[ M A R K E T
R E V I E W
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B L O C K C H A I N ]
T
he global techlash was a term first
coined by The Economist to describe
mounting consumer apathy towards
all things digital. Having been initially
captivated by the novelty of intelligent home
devices like Amazon’s Alexa, more people
are now turning their backs on the Internet
of Things (IOT), a tech subset epitomised by
products such as Wi-Fi enabled kettles and
smart fridges as concerns grow about their
security, cost and actual usefulness.
A similar trend is visible in financial services
whereby market incumbents are asking more
astute questions about blockchain’s appli-
cability and substance. A study by Deloitte,
for example, found 44% of US corporates
believed blockchain to be overhyped, a signif-
icant rise from the 34% recorded in a similar
survey conducted in 2016. But is this growing
cynicism about blockchain a rejection of the
technology itself or a sign that it is reaching
maturity?
Five years ago, the blockchain start-up
scene was full of buoyancy and dynamism as
the industry gushed over distributed ledgers
the weight of negative cash flows – closed down in 2017 and
2018, a trend which many experts are confident will accelerate
well into 2019. Some experts also retorted that many blockchain
impresarios were too busy out fundraising which distracted
them from running the day-to-day operations at their nascent
companies.
Even a handful of the larger, better known blockchain dis-
ruptors are beginning to implement steep job cuts and forced
redundancies as the market environment becomes increasingly
challenging and volatile, a situation not helped by the wildly
swinging price of digital assets.
“Securities markets are a very complex ecosystem, highly
regulated and intermediated making it difficult for some block-
chain companies to properly disrupt the industry,” says Philippe
Ruault, head of digital transformation at BNP Paribas Securities
Services. “Many of these FinTechs simply lacked the financial
resources to sustain their businesses over the long-term, while
not all of the applications and use cases they trialled were suc-
cessful.”
Start-ups have not been the only victims of the blockchain ma-
nia gripping markets over the last five years. Alarmed blockchain
companies would eat into their already shrinking revenues,
banks and infrastructures launched proof of concepts (POCs)
to validate the technology’s use cases. The results have been
dispiriting with Deloitte estimating that of the 26,000 block-
“Many of these FinTechs simply lacked the financial resources to sustain their businesses
over the long-term, while not all of the applications and use cases they trialled were
successful.”
PHILIPPE RUAULT, HEAD OF DIGITAL TRANSFORMATION, BNP PARIBAS SECURITIES SERVICES
potentially streamlining antiquated opera-
tional processes across the financial services
spectrum. In securities markets, blockchain
enthusiasts spoke persuasively about trans-
forming clearing and settlement models,
collateral management, corporate actions,
KYC, and AML checks, among other areas.
Despite the vitality and ambition of these
FinTech start-ups, 2018 was a brutal reality
check for many of them. While a lot of
entrepreneurs successfully crafted their own
proprietary blockchain prototypes, very few
were able to properly monetise the ventures,
either because they were attempting to solve
an imagined or irrelevant business issue or
simply owing to the fact they simply lacked a
passable or sustainable strategy.
Survival of the fittest
Predictability, a number of these blockchain
start-ups – having exhausted all of their seed
or early-stage capital and struggling under
36
Global Custodian
Spring 2019
chain projects which began in 2016, 92% failed. Such desultory
statistics make it harder for technologists at banks to elicit POC
funding from treasury departments, who are rightly hesitant
about allocating resources to projects that are not viable.
It’s not all bad news
Despite the high POC fail rate, the industry should not give up
on innovation altogether or write off blockchain. Firstly, it is
unfair to characterise blockchain in a negative light, because
people were guilty of originally overstating the technology’s
capabilities. Instead, market participants need to gain some
perspective. For instance, when the Internet celebrated its tenth
decade, pioneers such as Google or Facebook did not even exist.
“It is still early days for blockchain as the technology has only
been around for 10 years. The technology is certainly evolving
and it may even one day take a form which is completely differ-
ent to what it is like today. History has shown us that technology
can evolve very quickly and dramatically,” says Rob Palatnick,
chief technology architect at the Depository Trust & Clearing
Corporation (DTCC).
It is also undeserved to dismiss start-ups. While many have
indeed closed, the successful ones have forged close and