Insights from the WEF
Blockchain and Digital Assets – two important topics, heavily discussed in numerous panels and satellite events at last week’s World Economic Forum (WEF) in Davos. Sygnum was there and shares the key insights.
In light of the steep fall in prices for digital currencies towards the end of last year, discussions were characterized by caution and realism. Nonetheless, for the many supporters of digital currencies, there are still three important arguments legitimizing their interest:
Firstly, the basic technology backing digital assets, Blockchain technology, is working very well and is finding numerous ways of application. We are seeing many successful projects pop-up, gaining attention not only from incumbent financial institutions but also established governments around the globe.
Secondly, Stablecoins (digital currencies linked to a FIAT currency such as the US Dollar) are becoming more attractive for investors due to their connection to a trustworthy and established underlying asset with a fixed and relatively stable monetary value.
Thirdly, the topic of tokenized assets is receiving a growing interest. The tokenization of assets creates a solid base for new business models. Different asset classes can be managed and traded on a single platform, enhancing the consolidation of individual assets and facilitating risk management across systems.
Our Key Take-aways
Trust and purpose
The major problems in the digital economy / big tech and banking are trust and purpose. Trust mainly because of data breaches and purpose due to unclear communication of how value is derived from data. With the Blockchain, the question of trust becomes redundant.
Blockchain technology vs. tokenized assets vs. digital currencies
In general, a distinction is made between Blockchain technology, tokenized assets and digital currencies. Their differences are becoming clearer and better understood, transforming how the ecosystem is perceived. Dan Schulman, CEO of PayPal, for example expressed skepticism towards digital currencies but optimism towards the Blockchain.
Promotion of new technologies without over-regulation
At the WEF, several prominent participants crowded the satellite event organized by Digital in cooperation with Credit Suisse. Among them, Switzerland’s Federal Councilor Ueli Maurer who advocated that Blockchain technology and digital assets should not be developed via new laws but rather under close watch with established legislative processes. The aim is to promote new technologies without over-regulating them too early.
Four unicorns based in Switzerland
According to a study on Blockchain-related companies presented by CV VC (a venture capital firm specializing in digital assets), PwC and the IT firm Inacta, there were 750 start-ups in Switzerland and Liechtenstein by the end of 2018. This corresponds to an increase of almost 20% compared to the last survey at the end of September 2018. Each with valuations of over one billion Swiss francs, there are four companies headquartered in Switzerland that belong to the so-called “Unicorns”: Ethereum (Blockchain and smart contract protocol), Bitmain (bitcoin mining), Dfinity (cloud computing based on Blockchain technology), and Cardano (next-generation smart contract platform). This makes Switzerland a highly attractive environment for the digital asset ecosystem.
Promotors vs. Critics – a common sight at the WEF
Jeremy Allaire is the CEO of Circle and a Blockchain technology promoter. In his professional role he is a leading infrastructure provider supported by Goldman Sachs. He pointed out that a very successful and heavily demanded new tokenized coin was recently created with the US Dollar in collaboration with Coinbase. The tokenized USD will be processed via the Ethereum network and protocol. According to Allaire, digital asset technologies will secure the digital economy in the long term, due to their inherent properties of traceability and immutability and are even more important when it comes to (re)establishing trust.
At the "sustainable crypto architecture" panel however, Harvard economist Kenneth Rogoff, a well-known critic of digital assets, pointed out that the probability of digital currencies gradually replacing the current monetary system is zero. According to Rogoff, digital currencies have no added value that justifies their high valuations and prices. Instead, he sees a bubble forming for digital assets. Rogoff claims: "There had been repeated attempts to create certain other currencies linked to FIAT currencies for special purposes. However, these had repeatedly run into major difficulties - and a similar development was to be expected for the Stablecoins."
Nasdaq’s CEO Adena Friedman, another Blockchain technology promoter nonetheless claimed, that digital currencies will rise to global significance in the future. While some pointed out that digital currencies are merely an application of Blockchain technology, many of these applications are very useful and will become fully effective in the long run. Digital assets have already been approved by regulators in some parts of the world (including the USA) and even with digital currencies such as Bitcoin, global efforts to enforce KYC and AML standards are steadily improving.