The regulatory clampdown of Bitcoin by various different jurisdictions and most importantly, an array of useless blockchain based tokens have shaken the foundation of blockchain technology.
However, as the space has started to mature, many of the futile projects along with bad actors that came with them, have left the stage. Blockchain conferences host more serious crowd and keep the focus on the enterprises and blockchain technology.
Recently, McKinsey came out with another report on blockchain and talked about the limitation of blockchain for retail banking. The fact is that there are three major factors on which banks rely the most to remain profitable, and I find it immensely arduous how blockchain technology cannot bring a major revolution in this space.
Firstly, banks make money from the interest spread between the lender and the borrower. The spread which represents the profit for the banks has a major cost factor: the operational cost. This cost structure can be addressed easily by using the blockchain technology. The second part is the KYC and AML factor. In order to keep everything kosher, banks need to make sure that they know the sources of funds and perform the appropriate AML procedure. Again, blockchain can make this process more painless. Finally, the default factor underlines the profit for them. Without naming names, blockchain application has enabled the tokenization of this part of the equation which itself reduces that part.
The McKinsey report does point out the above benefits for retail banks along with the remittance advantage by using this technology. So, saying that blockchain has limited scope for retail banking isn’t the most accurate statement. This is because the cost saving and reduction in loan default will improve their future profitability significantly.
Johanna Moran, who has a Ph.D. from MIT and works at ConsenSys, was at the Blockchain Cruise conference, organized by CoinsBank and presented the adoption of blockchain technology by enterprises, added “McKinsey is shooting itself in the foot. If the firm fails to play an active role in this paradigm of technology, they will be left behind”. McKinsey is taking the safest route possible and it is failing to recommend clients to be bullish on the blockchain technology. Deloitte is leading this space and they are going beyond the curve to provide solutions for not only for their clients, but also have a platform to advise new clients. This shows their bullish stance.
I personally believe that the evolution of digital assets, which are created by using blockchain, is another sign of industry maturing and this will continue to provide a tailwind for bitcoin because that is the religion of the industry.
Venture capitals in this space also have an important role to play, after all, they are the ones who have the biggest responsibility. At the conference, the panel on the digital assets and investments had several VCs discussing the future of digital assets-Security Token Offering, STO. Andrea Bonaceto of Eterna Capital, a regulated fund, said: “The space is not mature yet and not enough liquidity for these so-called security tokens or the legal framework”. He continued “we are in no rush to dive into this plus our LPs are not interested in smaller yield”.
Here is my concern with these so-called VCs, they believe in getting the slice of the pie earlier than everyone else. But then the 5-7 percent yield is not attractive enough for them which is currently being offered by several digital assets in real estate space. But, most VCs support speculative projects with far bigger potential returns. If they continue to support those projects which actually have no use case, the industry will continue to suffer.
I believe tokenization of assets such as real estate is a solid case. I agree with Andrea on the challenges of the regulatory framework to some extent. But, there are projects which are fully compliant today and have issued STOs and I find it difficult to digest that if the timing is everything, then why the VCs are not investing in real projects? This should be the time they should be going bullish on STOs.
As for the liquidity part, their tokens are locked anyway, so what is the fuss about the liquidity? The STO tokens which are currently issued in the industry and are industry compliant will provide liquidity in the market after the lockout period is over.