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The Weekend Read: May 15

1. "The DAO" Jonesing

[High five self for NY Post style headline pun]. The DAO public crowdsale that isn's an equity raise continues to gobble up investors and Ether (already over 13% of the float!). CoinDesk did a great job this week of summarizing both the goals of The DAO and the inscrutable semi-organizational structure behind it. I also asked The Swanny to give me two paragraphs on the topic, which in his world means a whole blog post, which you can read in full here.

Overall this is a fascinating experiment, as a few have put it, but one that is being done WITH MONEY, particularly OPM. Is this a result of folks not knowing or more likely not caring about the time value of money, since real rates are so low? What would be an investor's time horizon to realize returns, as the VC rule of thumb is ~7 year time frame? When you consider that Angellist put roughly $70m to work in public syndicates in 2015, The DAO would need quite a few years to put its money to work, and that would only start the clock on the investment...

Isn't this like "Ether squared" from a risk perspective? Since you need to believe that Ether will be stable to higher AND that DAO tokens will be stable to higher AND that using a global censorship resistant computer to allocate investment capital will outpace the returns of other investments (opportunity costs). It most definitely could work and give great returns to those who have invested, but with a VERY unclear risk profile. There will be lots of good and bad (and definitely worthwhile) lessons that come out of this experiment, I am just happy that I don't have to fund it.

2. A Warm Regulatory Embrace

CFTC Commissioner Giancarlo preceded our panel at Markit’s annual customer conference to give another pro-innovation speech Blockchain: A Regulatory Use Case

This speech reiterated the commissioner's belief that "we need DLT to succeed” and highlights five steps for a “do no harm” approach. It also has a nice shout out to Corda. The speech also discussed “Regulatory Sandboxes” such as the UK FCA. Speaking of the FCA, they announced a "Fintech Bridge" with the Monetary Authority of Singapore (MAS) earlier this week.

3. Even More Links

Vitalik Buterin's recent post on settlement finality is a volley in a gentleman's debate with our Tim Swanson. The Swanny's article argued that public blockchains by design cannot definitively guarantee settlement finality. Vitalik breaks the argument down into three sections: 1. issues from probablistic finality (such as forks) 2. the interestingly named "law maximalist" position and 3. the economic argument (if value traded >> price of tokens, then attack). Dense stuff but very readable, as is usually the case with Vitlalik's writing.

CoinDesk's always interesting State of Blockchain: Q1

The SWIFT Institute (not to be confused with SWIFT itself) released a whitepaper entitled The Impact and Potential of Blockchain on the Securities Transaction Lifecycle. The authors interviewed 75 organizations in post-trade and tech, taking a similar cautious tone and “cold water” approach to other recent papers via market intermediaries.

Nice quick interview with Massimo Morini on his recent paper and the challenges/opportunities facing banks.

IB times profile of David Rutter.

Gideon Greenspan discusses four blockchain use cases: lightweight financial systems, provenance tracking, inter-organizational recordkeeping, multiparty aggregation.

And finally, Fran Strajnar has an interesting post on protocols and standards, a topic that we discuss quite a bit at R3 HQ:

We believe it is too early to tell exactly how things will pan out, but can reflect back to the Internet days and take away the following insights:
Standards/Protocols are inevitable and required.
Networks ALWAYS end up demanding inter-operability.
It took 15 years to shake out the ideas and protocols that solidify the Internet we use today. It will take at least 5-7 years for Distributed Ledger Technology to be implemented commercially on a global scale by enterprise – i.e., using some form of blockchain to replace the SWIFT network, or back-end infrastructure for inter-bank or even inter-branch settlements.
We expect to see proposals rise and fall and flip-flop as solutions and standards evolve, so don’t count on anything proposed today becoming the de facto operating standard. Whatever happens, we know one thing for sure: Millions will be spent, burned, made, and the world will only remember the victors.