was a bit more measured expressing the need for industry-wide standards and interoperability. Beth Sendra of Digital Asset agreed stating that if development continued in silos the results will be largely similar to the current infrastructural design.
A common theme across the panels was the need for cooperation between traditional adversaries as well as across sectors and disciplines. Tom Jessop of Chain remarked that the road to success will be littered with failures, so collaboration is essential to align business incentives broadly. Peter Boroykh of BlockchainDriven criticized existing development roadmaps of being “not really decentralized” and lacking the leadership to fundamentally achieve the interoperability that is touted as the desired outcome.
Boroykh chided banks further for not providing infrastructure or creating opportunities for its employees to partner with technologists developing outside of their walls, This, he believes is the cause of the exodus of talent from their organizations.
Chris Ferris the CTO of IBM distributed technologies argued that permissioned blockchains allow for test cases and problem-solving in an environment that can be more easily controlled. Actors within the Hyperledger fabric operate under a legal structure where all parties are known. When you leave the private- permissioned space experimentation becomes much more difficult,
although Ferris conceded that the public blockchain is likely to eventually win out.
Cybersecurity expert and founder of Trail of Bits, Dan Guido, explained the extremely fragile nature of running smart contracts on the public chain. Guido first asserted that there is nothing surprising with the major flaws that they routinely find when performing security audits of any software. But basic errors are extremely common and considering the nascent development stage of smart contracts, in general, keeping smart contracts simple is essential. He offered important advice to anyone developing smart contacts urging them to engage with security experts early in the process and urged them to avoid waiting until the end for a security audit as foundational flaws are often discovered. The excitement around transformative technologies often causes developers to overlook very basic errors and the tools people are using are very basic. Relying on libraries that have been produced for small unprofessional problems is a major problem in the space.
“We are trying to build skyscrapers out of stone tools.”
Attorney Preston Byrne pointed to the need for bringing a diverse group of experts together in the beginning, (in addition to security experts) when forming the basic architecture of a product. Current tools are really only useful for automating specific event based bets, but nuance and complexity are difficult to model.
Brent Tromer of the CFTC offered the sole perspective of a regulator. He described the proactive efforts of the CFTC Lab to create a sandbox space where coordination and dialogue with regulators startups can occur. This will speed the pace for both regulations to conduct research, as well as allow startups to understand the legacy regulatory frameworks as well as contribute to the design of new ones.
An afternoon panel moderated by author and crypto-analysist Chris Burniske consisted of three managers of crypto-based hedge funds and an academic studying the space. Riding the gargantuan price increases of Bitcoin and Ethereum over the last twelve months, it was no wonder that these managers were extremely confident and bullish. Over the last year, the crypto-hedge fund space has come to life with at least 75 funds in existence and many more forming at an accelerating pace. According to Matthew Goetz of Blocktower Capital, explained that most major family offices have made some investments into the cryptocurrency space, but larger institutional investors like endowments and pension funds have been taking their time as they work through issues regarding custody. The CME’s decision to allow Bitcoin futures trading will immediately impact the space. Brian Kelley of FastMoney fame on CNBC and founder of Brian Kelly Capital Management, also highlighted the need for traditional portfolio management tools within the cryptocurrency space. As the space matures and liquidity increases institutional money will flow in at higher and higher speeds.
The conference attendees were keen to hear how these Crypto-Hegdefunders approached investments opportunities and asked for their perspectives on investing in ICOs and pitching projects. There was not much divisiveness of perspective on the panel. They agreed that
as the space has matured the ability of small investors to flip ICOs and act on news events has become limmited. ICOs have moved to models that represent more traditional venture capital strategies with rounds of investments and pre-sales that prevent early token holders from being rewarded.
The wild west is being colonized. The days when a token holder can expect a pop simply because it's been added to a new exchange are over. VC’s with large allocations of tokens are routinely not locked up are able to dump on the markets immediately taking advantage of the huge discounts they received with early capital infusions. In short, the market is starting to mimic the way big banks have been flipping pre-IPO funding rounds for years. University of Oregon Finance Professor Stephen McKeon believes that pre-sales have created false signaling to consumer level investors because the terms of seed round investments are not transparent and the inclusion of big-name investors does not indicate their long-term commitment to the project.
The final panel of the day brought together accounting and tax experts who have been working hard to debunk the myth of blockchain creating the means to avoid taxes and focused on the inherent properties of the blockchain (namely immutability) that can be a new tool to tax and accounting professionals. The blockchain is not going to usher in a world ruled by robots that eliminate the need for professionals in accounting and banking. But blockchain technologies will change the toolsets that are available to professionals, making business processes and workflows more transparent and traceable. So if you are imagining this as a way to escape your obligations to the nation-state or institutional bank, you’ve got to keep pushing, because the current tools are empowering the establishment too.
Sam also publishes on Medium