“Financial markets demand innovation" - Week 37 recap, Blockchain + Banking
- quote from John Wu, President of Ava Labs, regarding KKR's tokenized offering of the KKR Healthcare Fund
Our big themes at Fin3: (1) Financial Services are going to run on blockchain in 10 years, and (2) in the U.S., blockchain technology and crypto will eventually be regulated. This week didn't disappoint - KKR announced that they are tokenizing fund interests in one of their funds and Swift (an inter-bank organization) rolled out a pilot program for corporate actions using blockchain. These deal with the "Stone Age" of finance - physical signatures, reading through pdf's and trying to figure out which sections you are supposed to fill out (let alone walking an older generation of investors through how to do it), making sure someone in a back office somewhere has your information, etc. They are begging for a better solution and distributed ledger tech is a platform for making it happen.
Corporate Actions news: (https://www.finextra.com/newsarticle/40959/swift-runs-blockchain-pilot-for-corporate-actions-data)
Separately, a number of federal agencies on Friday released updates to the White House executive order in March on encouraging the responsible development of digital assets. The details are a little brain-numbing, but the most important ones are: 1) increased regulatory scrutiny - in our opinion, this is great - like every game-changing technology, programmable DLT has regrettably attracted scammers and fraudsters. Getting rid of these elements is the way to let the technology shine through. 2) adoption of a CBDC. The question is when, not if. This (https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Technical-Evaluation-US-CBDC-System.pdf) is a long but worthwhile evaluation for anyone interested. There are a number of features TBD that are going to have a major impact on CBDC architecture, including permissioning, centralization, transparency, intermediaries, etc., and this report does a great job of discussing each. My between the lines is that the choices now are: - wholesale (banking system continues to provide retail access)
- permissioned and centralized
- BSA (AML/KYC) compliant
- opaque at certain levels (some elements of transactions are transparent, others will not be).
Happy to discuss in more detail with anyone who wants to geek out on this!