[ U P D AT E ]
Market
infrastructures
exploring
blockchain set
to disrupt the
disrupters
for digital assets. More recently, Deutsche
Boerse announced plans to build out and
grow its own regulatory compliant financial
market infrastructure (FMI) for digital assets.
One expert – who did not want to be identi-
fied – acknowledged that while many block-
chain start-ups had excellent ideas and novel
business solutions, the decision by some of
the more forward-thinking market infrastruc-
tures to create their own digital exchanges
and platforms effectively rendered a number
of these smaller DLT companies obsolete.
“Small blockchain companies simply cannot
espite initially promising to radically
transform antiquated securities markets, compete with these market infrastructures,”
said the expert.
blockchain start-ups are now facing serious
This is for no other reason barring major
assaults on several battlefronts.
infrastructures and banking providers have
In a brutal sense of irony that will not be
deeper pockets whereas many FinTechs are
lost on market infrastructures and custodi-
constantly struggling to source funding,
ans, many blockchain start-ups are increas-
be it from venture capital or family and
ingly being disrupted by the very institutions
friends’ investors. This means larger financial
that they themselves had sought to disin-
institutions can devote far greater resources
termediate. In other words, the disruptor has
to blockchain R&D over the long-term, in
become disrupted by the disruptee.
contrast to start-ups who are typically under
The post-trade industry – having been crit-
more time pressure from their investors to
icised at first for being slow to embrace DLT
deliver instant results.
– is now firing at all cylinders. Last year, SIX
Other institutions simply prefer the safety
launched SIX Digital Exchange, a DLT-enabled
infrastructure which provides fully integrated net provided by established market infra-
structures and other post-trade providers
end to end trading, settlement and custody
BLOCKCHAIN START-UPS ARE
NOW FACING SERIOUS AS-
SAULTS FROM ESTABLISHED
MARKET INFRASTRUCTURES
AND CUSTODIANS THAT ARE
DEVELOPING THEIR OWN
SOLUTIONS.
D
12
Global Custodian
Spring 2019
versus FinTechs, which are unlikely to be
regulated. As blockchain is also fairly un-
tested and many of the start-ups peddling
the technology are considered to be either a
counterparty risk or reputational risk, a lot
of institutional clients see limited upside in
entering into commercial arrangements with
them.
The expert also added a handful of block-
chain companies – who raised seed capital
through issuing initial coin offerings (ICOs) in
various crypto-currencies at the height of the
crypto-boom in December 2017 – are facing
existential problems too following the spec-
tacular decline in the value of many of these
instruments last year. “Those companies
who raised capital in crypto-currencies such
as Bitcoin or Ethereum – but did not hedge
or convert the assets into US dollars – have
seen their balance sheets shrink enormously,”
he explained.
“At a bank, all risk, especially currency ex-
posures are fully hedged. Upon issuing ICOs,
many blockchain start-ups did not manage
their risk adequately, as they blindly believed
that crypto-currencies were king and would
only move in one direction. As a result, many
of these DLT companies have put their
expansion plans on hold and cut back on their
staff,” he continued. As 2019 progresses, it
could turn out to be a testing year for DLT
start-ups.