It’s been a topsy-turvy year for the crypto world. (Which is a genial way to describe a 95% price “correction” across the boards.) But for Web3 entrepreneurs? Things always get interesting when the fast-buck fools flee for higher ground. It happened in the early 2000s, and it’s starting to happen again now.
The regulatory climate is getting settled. The competition to build scalable infrastructure continues to accelerate. Major projects are being built. The scammers are closing shop and the builders are getting to work. And all of that potential upside is encouraging institutional and mainstream interest—and adoption.
How will this evolve in the coming year? Optimistic entrepreneurs ought to keep their eyes on these seven trends:
1. A new (SEC-sanctified) crypto-funding model emerges
ICOs, which raised a whopping $22 billion in the crypto bubble, sure seemed like a great idea. Publish a whitepaper, drum up some interest and sell loads of tokens before you build an actual business. What could go wrong?
Turns out a lot can go wrong. According to the SEC, many ICOs, however well intentioned, were simply securities by another name—and during the last year, the U.S. regulatory agency has been going after malfeasors to make amends. How many ICOs are in the crosshairs? Some securities experts believe that virtually all of them are, and many have already pleaded no contest and begun paying back investors.
But there may be a silver lining: a number of companies have pivoted to the new and seemingly improved “security-token” model. This funding mechanism, like the ICO, allows the startup to raise money by issuing a token—but with the critical difference being that the startup would now follow the same SEC-friendly guidelines as, say, a company issuing traditional stock. For instance, STO-funded companies need to adhere to extensive know-your-customer protocols, high minimum-investment amounts and be offered exclusively to truly accredited investors.
The key thing that’s missing: a regulated platform.
2. Regulatory rules are finally made clear
See above. After a year of saber rattling, the SEC appears to be on the verge of telling us exactly what it expects in regulatory compliance from companies issuing tokens in lieu of stock. That ought to clarify things considerably and permit Web3 entrepreneurs to raise money and build cool stuff that people actually find useful. Thus far, we haven’t seen any killer dapps; we haven’t even seen dapps that are armed and dangerous. But with an approved, token-based funding model, that ought to change.
3. The Finance industry jumps in
“The financial institutions are coming” is a tired narrative. But this time, by gum, it may finally come true! Leading the movement is Bakkt, a one-stop solution for the trading and storing of cryptocurrencies. It’s launching its futures trading desk on January 24. Bakkt will also connect with a number of non-financial, consumer-facing companies, including Starbucks, allowing regular people to use Bitcoin in familiar, retail establishments.
Meanwhile, in December 2017, CME Group, and Cboe Global Markets, first allowed investors on their exchanges to trade Bitcoin futures trading desks. Now, NASDAQ is planning to follow suit. This will dramatically increase the number of institutional investors who can bet for and against the price of Bitcoin, generally legitimizing the market.
Fidelity Investments, which has $7.2 trillion in customer assets, is creating a crypto platform (known as Fidelity Digital Assets) that will provide custody services. That will allow wealthy people to purchase large amounts of crypto and, presumably, store it safely in Fidelity’s coffers.
And of course, other, smaller exchanges are stepping up their focus on institutional investors: Huobi is adding support for derivative trading; social-trading hub eToro is building a regulated exchange to support its existing client base; and Coinbase has opened its over-the-counter desk, providing for large trades between high-net worth people. Soon, it will be easy for any institutional investor to purchase crypto using regulated businesses.
4. Blockchain extends further into the Enterprise market
Blockchain me up, Scotty. Big business is stepping up its use of this nascent technology. Blockchain consortium R3 has been working on Corda, its private blockchain, since 2016. Big banks, including ING and Commerzbank, have been trialling the platform. R3 also launched the Corda Settler, which is aimed at cross-border payments for enterprise customers. In competition, IBM has created its World Wire using Stellar–a public blockchain–to achieve the same goal of ousting payments giant SWIFT as the leader in coordinating the global movement of money between banks.
Blockchain is being tried for all sorts of things beyond money remittance, as well. ConsenSys (which Decrypt is part of but editorially independent from) is building komgo SA, an Ethereum-based platform for the commodities market. It’s backed by 15 large institutions, including Shell and ING. IBM, meanwhile, is pursuing blockchain-based supply-chain management, too.
This will mean all sorts of opportunities for smaller startups looking to disrupt the disrupters by innovating and creating new solutions in the hope they will get acquired by the bigger whales–or even challenge them. Ripple is also trying to take on SWIFT with its range of products that facilitate faster and cheaper cross-border payments. Several companies are offering Bitcoin ATMs–such as General Bytes–which make money through charging fees of up to 10%. Even Coinbase–with an estimated $1 billion in revenue–is only six years old.
5. The real blockchain winners—and losers—will emerge
Crypto has been learning to walk for a while now. And it’s starting to show that maybe it can run, too. Ethereum, which has far and away the largest developer community, has long been promising scalability, but meanwhile other blockchains are actually delivering. This year, we saw the launch of EOS, WAX (still in beta) and TRON, which have been the most used blockchains in recent days.
"We're supporting a vibrant ecosystem of decentralized apps by delivering a full toolset, technical support, and community outreach," said Cong Li, Head of TRON Developer Community Division, adding, "We're getting better at what we do, and dapp developers are getting better at what they create. I expect you'll see many innovations in the coming months and years."
6. Traditional exchanges will shrink, while newer ones will grow
OG crypto exchanges, such as Binance, are in for a tough ride. The SEC is expected to deem most coins securities, which means that exchanges will have to delist them (or bar U.S. investors.) Either way, that will dramatically reduce profits. While Malta-based Binance posted first quarter profits of $200 million this year–more than even Deutsche Bank–the glory days may be over, unless it’s willing to comply with U.S. regulatory law.
Of course, there will be new opportunities for some platforms that are already compliant. Social trading platform eToro, for instance, can continue to list ICOs (or coins generally deemed securities like XRP) and begin to list new coins issued as securities. Needless to say, U.S.-based 800-pound gorilla Coinbase has been trying to stay compliant, so it should stay fat and happy.
7. The Empire strikes back
All this decentralized web3 stuff threatens the hegemony of FAANG—the companies that have come to dominate the Information Economy. So it should hardly come as a surprise that Facebook is reportedly looking to create a stablecoin, or otherwise tokenize its 2 billion users. But tokenization without representation is an even worse dystopian nightmare than the one that Facebook has created. A world in which Facebook controls the monetary supply? Please.
Amazon already offers blockchain as a service. How soon before we will need to buy everything from the company store in A-bucks? God knows how many engineers Google has working on its many blockchain projects. Even Apple, which has kept its nose pretty clean from a security standpoint, has filed a blockchain-related patent for a timestamping application. (Which sounds innocuous. But we are paranoid.)
Happily, the Resistance is alive and well and actually created the very world that the FAANG Empire seems intent on destroying. Bitcoin Maximalists, cryptoanarchists, Liber-crypto-tarians—we’ve got ‘em. And if all else fails, we can pray for the Return of (the) Satoshi.