William Mougayar

On Tech, Business, Society.

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Where Are All The Cryptocurrency Custody Solutions?

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On June 30, 2018

In Featured, Think Tank

In the land of cryptocurrency custody, 1000 flowers are blooming.

My partner at JM3 Capital, Jean-Philippe Jabre has written-up a good blog post that includes a comprehensive list of cryptocurrency custody solutions and options.

Here’s the Medium post link: A List of Cryptocurrency Custody Solutions for Consumers and Institutions Please go and read it.

In the past few months, our teams at JM3 Capital and Jabre Capital Partners have surveyed the custody market and spoken to several providers, including meeting with custodians, reviewing their control reports, and following-up with reference calls. As we engage with the selected ones, we also plan to continuously monitor their financial health.

While doing this work, we have learned a number of things about this emerging services segment, and discovered 40 solutions and products that we have shared in an openly available Google Sheet.

Although self-custody is a native feature of the blockchain, it is not so easy (or safe) to do so, especially if you are an institution, or if you hold large sums of cryptocurrency.

It is also as important to know about how your digital assets are stored, as it is to understand about the movements of these assets, from one owner to another, or from straight custody to a trading/exchange/brokerage service, and back into custody or to a fiat account potentially.

The world of cryptocurrency can learn a lot from the traditional finance world who has been implementing custodianship practices for several decades. That’s where due diligence comes into play. After all, digital assets are just another form of value that must be securely preserved. Fund managers have a fiduciary responsibility to safe-keep investments made on behalf of investors.

In addition to JP’s article, here’s how the geographical distribution of these solutions stack-up. Europe is definitely leading this space with 21 entries, while the USA leads as an individual country with 16 solutions. But when looking at Institutional solutions only, Switzerland and the USA are neck to neck with 6 solutions each.

Cryptocurrency Custody Solutions

Cryptocurrency Custody by Country

This segment is still new and evolving, and we expect new entrants will continue to shape its maturity.

Here is the embedded Google Sheet and link to it. Please feel free to add new ones as a comment, and we will update the sheet continuously.

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What I Said and Didn't Say: Setting the Record Straight After Media Distorts Your Messages

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On May 21, 2018

In Featured

Yogi BeraOn the heels of last week’s NYC Blockchain Week and the Token Summit, I was invited to CNBC’s Squawk Box on Friday morning May 18th, to discuss the latest blockchain developments.

The conversation started with the role of the SEC, and I tried to move it towards the utility of tokens as a more dominant theme. I said a number of things, but it seems that my comments set off a chain reaction in other media sources where they were taken out of context. Suddenly, my comments metamorphosed into sensationalized headlines that I simply did not make.

Here’s the full interview which lasts about 5 minutes.

First, let’s recap the points I made where my comments were taken out of context:

“The SEC is still trying to educate themselves, and not just educate the public.”

“They are still grappling with it, and for them, the box they play in, is they see all of these cryptocurrencies as a security.”

“In reality, not everything is a security.”

“There will be some updates to regulation. They have to change the current regulation.”

“The novelty is that these currencies could be a utility….the utility comes before being a security. That’s the novelty the SEC is trying to wrap their heads around.”

“They see everything as a security. That’s the box they play in. In a way, they are trying to fit a square peg into a round hole.”

“I think Bitcoin is one of them (native currencies). It is not going to be the only one. Ethereum is the 2nd most important one.”

“Ethereum today has the largest ecosystem of developers, startups, venture capital, and support around it.”

However, new headlines surfaced that attributed different statements to me (or implied that I said them):

  The above headlines are highlighting comments I did not make or necessarily implied.

Although I understand this comes with the territory I play in, I just wanted to set the record straight.

ps – Another correction is that I’m a former Advisor to the Ethereum Foundation

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State of the Token Market (with PDF)

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On April 20, 2018

In Featured

StateofTokenI’m sharing the following pdf’ed powerpoint presentation, depicting where I see the status of the token market today. I have been delivering a version of this presentation in the past 3-4 months at various keynotes across North America and Europe. This version  is updated and more comprehensive than what I ever presented publicly. It is further augmented by the following analysis points: It is worthy to note that the regulatory landscape is divided roughly into 3 buckets: 1) alternative jurisdictions who are innovating and seeing this activity as a market share opportunity, 2) traditional Western regulators who are trying to apply (or interpret) existing regulation to what they see, in essence exacerbating the proverbial attempt of fitting a square peg into a round hole, 3) the “rest” of the world who is doing little to nothing, while observing others, and eventually planning to follow. Entrepreneurs are still attempting to use the token as a fund raising mechanism, with a varying spectrum of strength on actual Token models, and even less attempts at real governance and accountability towards investors or the market. I see continued lukewarm innovation in the middleware sector of blockchain technology. We need more standards, because standards increase adoption, and we need more integrated tools and development frameworks, because they spur activity in applications development. Two potential blockchain usage models are emerging with some initial promising  tractions: a) the token as a participation incentive for adding value to the network (I’ve described this here and here), b) the native digital asset as a free-moving instrument that can be traded on the blockchain or made part of a new interaction experience (eg CryptoKitties-like assets and others, including the nascent form of digital art). Classification of tokens will continue to be a slippery slope. Attempts to intelligently classify them is challenging, because their role is evolving like a moving target: a given token’s usage lifecycle will take many forms of evolution, as most tokens espouse multi-functional properties. Assigning a deterministic label on a token might be a futile exercise. Tokens as an in-market payment instrument is the most un-imaginative model out there. Sure you can take any existing business, slap a token to pay for this and that, and claim a token-based model. But that’s not nearly enough innovation to move the needle on value creation and attracting new users. Projects based on the token-as-payment model are dead-on-arrival, and will fail in my opinion…unless there’s a lot more to the token than being another currency. DApp Apps are emerging as the mobile cousins of a Metamask-enabled browser. Early DApp browsers such as Toshi, Cipher (acquired by Toshi) and Trust Wallet are still in their early 1.0 manifestation, and mostly aggregate access to other DApps more than innovate over new ground. Going forward, their future might be uncertain as standalone native DApp Apps will also become popular, perhaps not requiring crutch support from these DApp browsers. In this category, I foresee OpenBazaar and CryptoKitties to lead the way in showing us what a real standalone Peer to Peer Mobile DApp can do. [disclosure: I’m an investor in both companies and a Board member at OpenBazaar] There is a continued disconnect between cryptocurrencies value and valuations (ref: The Other Flippening: Token Users vs. Token Traders). Despite many attempts to quantity the metrics behind cryptocurrency valuations, the markets have not yet assimilated any form of analysis rationales behind the trading patterns. Most cryptocurrencies go up or down together, with little regard to differentiation between the better vs. more questionable ones. Stablecoins continue to fascinate more than deliver or assert themselves as a long term answer to isolating users from the vagaeries of external market volatility. Finally, a word about “the crash“. A real crash could only happen when investors suffer real losses and incur pains that cause them to massively exit the playground. Currently, there is sufficient built-in performance gains that have accrued to early investors such that prospective losses are only time-relative, but not absolute.

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Cryptocurrency, Tokens and Blockchains: Is There A New Normal?

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On January 28, 2018

In Featured, Think Tank

Defying GravityI was recently chatting with a friend who has been an investor in the tech venture capital space for over a decade and is now being drawn to the crypto-space. Who isn’t!

I said to him that I’m not sure how long the current frenzy and high valuations will continue, and he responded that maybe this is the new normal. In truth, I had been wondering the same as well, but haven’t written my thoughts on it yet.

I’m all for defying norms when it comes to innovation and progress, but to think that we can keep flying at orders of magnitude above normality forever is a fairly bold and daring belief.

This type of gravity-defying thinking could be dangerous. There are many things that are not “normal” in today’s blockchain environment, especially pertaining to ICOs. I’ve already echoed some dissatisfaction with how ICOs are conducted last July in 10 Things I Don’t Like About ICOs. Here’s a list of abnormal or “new normal” things that I’m seeing today:

  1. Extremely high overall (and specific) crypto market capitalizations
  2. Applications being valued at similar ratios as protocols or infrastructure
  3. Financial returns at x30 and x100 in a few months, certainly less than a year
  4. Daily and weekly volatility in the 30-100% ranges
  5. Teams getting funded without a product or product experience
  6. Teams getting funded way more than they should be
  7. Paper theory and marketing zeal trumping entrepreneurial chops or ideas viability
  8. Little correlation between cryptocurrency prices and actual usage/ecosystem metrics
  9. Treating tokens like stock and currency together (analogy is if you could only pay for Apple products with Apple stock)
  10. Not able to accurately understand the economics of token-based models
  11. Unclear regulation, with a perception that it can be exploited
  12. Poor market liquidity once you go past the top cryptocurrencies (hence, many paper valuations)
One can be optimistic or pessimistic. One can hope this is the new normal, or one can hope that the points I enumerated above will go away. Of course, you can also think these issues are trivial and inconsequential to where the market is going.

People can get used to abnormal situations all the time, because human nature knows how to adapt … until reality hits us in the face or rears its head at the most unexpected moment.

Back in the dotcom days, prior to the crash, many believed that the sky was the limit, and that many abnormal characteristics were normal and due course. I keep remembering that.

I’m all for pushing innovation further and higher.  This incredible crypto-capital availability is amazing for funding innovation and experimentation in new business and technology usage models. I just hope that we get to see enough significant breakthroughs before a return to normalcy returns, so we have something lasting to hang on to.

Normalcy is a relative word. Sometimes the new normal is indefinite. Sometimes it is not.

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The Blockchain Union

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On January 22, 2018

In Featured, Think Tank

european-union-brexit-political-map-with-european-union-member-statesI recently spent a few days in Geneva, Switzerland, and rented a car on the week-end to make side day trips to neighboring France. This wasn’t the first time I had driven across Europe in a car, but it was the first time since the Schengen Agreement abolishing border checks and enforcing a common visa policy went into effect.

What struck me as we passed multiple times the pseudo-border between Switzerland and France was the openness and ease of passage between the two countries.

Over 4 crossings (twice back and forth), the range of experiences included total openness across a deserted border crossing, to officers signaling cars to keep moving, to being stopped briefly once for 20 seconds and asked 2 simple questions by the French authorities: where we were headed, and where we came from. Perhaps due to my impeccable French, no documents were ever requested.

We can expect this kind of openness within the EU, and I had already experienced it flying or taking the train between EU countries. But Switzerland is a special case, being surrounded by EU countries (except a tiny border with Liechtenstein), while not being an EU member. As it turns out, Switzerland has reciprocal agreements whereby the Swiss Confederation has adopted various provisions of European Union law in order to participate in the Union’s single market.

Within the EU, this openness is possible because EU countries respect and accept each others border crossing practices and procedures. Had I been crossing outside of the EU, the scrutiny and passport checks would have been different and elevated.

This frictionless experience made me think of the blockchain analogy.

Once you have an account with an exchange or receive cryptocurrency to an address, you can start sending cryptocurrency without permission to another address that is part of the blockchain world, the “Blockchain Union”. This permission-less environment is an operating trademark of the blockchain. Your transaction’s flow isn’t interrupted while it traverses the ebbs of blockchain networks, accounts and wallets.

Contrast that to the global banking environment that is full of “border-crossing” checkpoints, and subject to strictly managed entry and exit points for money deposits, withdrawals or transfers. Each bank has its own borders, often dictated by geographical regulation. You can only open a bank account where you reside or do business.

The irony of this analogy is that- while the intent of the current banking system is control and “knowing who their customers are”, that system breaks as soon as the customer or their transaction leaves one bank and go to another. While each bank administers its own independent “know your customers” processes, these processes aren’t connected or related to one another.

Blockchain networks are more cohesive and transparent. You can easily traverse them and see transaction history across addresses, regardless of geographical or location origins.

Related to this, I ran yesterday this Twitter survey, wondering what would happen if fiat-to-crypto linkages were more seamlessly connected.

I was surprised by the results, expecting to see more crypto-to-fiat inflows initially, because I thought that many crypto-wallets were bursting at the seams with crypto holdings that are looking to be converted into fiat. However, the crowd seems to think that more fiat will flow into the crypto side, initially at least.

This tweet replying to my survey probably echoes the sentiment of many:

Regardless of the real outcome of this survey question, the banking world is getting surrounded by the crypto world. More than 2 years ago, I’ve wrote a post about Why There is No Global Cryptocurrency Bank yet, and much of it still applies. For traditional banks, resistance to the crypto world will be futile. Their existing set-up had a purpose: they didn’t want a borderless world to interfere with their monopolist operations, something that the blockchain threatens.

If the fiat-to-crypto-to-fiat borders were more fluid, we could imagine a scenario where users can use the crypto world as a global on-ramp to make money transfers seamlessly, in essence by-passing the proverbial SWIFT system. For example, a user could send fiat to their crypto account then use that to transfer to another recipient’s crypto wallet. The recipient can then move the money to their bank account. The whole process could take 15 minutes and cost minimal transaction fees, certainly less than the cost of a standard international wire transfer.

The blockchain world is like a global Union. Once you’re in, the borders and barriers are minimal, frictionless and permission-less. But it is full of friction as soon as you want to leave it, or enter it from the traditional side. The friction between the non-blockchain and blockchain worlds is real. It is not dissimilar to the difference between travelling within the European Union and outside of it.

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