Security Token news for Week Ending Friday 3 April 2020

Security Token news for Week Ending Friday 27 March 2020Here is our pick of the 3 most important Security Tokens news stories during the week:

Telegram Aftershocks:  Court Bars Telegram from Distributing Grams Outside U.S. as Well; Covid-19 Adds Pressure for Investors to Accept Refunds

On April 1, U.S. District Judge P. Kevin Castel, responded to Telegram’s request for clarification as to the scope of the court’s March 24 preliminary injunction. He denied Telegram’s move to distribute tokens to its non-US-based participants.  Approximately $1.27 billion of the funds raised to finance the development of the Telegram Open Network (TON) came from overseas-based investors.

Why it matters:

This slam from the Court was not anticipated by everyone.  Some observers and players expected Telegram would be allowed to distribute Grams outside the United States. This week, lawyers for Telegram wrote to the Court asking for clarification whether the relevant laws were being applied extraterritorially. Some $1.27 billion of the funds raised in the ICO were derived from investors outside of the U.S. In slamming the door, Judge Castel derided the letter as Telegram’s attempt to relitigate, “really a motion for reconsideration in disguise”.

It is rumored many participants are now willing to take the refund offer from Telegram for a reputed 72% of the amounts invested, as the coronavirus disaster has created considerable opportunities for alternative investments, while at the same time disrupting all markets.  Cash is king.

Nomura Research issues first Japanese blockchain bonds, forms research consortium

Monday, Nomura Research Institute (NRI) offered the first Japanese blockchain-based digital bonds directly to investors. Last year NRI and Nomura Holdings created a joint venture BOOSTRY to develop a tokenized asset platform called ibet.

Two bonds were issued, with one of them referred to as a digital asset bond. Instead of paying interest, it provided redeemable points – the digital asset – for buying coffee. This was a 25 million yen ($232,000) bond with a three month maturity. The second five million yen bond was more conventional, offering a low interest rate.

Why it matters: Japan is moving toward with STO’s, led by Nomura. Nomura Institute of Capital Markets Research announced a new research consortium focused on blockchain technology in financial markets, including security token offerings (STO).  NTT is also a participant in another Japanese group, the Security Token Research Consortium initiated by MUFG, which includes Mitsubishi, Accenture, KPMG and startup Securitize.  Later this year, the Japanese Financial Instruments and Exchange Act will clarify the legal treatment of STOs and rights transferrable using distributed ledger technology (DLT). 

Major Security Token/Crypto Players Hunker Down during Covid-19 Crisis – e.g. ConsenSys operations and services unaffected

Ethereum (ETH)-focused major blockchain company ConsenSys is in remote mode. Already in January, ConsenSys began taking precautions to limit business travel, and as the situation escalated in February, the company transitioned to remote work. According to their spokesperson:

  • all of the operations and services are unaffected, and the level of commitment and support for the customer remains unchanged;
  • all offices are closed and the staff operates 100% remote;
  • the company is working with its third-party providers to understand the potential impact and develop adequate contingency plans to avoid any disruption to the customers’ businesses.

“With a global footprint, we are carefully monitoring the situation in each region. We have adopted social distancing best-practices early on to help flatten the curve of infections and there is full support for our employees and their well-being,” the spokesperson said.

The company started releasing more training materials, and they will have a number of online webinars and virtual events. They have launched their Enterprise and Developer Libraries, educational resources for developers and enterprises, while ConsenSys Academy released the first five modules of Blockchain Developer Program for free.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives.

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The best product insurers provide is empathy. It’s been missed in COVID-19 response.

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Strategy sessions begin now for the insurance industry- addressing coverage gaps, policy forms, staff utilization, remote working methods, customer engagement, scalability of digital methods, virtual claim adjusting techniques, parametric products, and business interruption cover among others, and the big challenge of the insurance world- systemic risk.

 And the big, big elephant in the room- selling empathy as a key deliverable.

 Outside of health cover being broadened in most countries, there are few COVID-19 positives the insured public have seen recently from the insurance industries, and several negatives.

How to avoid repeating the COVID-19 outcome?  Learning starts now. 

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

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Late December 2019 into early 2020 there were indications that business interruptions would become a concern for commercial customers operating in China.  The city of Wuhan was quarantined by the end of January, the Hubei Province by mid-February, Starbucks closed branches in the immediate coronavirus outbreak areas by mid-February, hotels and non-essential businesses closed shortly thereafter.  Global supply chain partners became aware of the COVID-19 problems, the effects on normal business became clear to all, as were the concerns the outbreak would spread into other parts of the globe.  Risk managers would have been examining their portfolios and projecting financial effects from what was and what probably would be.

At that time there was little being reported regarding the greatest insurance exposure- business interruption.  The cover was surely being considered as Claims Pages published  “Many Global Firms, Excluded From Epidemic Insurance, Face Heavy Coronavirus Costs,” on January 29.  Carriers were moving into defensive postures since BI losses were surely to be claimed, and the financial breadth of global BI while not certain at the time, would have been anticipated to be in the billions (now known to be in the trillions of dollars.)

In knowing that in most cases BI claims would be found to have no coverage carriers simply planned the defense- less said seemingly, the better.  No one carrier (or the industry) could have anticipated a pandemic, but in the post-SARS and post MERS insurance environment there were clear actions taken by carriers to exclude pandemics or disease outbreaks from business cover, absent specific endorsements. Additionally, the industry-wide expectation of no need for financial protection from an outbreak is found in the fact that little or no reinsurance for pandemics existed at the onset of COVID-19.  That is not wrong, that is simply traditional risk management.  Where insurers, governments, and insureds went wrong was not having alternative paths in place to deal with an outbreak, and for insurers, not taking a more public, empathetic position for their customers.

This quotation from Lombard Opinion Editor Kate Burgess in the Financial Times hits the sentiment well ( “Insurers show we are not in this together”):

“A look in Lombard’s crystal ball reveals three possible outcomes of turning a deaf ear to reputation risk: first, customers will ask what’s the point of insurance if it doesn’t pay out at the time of greatest need. Many will self-insure. Second, politicians will threaten to force insurers to pay up. Already US state legislators and lawyers have threatened to force the payment of virus-related claims. Third, businesses in extremis will band together to launch class actions.”

Indemnity models for pandemics remain a non-starter for P&C products; simply too difficult to rate, and if rated, too expensive for those who might choose the cover.  But that does not preclude insurers from recognizing a need to help.

A timely posting by Dr. Marcus Schmalbach speaking on alternative risk management techniques cites parametric products as an apt option for systemic risk, mentioning this key phrase:

“Parametric insurance is based on inclusion rather than exclusion.” 

Indemnity insurance models are generally tied to proof of loss, estimated values, etc., all time consuming and processing heavy lifts, and subject to what is NOT covered.  Considering parametric options for the next pandemic allows an agreed payment based on an agreed, readily measured trigger (index), and fully transparent policy expectations.  All that’s needed for payment is the index being reached, all the processing can be automatic, even leveraged through distributed ledger technology for transparency among the parties.

Keep in mind- parametric products will not satisfy all costs as an indemnity model/policy might, but parametric products can fill the immediate need gap.

That’s a big start to what to do next time, and other thoughts:

  • There can be global efforts to build catastrophe vehicles (as have been discussed in prior articles.)
  • There can be carrier outreach that simply serves as information and advice.
  • There can be collaboration among carriers, government agencies, and legislatures to ensure focus is not lost between COVID-19 time and the next pandemic or other systemic risk occurrence.
  • There can be learnings to get in front of disasters in lieu of efforts to hide behind policy provision walls.
  •  There can be empathy expressed early and often.

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‘Know Thy Customer’ A Key Trend Going Forward in Fintech Innovation For SMEs

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia

The world is rapidly becoming a very different place and businesses will need to adapt fast to survive. Never has the phrase ‘survival of the fittest’ been so literal, for so many.

Over the coming months (or years?) many businesses will encounter survival pains that would have been unthinkable several months ago. How the fintech community responds to these challenges will also make or break many new startups in this space.

One trend that I think is prime for an agile fintech in the SME space to jump on, is the increasing importance of ‘know thy customer’.

In the pre-COVID-19 era, where commerce trundled on blindly, you didn’t really need to ask too many questions about whether customers were ‘good for the money’, especially from your regular book of clients. How things have changed.

In the world of COVID-19, many businesses and industries have found themselves on the wrong side of the essential services line, with governments everywhere shutting down some operations overnight. This is having a waterfall effect on SMEs cash flow, many of whom have lost vital business already.

Going forward, SMEs who can adapt will be rethinking who they do business with far more carefully. This will be on both a local and global level, with business risk now significantly linked to how each nation’s government is responding to COVID-19, and their ability to contain or not contain.

What many SMEs need right now are tools that can help them understand the risk in their client book, the probability of payment in the short term and the long term.

Building on from that, SMEs need ideas on how to adapt, and connections to other businesses that will lead to viable partnerships. Take my local coffee shop, for example, which is now acting as a pick-up point for a fresh fish delivery service.

They have recognised a key shift in behaviour that is keeping people within a short radius of their homes when it comes to shopping. Staying local is key, and if I can replenish my fridge and pantry without visiting a supermarket, why wouldn’t I? I don’t know about you, but grocery shopping is hardly fun these days…

Community and connection is key right now. That is where the seeds of new COVID-19 era commerce will be found. Fintech has a role to play in building the new connection rails.

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A Buoyant Digital coin at a tender age – Ndau

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

The Ndau (XND) is a stateless Buoyant digital currency with a built-in design to act as a store of value, is less known as it is not conducive to pump and dump. It was launched 2 yrs ago out of  the Cayman Islands.

It is more actively traded on BitMart exchange with a presence in New York, China, Hong Kong, and Seoul. According to Cointelligence, BitMart is included in the top 20 exchanges by volume.

Programmable money, like Bitcoin, are available in the market even though the verdict is still out there as to which of the existing cryptocurrencies (if any) qualifies for a digital means of payment, or a digital store of value, or a digital unit of account. Bitcoin is clearly a living proof of an autonomous organization, with no CEO, no CFO, and no board. It went live with a fixed supply and a fixed predetermined monetary policy. The developer and user community has had several disagreements about the direction that the network should take which has resulted in forking the Bitcoin source code.

The fact remains (with its pros and cons) that the fixed supply of 21million Bitcoins cannot be tampered with. The programmed monetary policy allows for new bitcoins to be created only through mining at a fixed rate. This rate is fixed but it decreases as new bitcoins come into circulation and we approach the 21 million supply ceiling. There are proponents and critics to this kind of rigid monetary policy as it has not been tested in economic downturns, in which a flexible monetary policy can have benefits. It definitely sits on the other end of the spectrum from the Quantitative Easing (QE) that Central banks in the Western world have been engaging in after the 2008 Global financial crisis and the 2020 COVID19 induced economic crisis. Devaluation of currencies is a big thorn that is yet another reason that we have been soul searching technological solutions for better stores of value. Data from the Official Data organization and several other sources shows that the purchasing power of the almighty US dollar has been dropping precipitously.

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Soul searching for programmable money that is enabled by blockchain technology that can mitigate this frightful drop in purchasing power of even the No.1 reserve currency, is only natural. Can we create a rather autonomous store of value with a tamper-proof and effective monetary policy? The market has not yet decided whether Bitcoin which is stateless and not backed by any real asset, is our Digital Gold alternative. During the recent downturn, Bitcoin and Physical Gold, similar to several traditional financial assets, have not behaved as expected.

One example of a better potential Digital Gold alternative, is the blockchain-enabled solution of a stateless Buoyant digital currency, the Ndau.  The Ndau (XND) was launched in September of 2018.  Its design is to act as a long term store of value and therefore rewards token holders the longer they hold it. Ndau token holders earn Economic Alignment Incentives (EAI) ranging from 4% to 15% based on the number of months of their holdings.

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The total supply of Ndau tokens is fixed to 30million and there is a programmed market intervention to maintain price stability every time the price moves more than 5%. The supply of Ndau is increased only when demand increases based on a predetermined price curve.

https://player.vimeo.com/video/356906197

Ndau is the intellectual child of the Ndau Collective. An anonymous group of early Bitcoin enthusiasts more than 20 leading experts from world-class institutions including MIT, Columbia University, Carnegie Mellon, New York University, University of Chicago, and Goldman Sachs and who specialize in disciplines ranging from economics and monetary policy to cryptography and computer science.

Buoyant

Dictionary definition = able to keep afloat or rise to the top of a liquid or gas.

In virtual currency terms, it means a currency whose value rises and whose downside volatility is mitigated.

Ndau – The name comes from en-dow (endowment).

The proceeds from the sale of Ndau tokens are kept in an endowment and invested in other asset classes. The purpose of the endowment is to serve as a source of liquidity to support ndau’s price. The investment decisions are taken by the Blockchain Policy Council (BPC), a group of nine digital delegates continuously elected by ndau holders. The tokens are native the Ndau blockchain which uses a proof of stake consensus mechanism.

The corporate entities behind Ndau are Oneiro, which is backed by COSIMO Ventures. Oneiro received a seed round of $3mil initially and in October 2019, another $5million. At launch, Oneiro sold $15million worth of Ndau Tokens (which means a bit less than 1million tokens). The recent economic downturn seems to have found Ndau at a fragile point on its journey of adoption and therefore was not able to live up to its design.

At issuance, Oneiro placed Ndau tokens at a price of $17.26 during a private sale. The price remained stable for a long time (about one year) and then started rising. By early 2020, it had actually risen close to $22 (27% increase). By mid-February 2020, it seems that the price stabilizing mechanism of the endowment couldn’t cope with the tsunami of liquidation that hit all assets indiscriminately.

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This indicates that the endowment was too small to cope with the severe changes in demand. According to their website the total tokens in circulation had grown to 4.3million and the price had dropped to $6.97.

Stay tuned and monitor the development of Ndau. We need at least a one-year history in such market conditions to be able to make any meaningful conclusions.

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Coronavirus will shape the next decade. Will we prep before the next one?

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Everywhere people are dying, global lockdown and massive government intervention. The coronavirus pandemic is disrupting global industries and supply chains, causing disastrous problems for businesses, consumers and the global economy. Just like the disease is killing older people at high rates, it is also about to kill mature western economies. Businesses are struggling to produce and distribute products and services, that consumers depend on. The coronavirus outbreak has limited our ability to produce and consume goods. Its financial ramifications are already severe and will only get worse. The COVID-19 pandemic will change this decade, just like 9/11 changed the 2000s. The impact from pandemic on global economy will be severe, but eventually the crisis will all end and life will resume. The question what direction will we follow and how prepared will we be when the next one comes along?

Ilias Louis Hatzis is the Founder at Mercato Blockchain Corporation AG and a weekly columnist at DailyFintech.com.

When businesses are unable to make money, they can’t pay employee wages and operating expenses. As business revenues decline, employee layoffs accelerate, which eventually leads to people not being able to pay their rent, mortgage and loans, buy goods and services or spend money at restaurants, sporting events, vacations.

This is not just a health pandemic, it’s a pandemic of fear and mistrust that is hitting advanced economies in Western Europe and the United States. Governments are announcing travel restrictions within their borders and from outside, and are shutting down businesses everywhere. In mature economies, when people become fearful for their lives, they withdraw and stop spending money on things they frequently do. Businesses that operate in face-to-face service industries, which usually dominate high-income economies, are the one’s that get hit the hardest, when people are in lockdown.

This is not to minimize the damage the pandemic is causing to the global product supply chain. The production around the world is out of action for an indefinite period of time. We are already seeing shortages for things like auto-parts, electronics and products like iPhones, and Diet Coke and don’t be surprised when we see disruptions for food, condoms and so many other basic things we take for granted.

In 2015, the year after West Africa’s Ebola outbreak, Bill Gates gave a TED talk called “The next outbreak? We’re not ready.” Gates saw the COVID-19 outbreak coming and he knew we weren’t prepared for it.

“If anything kills over 10 million people in the next few decades, it’s likely to be a highly infectious virus rather than a war,” Gates said during the Ted Talk. “Not missiles, but microbes.”

 

 

Authorities around the world are doing their best to contain the coronavirus pandemic. Disease outbreaks can happen at any time and anywhere, with little or no warning. These are events that have occurred in the past and will occur again in the future.

We are facing an uphill battle, but blockchain can help. Blockchain will not prevent new viruses, but it can help create a first line of defense, through a network of connected devices with a single purpose: to alert us about disease outbreaks. The use of blockchain can help prevent pandemics by enabling early detection, fast-tracking drug trials, and impact management of outbreaks and treatment.

Blockchain platforms could help connect local hospitals and health organizations. Local hospitals could record medical data about patients with flu- or virus-like symptoms. The data could be used by health organizations to predict the spread of the virus, to help them take preventive measures (increase medical staff, supply medical equipment) in the areas where the virus could spread.

Recently, the World Health Organization (WHO), IBM and Oracle teamed up to create an open-data hub that will use blockchain technology to check the veracity of data relating to the coronavirus pandemic.

Blockchain based livestock tracking could help to better trace an outbreak at the source, before it becomes impossible to contain. Deadly viruses have originated by contaminated livestock, that made it into our food supply. Imagine how many lives and resources we could save, if we could collect and analyze data to assess livestock risks for various regions.

We could also improve the medical supply chain for products and vaccines. It’s vital to be able to track where things are and where they came from and ensure they are genuine.

Researchers, biotech and pharmaceutical firms are racing against time to create the vaccine for this virus, as well as develop potential treatments for COVID-19. Blockchain based platforms could help vaccine development across various stages starting from exploration to pre-clinical stage, clinical development, regulatory approval to production and distribution and continuous quality control & monitoring.

Like the September 11 terrorist attacks, the fall of the Berlin Wall, the financial collapse of Lehman Brothers, the coronavirus pandemic is a world-shattering event that will lead to permanent shifts in political and financial power.

Many, fear the pandemic will strengthen state control and reinforce nationalism. Governments everywhere are adopting measures to deal with the health and financial crisis, and some governments will find it difficult to give up these new powers, when the crisis is over, similarly to what happened in the wake of 9/11, when civil liberties around the world were trampled.

More than a hundred years ago, in the “The Machine Stops“, E. M. Forster wrote about a dystopian future where humans relied on a machine to provide food, clothing, shelter, and interaction with each other, using audio and visual devices. This story sounds like the present, and the pandemic is pushing us even more in that direction, to become more reliant on the “machine”.

But the coronavirus pandemic is also causing everything to come to a grinding halt. Health care, government and business “machines” are breaking down and stopping. Maybe this is a wake up call, that pushes in the exact opposite direction, away from centralized machines and structures.

The coronavirus global health crisis has the potential to massively disrupt our lives, both economically and socially. I can only hope, we move in the right direction.

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This Week in Fintech ending 27 March 2020

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This weekly summary from our 5 experts, brings you insights based on their experience as investors, entrepreneurs & executives.

Ilias Hatzis started his first company, an internet search engine, during the dot-com era & now focusses on crypto.

Efi Pylarinou worked for top tier Wall Street firms and is now a top global Fintech influencer.

Jessica Ellerm is CEO of Zuper Superannuation & previously worked for a top Fintech startup, Tyro.

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners.

Sheldon Freedman is a Fintech lawyer at Hassans International Law Firm

Bernard Lunn is the CEO and Editor of Daily Fintech and author of The Blockchain Economy.

If you want to continue receiving This Week in Fintech, you can either become a paying Member for $143 per year (and receive all our content in addition to this weekly summary) by clicking here.  If you just want to receive This Week in Fintech for free, you will need to fill in this form. Or fill in the same sign up form at the bottom of this post.

Your Editor is Bernard Lunn. He is also the CEO of Daily Fintech and author of The Blockchain Economy.

Monday Bernard Lunn @LunnBernard, CEO and Editor of Daily Fintech and author of The Blockchain Economy wrote What do you want a post #Coronavirus world to look like?

Ilias is taking a break today to focus on his family. The Coronavirus crisis is becoming very real for many of us. 

We are learning what words like disruption, creative destruction and viral really mean. They are not just words on a pitch-deck any more. 

The Greatest Generation were tested in the Second World War. Baby Boomers (like me) had it easy thanks to their bravery & sacrifice. Now we are being tested (more than other generations because this virus is worst for older people).

This too shall pass.

In our Coronavirus series, we started with a description of the destruction to the financial system – the destructive part of creative destruction. 

This post envisages what a post #Coronavirus world could look like – if we make it happen.

Editor note: This post looks at 10 principles that could make a post Coronavirus world a better place. All are visible in small ways today – the future is unevenly distributed. Many could reach mass scale with some better tech solutions – which is what the next post in this series will focus on. 

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Tuesday Efi Pylarinou @efipm our Swiss-based Fintech Adviser,  founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019 wrote Technology helping governments & citizens, one line of code at a time

Moral hazard issues are endemic in financial crises, as we all know from the most recent GFC triggered from subprime mortgages. As we are witnessing a bazooka round of government aid ready to hit the market, the moral hazards are being revisited.

I will attempt to stay on topic and not comment on social & political issues around the current stimulus policy decisions in each country. I will focus on how technology can be used to make things better in these circumstances.

Editor note:Efi contrasts the legacy absurdity of the US Govt sending paper checks with modern digital GovTech initiatives around the world.

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Wednesday Jessica Ellerm @jessicaellerm, our Australia-based Fintech entrepreneur and thought leader specializing in Small Business and the Gig Economy & CEO/Co-Founder of Zuper, a new superannuation startup in Australia wrote Coronavirus To Kill Cash For Good

If there is one financial instrument particularly exposed to the coronavirus, then it would have to be cash payments. For several weeks now, as virus fears ramp up in Australia, I have noticed local businesses banning cash payments overnight, to protect staff from potential infection risks associated with contaminated cash.

Editor note: I have noticed my own behavior changing as a consumer. Just in case I could infect the cashier, I use a card even for small payments.

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Thursday Patrick Kelahan @insuranceeleph1, our US based Insurtech expert (a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners who also serves the insurance and Fintech world as the ‘Insurance Elephant’) wrote Business interruption- cover that’s too big to cover- but needs to be next time

On February 27  Daily Fintech published this article, “Dominoes fall- business disruption and risk management in the COVID 19 environment,” wherein there was a discussion of the indirect effects of the then China-based COVID-19 outbreak, and the estimation of economic damage due to the outbreak being $1 trillion.  We now know the effects of the pandemic will be in the many trillions of dollars, and business enterprises around the globe are realizing that business interruption (BI) financial losses due to the outbreak are generally not covered by their commercial insurance policies.  

Editor note: Business Interruption (BI) Insurance is being overwhelmed by the Coronavirus crisis. This article explains how and why this happened and should be required reading for anybody who works in, finances or regulates the Insurance business.

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Friday  Sheldon Freedman, Fintech lawyer at Hassans International Law Firm

wrote: Security Token news for Week ending 27 March 2020

Editor note: This weekly snapshot is the news that matters for busy senior people in the Security Token market.

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Security Token news for Week Ending Friday 27 March 2020

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Here is our pick of the 3 most important Security Tokens news stories during the week:

Federal court judge grants temporary injunction against Telegram
A federal court judge Tuesday sided with the SEC against Telegram and granted a preliminary injunction in Telegram’s $1.7 billion initial coin offering. 

Why it matters: All eyes have been on messenging platform Telegram’s plans to distribute its digital tokens, Grams, via its soon to be launched Telegram Open Network secondary public market.  In 2018 Telegram sold 1.9 billion Grams to 175 global purchasers in exchange for $1.7 billion pursuant to a SAFT (Simple Agreement for Future Tokens), an investment contract designed to provide a compliant alternative to an ICO.  The SEC has opposed the distribution on the Telegram Open Network, asserting Grams are unregistered securities. 

Telegram claims the original ICO was a compliant exempt sale of securities, and the Grams then and now and in future are not a security, but a currency/commodity.  The case is pivotal as many token players have already issued tokens through SAFTs; the industry is gauging behavior related to this outcome.  This court ruling against Telegram makes it easier for the SEC to impose penalties on such companies, force repayment of money back to investors and enjoin new issuances and trades.

  A token deemed a security under US law (as distinct from a currency, commodity or something else) is subject to registration requirements. Financial services companies assisting in the buying, selling, structuring or trading are subject to registration and licensing.  The SEC has not issued clear guidelines defining security tokens.  The SEC determined Grams are a security applying a legal test that Grams involve an investment of money that comes with an expectation of a profit derived from the efforts of others. The present case was for the court to rule on a preliminary injunction blocking Telegram from proceeding with the issuance and secondary market distribution of Grams, pending a court determination on the merits. The court, agreeing SEC has a substantial likelihood of success alleging Grams are securities, granted the preliminary injunction.  It remains to be seen if Telegram will take the case to Court of Appeals, return proceeds to it 175 purchasers, or something else.  Telegram certainly possesses sufficient funds to pursue the course it chooses.

TokenSoft Partners with Ex-Military Cyber Firm Hub Security

TokenSoft, a platform for issuing digital securities using blockchain technology, is tapping into Israel’s experience in cyber security, having signed a new partnership with ex-military Cyber firm Hub Security.

Effective immediately, clients of TokenSoft’s transfer agent, DTAC, will leverage Hub Security’s miniHSM solution, which provides token issuers with a cryptographic environment for the whole lifecycle of digital assets. Among other things, miniHSM helps companies grappling with the threat from organised crime and hackers through enforcing end-to-end encrypted USB and wireless Bluetooth connectivity, making its endpoint usage accessible.

Why it matters: Attacks, including breaches at top crypto exchanges such as Binance, have made improved cybersecurity a high priority, and TokenSoft needed to up its game. HUB security offers military-grade cybersecurity tactics including FIPS140-2 Level 4 protection. Built for the use of blockchain-based products, the product offers a combination of hardware and software solutions including a multi-signature vault, hardware firewall, access control, and a neural network learning system designed to anticipate cyberattacks.

France: Blockpulse Pursues First Security Token Offering in Partnership with Lemonway, Plans Stock Exchange for Startups

Blockpulse is the first company in France to pursue a security token offering (STO). Blockpulse is a blockchain-based shareholding management solution. The company launched its service last week in partnership with Lemonway, a Fintech providing payment services. Blockpulse offers a blockchain-based software solution for digitizing securities issuance and management operations for unlisted joint-stock companies

Why it matters: Blockpulse aims to become a “Stock Exchange for startups” within the next 18 months.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives.

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Business interruption- cover that’s too big to cover- but needs to be next time

Business interruption insurance

On February 27  Daily Fintech published this article, “Dominoes fall- business disruption and risk management in the COVID 19 environment,” wherein there was a discussion of the indirect effects of the then China-based COVID-19 outbreak, and the estimation of economic damage due to the outbreak being $1 trillion.  We now know the effects of the pandemic will be in the many trillions of dollars, and business enterprises around the globe are realizing that business interruption (BI) financial losses due to the outbreak are generally not covered by their commercial insurance policies.  This is not a surprising finding since BI cover has the policy need of direct physical loss, which a viral pandemic does not produce.  Many implications here regarding coverage gaps and systemic risk, and global application of moral hazard.

Patrick Kelahan is a CX, engineering & insurance consultant, working with Insurers, Attorneys & Owners in his day job. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

In one month’s time the anticipated BI losses due to COVID-19 increased manifold, became global, and have become difficult to quantify accurately, an apt expression of the unexpected outcome a systemic risk like a pandemic can cause- an uninsurable risk due to those exact criteria.

Business interruption cover is described by Marsh & McClennan as follows:

  1. We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” 
  2. The suspension must be caused by the direct physical loss, damage, or destruction to property.
  3. The loss or damage must be caused by or result from a covered cause of loss.”

The problems with the BI cover regarding COVID-19 effects are…all three points.  Items 2 and 3 are not applicable due to the outbreak being the cause, and a viral and item 1 sets such wide expectations for the insureds as to be impossible to summarize.  Loss of business income? Is that cash flow, ongoing bills, net income reduction (based on what?)

Even in the most direct loss cases, say a fire experienced by a business owner, BI losses are seen differently by the business as compared with the carrier.  Again, what constitutes loss of income, and how is the loss indemnification supported and adjusted?  BI cases are difficult to wrangle and often are simply negotiated.

If that handling were to occur say, in the U.S. for all the COVID-19’s affected insured businesses, the twenty-five million or so claims would need to be adjusted throughout the decade, would result in indemnity amounting to  two to three trillion dollar total severity, would make all commercial carriers insolvent, and result in a consequential insurance catastrophe of loss of the industry.

There is no retrofit that would have the expected effect the insureds would need.  Take for example the intention the New Jersey Assembly has in Assembly Bill 3844.  The NJ Assembly proposes the insurance industry provide BI coverage to NJ businesses with full knowledge that BI cover does not apply and is excluded from cover.  NJ would like carriers to pay the cover through legislated changes to the insurance policies’ contractual intentions, with NJ then reimbursing the carriers in the future for all or part of the payments.  Just that one state’s businesses may have BI claims that exceed $100 billion!  That is not a reasonable nor a legal option (would surely be challenged if enacted) and would challenge the solvency of the state’s carriers.    Ex post legislation is not an answer.

Firms have already initiated legislation in the U.S. for breach of contract, and while most in the industry agree that BI cover is a long shot, the irony is that the claims being made trigger the need for loss and expense reserves, and the initiation of litigation will- absent cases being considered unworthy by courts- require that the respective carriers recognize worst case scenario reserves being placed on their balance sheets- a profitability hit that could be significant due to the volume of potential claims (think asbestos.)

Truly there is not a practical answer to the enormity of the question, so the industry and businesses must be forward looking in anticipation of another like occurrence, whether it’s a viral outbreak, cyber outbreak, or regional natural disaster.  Systemic risk effects will occur again, and mitigative actions need to be considered now.

 

I considered one of many scenarios of systemic risk in the recent article published in InsurTech360, “Rethinking excluded pandemic (and other) risks.  The article discusses just one of many loss occurrences- events and conferences, and considers the many aspects of planning, response, potential cover, admin of the response and potential payments for what is for an indemnity product an excluded peril.  Future cover cannot be full reimbursement as we have discussed- the indemnity factors are troublesome to adjust.  Parametric approaches to shared risk are discussed in the article as is planning and segmentation of the loss layers.

Insurance veteran Mark Geoghegan recently recorded a ‘solo podcast’ on the Voice of Insurance that addressed the topic in depth, and touched on the many issues of BI claims and COVID-19.  The ‘selfie’ podcast, unfair-punishment-and-pandemic-re editorialized on the two-edged sword that BI handling by carriers will produce- 1) carriers cannot reimburse insureds for BI claims in that there is no policy cover, and there are not sufficient resources within the industry to do so, and 2) the carriers will still be left as the parties with record levels of capital that will not be applied to the situation, not a good view for the insured public to consider.  Mr. Geoghegan walked through some efforts that could be put into place going forward, and some collective global actions that would distribute future systemic risk that would have similar effects as COVID-19.  He clearly agrees with the writer that BI indemnity cover remains unreachable, but parametric hybrid products might be a compromise, if there is sufficient global participation by carriers, insureds, and governments.  The industry knows that government subsidized products such as the U.S. NFIP flood program are not the answer.  In fact there are some influential insurance persons who suggest private parametric plans supported by alternate risk sources are the most effective and stable answer, and not government backing as is found in the U.S. Terrorism Risk Insurance Act (see Dr. Marcus Schmalbach’s article, implement-pandemic-perils-into-tria-no-a-free-market-solution-is-needed ).  Dr. Marcus is a knowledgeable proponent of capital markets being a primary force in financing these unique risks.

Mr. Geoghegan suggests that cooperative programs such as might be gained through premium contributions to a global pool of insurance backing for systemic risk response built over years is an option to consider.  The pool would also help fund an important initiative going forward- research into causes of pandemic outbreaks, anticipating new viruses, be prepared to respond with strategic supplies, and with several years of global contributions, a substantial response fund that is not indemnity-based and available to all.  However, what does that mean?  Participation by all countries, carriers, and governments, a daunting task for the best of motivations.  And as Mark reminded the listener- memories are short, and large sums of money are attractive targets for raids by cash-short governments.  The concepts are provocative and if actionable in small part a sure improvement.

The author had a related thought-provoking discussion this week with  Thomas Verduzco-Weisel, Director Central Europe at Symbility – Mobile Claims,  a colleague in Germany who has seen the effects of disappointed customers; the chat focused on any actions that might be taken to respond to customer concerns- now.

We settled nothing categorically but did consider some options carriers can take to mitigate the effects of the constant drum beat in the press coming from businesses that have experienced or anticipate substantial BI losses:

  • Reduce or suspend premiums based on companies’ reduced operations.
  • Coordinate with other carriers in establishing a response fund that can provide direct cash benefits to business customers.
  • Extend coverage for risks that are solely associated with COVID-19 actions, e.g., forward-looking coverage for credit risk, health risk.
  • Partner with government regarding establishing captives- immediately- for mutual sharing of risk within affinity groups
  • Establish help centers for staff to assist in navigating insurance and finance issues
  • Look for coverage within policies that were in force at the inception of the pandemic, e.g., cover for civil authority actions in temp closures.  Don’t wait for a claim to be initiated, create the claim and contact the insureds proactively
  • Know how your product lines will evolve going forward- parametric options, review and retest exclusions, etc. The efforts must be uniform for all like insureds, and reproducible for similar perils.  Not taking any action is going backwards.

Plenty of discussion of a problem that has grown into a multi trillion dollar beast, and a challenge for the industry and its customers, and not to forget, governments. Systemic risk from pandemics can no longer simply be a line in the exclusion section of insurance policies, but by the same token cannot be relegated to macro government response.  For COVID-19 all players have been guilty of the oldest of risk management dodges- moral hazard.  Why bother insuring the outcome if someone else will cover the effects?  Well, that time is now gone.

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Coronavirus To Kill Cash For Good

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia

If there is one financial instrument particularly exposed to the coronavirus, then it would have to be cash payments. For several weeks now, as virus fears ramp up in Australia, I have noticed local businesses banning cash payments overnight, to protect staff from potential infection risks associated with contaminated cash.

Banning cash isn’t fearmongering on the part of retailers – the risk of infection is real. For those still clinging on to their polypropylene bank notes, maybe don’t (or at least wear gloves). The novel coronavirus, COVID-19, has been found to linger around on this surface for up to three days.

Copper coins on the other hand, aren’t so bad. Thanks to the long understood anti-microbial properties of copper, you’ll only need to wait 4 hours before your pocket change is safe to touch again.

While cash has been on the decline for many years, it has refused to die out completely, despite the best marketing efforts of the payments industry. While nearly every sector around the world is hurting right now from a drop off in demand, causing a softening in payments volumes, could acquirers be buffered somewhat by the overnight shift of cash to card? Quite possibly. This buffer could well be sustained, spiking card payments in a short space of time.

This is because even when the pandemic relents, the public’s mood will continue to be one of heightened awareness around cleanliness, making a shift back to cash unlikely. It also means acquirers, which might be hurting somewhat now from the drop off in discretionary spending, have a potentially cashless future to look forward to.

Europe might be one of the first regions to see this spike.

According to The 2018 World Cash Report by G4S, cash represents 78.8% of all transactions in volume and 53.8% in value in Europe. In Italy, one of the hardest hit regions when it comes to the COVID-19 pandemic, a European Central Bank Payment Usage Survey estimated cash transactions made up 86% of all transactions.

There will be financial winners and losers in the post COVID-19 world. My money is on cash not being king much longer.

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Technology helping governments & citizens, one line of code at a time

Screen Shot 2020-03-23 at 17.56.08

Moral hazard issues are endemic in financial crises, as we all know from the most recent GFC triggered from subprime mortgages. As we are witnessing a bazooka round of government aid ready to hit the market, the moral hazards are being revisited.

I will attempt to stay on topic and not comment on social & political issues around the current stimulus policy decisions in each country. I will focus on how technology can be used to make things better in these circumstances.

In America the government, the states, the municipalities, the cities are far from being Digital, let alone having technology that allows them to track flows of the money flows allocated in the economy.

A “stimulus package to the American worker” is underway that practically means a check of $1,000 or $1200 to pay rent, bills or buy groceries. The details of who and how this check can be claimed are going to be announced soon.

Americans will receive by traditional mail, a check and will have to be creative on spending it as bank branches are unable to service these deposit needs. American may countersign the check to their landlord or create a community secondary market of checks that is facilitated by those that have cash from ATMs (good for grocery shopping).

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

 

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Juxtapose this with the Digitization in Singapore. In 2016, Singapore announced the launch of the Government Tech Agency

Here’s how Singapore plans to make its services as easy as Facebook Connect.

A long-term plan to digitize the functions of governance and public life.

I pick the Singaporean example of GovTech led digitalization (there are other well-publicized ones, like Estonia) because in these `never seen before` circumstances they were able swiftly to launch three services

TraceTogether A community-driven contact tracing app to help during the COVID19 spread. Own your data and use Bluetooth P2P communications to share your close contacts. Give permission to the Ministry of Health to quickly reach out to your close contacts if you are a COVID-19 patient. TraceTogether aims to protect families and communities, and stop the spread of COVID-19.

MaskGowhere An app to use your zip code and get info on mask distribution points

FluGowhere An app to facilitate the following: If diagnosed with any respiratory illness (even just a cold) you get full subsidy for medical treatment

Now imagine if America or state by state had built a GovTech ecosystem that would allow to not easily channel each of this one off payments but also to transparently trace that they are used accordingly.

Transparency of money flows would be a blessing in this situation. It would save the government and the citizens from all the moral hazards that were experienced during the GFC. One of the most eye-popping examples were banks that were eligible for favorable loans with subsidies which they subsequently used for share buybacks.

The digitalization of municipalities, states and governments is not only about operational savings but also about Transparency that can allocate capital and manage risks in a fairway.

So much to learn from other Smart nations, states, or cities.

Singapore has two kinds of IDs …

CorpPass, a digital identity to do business efficiently and safely online with the government.

MyInfo simplifies banking transactions by eliminating the need to re-produce documents for verification.

And on and on…

The Technology is available and inexpensive, the people to customize it for each country, state, city, are available, and the Need is screaming. Come on America, Switzerland, United Kingdom, Germany, ….

Come on New York State, Canton de Vaud, England, Bavaria,…

A boom in GovTech initiatives should be one of the positive side effects of this crisis. And since I am a BIG DREAMER, maybe we will finally get a Decentralized Digital Identity so that it can serve as a way to act collectively in similar situations that we all have the same interests and risks.

Image source

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