Security Token news for Week ending 24 January 2020

Week ending 17 January 2020 in Security Tokens

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

One. Silicon Valley Coin by Andra Capital Uses Tezos Blockchain and TokenSoft for Its Security Token Offering

“Andra Capital, a San Francisco based venture capital firm, announced plans to issue Andra’s Silicon Valley Coin (SVC) via a Security Token Offering (STO). Collaborating with the Tezos Foundation, SVC will utilize TokenSoft’s issuance platform and be built on the Tezos blockchain.”

Equity ownership and governance are closely related in early stage ventures, so the use of Tezos is significant.

Two. EMURGO Establishes Strategic Task Force with Uzbekistan Government to Develop Framework for Security Token Offerings & Exchanges

“EMURGO Ptd. Ltd. – EMURGO – the official commercial arm of Cardano blockchain – announces the establishment of a blockchain task force with the National Agency of Project Management (NAPM) under the government of the Republic of Uzbekistan, and alongside advisors KOBEA Group & Infinity Blockchain Holdings, to lead the development of a legal framework for security token offerings (STOs) and exchanges (STXs) in the Republic of Uzbekistan. In addition, EMURGO & KOBEA will advise on infrastructure for digital asset banking & exchange, and blockchain education units, amongst others. EMURGO will provide advisory services to develop the framework and business units with the task force & mutually explore the potential for Cardano’s third-generation blockchain for infrastructure projects.”

Alternative blockchains such as Cardano have to battle the network effects around Ethereum and alternative jurisdictions such as Uzbekistan have to establish themselves in investor’s minds. So expect more partnerships such as this.

Three. GreyP Completes Equity Token Offering on Neufund. Securities are Distributed as Investors Will Also Benefit from Neu Token Distributions & Payouts

“GreyP Bikes (an e-bike company), one of the first “equity token offerings” or ETO to complete a primary issuance on the Neufund platform distributed the digital securities to investors last week. The security offering began last October with a pre-sale followed by a public sale that ended towards the end of November.

As was previously reported in December, GreyP raised €1.4 million from 1017 investors from 34 different countries – . The offering was described as the first IPO every completed on a blockchain-powered platform. The company sold the ETO at a pre-money valuation of €45 million.  Founded by Mate Rimac, who also created Rimac Automobili, GreyP claims the backing of large investors like Porsche and Camel Group.”

We like it when we see issuers who have nothing to do with Crypto/Blockchain as it indicates market traction. It is even better when, as in this case, the issuance transaction close/executes successfully.

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

You get 3 free articles on Daily Fintech. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

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Blueprint One- a building plan for a Lloyd’s digital/culture change decade, or pie in the culture change sky?

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It’s really a tour de force, the 146 page Blueprint One recently released by leadership at Lloyd’s, a detailed road map for the staff and approximate ninety syndicate players that comprise the firm, its reinsurers, customers, associated MGAs, vendors, brokers and agents.  Plans, flow charts and implementation strategy that are planned for the next two years, with all the new moving parts in synch by close of 2022.  Oh, and did I mention the £35 billion in annual premiums that the organization generates through its stakeholders?  Bold plans for a three-hundred-year tenure organization.  And there is the unmentioned tension- an entrenched business model planning to evolve into an agile, cutting edge tech leader.

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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Lloyd’s is the industry standard bearer for specialty risk management, AKA ‘the stuff an underwriter can’t thumb to in his/her U/W manual’.  Its technique and mystique have evolved during the more than three centuries since a few gents sat in front of some pints and pondered financial hedges against loss of shipping cargos.  Why then, does the firm think that several months of research, interviews, participant interviews, technology vendor schemes, and resulting blueprint from Lime St are the best answers to changing the course of the culture and operations of a complex global insurer?

Consider this voice from the street (location to remain unmentioned):

“Sadly, it seems that Lloyds underwriters have developed a degree of contempt for the XXXX market, over the last year I’ve seen the worst performance from certain Lloyds underwriters I’ve ever experienced in the last 20 years or so. In particular, not having renewal terms ready in time when renewal submissions have gone in well on time. It’s definitely a hard market from where I’m standing, and it isn’t particularly civilised either!”

Well, hard markets currently abound for many reasons across the globe, and anecdotal responses are a little unfair.  But the basis of the speaker’s concerns may not be- Lloyd’s is a huge, multi-variate, multi-cultural, global organization that cannot be changed under dictate, singular plan, or silo-driven flow chart.  Underwriters remain subject to the performance matrix of the day, and grand plans from on high take a rear seat when quotas aren’t met, or loss ratios are trending north.  Additionally, the firm remains entangled in aftereffects of sexual harassment accusations, mitigating the perceived impact of an over-arching office culture of suits and club decorum (although well past the days of PFLs), and recent years’ declining profitability.  Can Blueprint One be communicated, integrated and adapted uniformly in the face of these challenges? And can the evolution avoid the strong effects of the “Quarterlies?”

Culture and process changes aren’t new with the advent of Insurtech, innovation, globalization or change of leadership.  Much of what the blueprint discusses has its foundation in technology and transparency across the organization’s depth and breadth.  At its core we are talking insurance, so the topic may be busy, but it’s not rocket science.  Identify risk, understand risk, price risk, hedge risk, service occurrences that confirm risk (claims), and pay less than is taken in.  The firm is smart, therefore, to look to leverage technology for easy inclusion of participants across many regions and many forms of access, easier aggregation of business, more effective application of information, collection of data, and so on.

Consider the Blueprint’s ‘what it is’:

  • The firm’s strategic intent, description of vision.
  • Current thinking on each of six identified solutions-
    • Complex Risk platform
    • Lloyd’s Risk Exchange
    • Claims Solution
    • Capital Solution
    • Syndicate in a Box
    • Services Hub
  • Details of the initial phase of each solution
  • Invoking cooperation from Lloyd’s market players in the firm’s future
  • How and why success will be gained.

That’s on page 7 of the 146 page blueprint; it is an ambitious, wide scale road map.

It’s clear the more complex a plan is the greater the chance of incomplete implementation; the more incomplete or disuniformity of implementation the greater the chance of not achieving success.  The firm has its plan, its foundation for success, if the plan can be implemented.

Skipping forward to “Why we will succeed,” on page 11 , and I chime in with some observations that the principles suggest from other large org’s culture/ops changes:

  1. Capitalize on prior market investments (that’s funds spent previously on innovation).
    • This the “not throwing the baby out with the bathwater” approach. How to include the capital investments of the past few years in how we move forward.  A small anchor on innovative thought?
  2. Learn from the past
    • There are plenty of reorg carcasses along the wayside, let’s figure ways to have innovation not die at birthing. Of course putting the words, “Our collaborative approach to building the Future at Lloyd’s will ensure the solutions are designed for the benefit of Lloyd’s and the wider London market,” are contradictory right out of the box.  Perhaps solutions designed by and for Lloyd’s global staff and customers might sound more collaborative.
  3. Communicate regularly
    • Cascade those ideas from Lime St. to the world.
  4. Ensure the corporation and the market has (sic) the right skills to deliver the plan
    • Collaborators- prepare to invest time and money in change management plans that will be as successful as any change management programs. Can’t buy success.
  5. Deliver value to the market quickly
    • The rollout cannot interrupt business. There are those darn quarterly reports.
  6. Deliver the technology in parts
    • Deliver solutions in parts- of course each discipline needs different starting points; the law of unintended consequences will prevail.
  7. Retain control and operational responsibility (for tech)
    • Autonomy is resolving rollout issues will be suppressed to ensure uniformity. There will be scapegoats.
  8. Ensure the appropriate governance is in place
    • Central control of the collaborative integration. Decision making is the firm’s.

Rather than ramble on I am going to shamelessly borrow some innovation/org change concepts from a Property Casualty 360 article penned by Ira Sopic, Global Project Director at Insurance Nexus that has an apt perspective- “Agility is the key to technology innovation for insurers.”  But let’s build a contrast from Lloyd’s presentation.

Agile?  Can a global, £35 billion insurance giant be agile?  Do Lloyd’s customers demand innovation, or will they benefit materially from innovation?  We can see what the author and Lee Ng, VP of Innovation at Travelers Insurance say.

Fundamentally, the article notes org agility means looking at how decisions are made across an org and making significant changes.  That’s ambiguous until the addition of, “you can’t prove innovation before it happens.”  Uncertainty of innovation’s results can be overdone with analysis.  ‘Agile’ is the opposite of ‘waterfall’, an approach where plans and decisions are made at the top and cascaded down through the org as steps in a process are encountered.  Rolling out comprehensive plans by their nature inhibit iteration- big plans have milestones, have successive designs, benchmarks and schedules.  Agile has ideas, iterative maps, acceptance of failures.  Lloyd’s has established a grand approach to the former method- I kid you not, here’s an exemplar flow chart of planned core technology:

Core tech

Many participants influencing and accessing the tech core of the firm, and those magical skeleton keys to open the doors- APIs and interfaces.

Continuing, agile can be successfully piecemeal- protect the primary ROI factors of the biz, experiment with agile ways of working with collateral functions, build the innovative environment without whacking the quarterlies.  The inherent problem with piecemeal approaches?  They are hard to measure for success, and hard to program into project management software.

Another agile tack to take? “Done is better than perfect’.  Resist the urge to over plan, over measure, and to set expectations that the first attempt is a go or no go for the entire org.  A popular innovation concept applies- try, and fail fast.  Then try again.  There are many vendors who are experts in narrow parts of an org’s innovation path- it’s OK to rely on them.  Investment in a POC or two is as good as implementation.

Perhaps another day will allow discussion of the plans for the six Solutions, particularly Claims and Risk Exchange (the nexus of provision of service and of customers’ expectations from the firm.)  In spite of a skeptical take on the Blueprint I certainly want Lloyd’s to remain the bastion of risk management in a increasing risky world, but the concern is the firm is approaching this insurance elephant as a full take away meal, instead of as tapas.

In closing consider this- if there are five levels of Blueprint implementation and each effort has a 98% probability of success, after the five levels there is an aggregate probability of integration success of 90%.  That’s not bad, unless the interplay of five operational areas serving clients is considered with 90% effectiveness at play- aggregate 59% average Blueprint compliance outcome.

Consider those little bites, Lloyd’s.  The industry is pulling for you.

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Green Home Loans A Reality Downunder

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 must go green. How green is probably a debatable question, but slowly the tide is turning towards renewables and fossil fuel alternatives, with many hard-nosed climate conservatives even beginning to thaw on the issue.

Finance has a huge role to play in this greenification of the world. In Australia, companies like Ratesetter are leading the way in helping consumers access finance specifically to help fund the purchase and/or installation of an Approved National Cl…

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A Fintech side-effect: Excessive Corporate Control by the Big Three

The growth of the ETF sector is well documented and the robo-advisory fintech growth merits a piece of this `success`. According to my estimates, last year digital investing from startups and incumbents represented roughly 12% of the entire ETF market. This is of course, is from the point of investors’ point of view. Earlier this month I looked at facts and figures for ETF issuers.

Clearly, incumbents dominate ETF issuance. Very few standalone Fintechs are involved in issuing ETFs and their market share is negligible. Those include Sofi, Salt Financial, Ark funds. The growth of passive investing is not limited to the ETF wrapper. Other indexing investment products have also been growing, with mutual funds dominating. Vanguard is has pushed the industry towards such investment products with low expense ratios. Vanguard boasts an average expense ratio of 19bps compared to an industry average of 108bps. Robinhood has pushed the industry to commission-free trading. Most large asset managers have currently, significant platforms with commission-free trading investment products (from Fidelity, Vanguard, Charles Schwab).

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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Customers – Investors should be extremely happy with all these developments. However, there is one major concern whose ugly head may not be noticeable. An elephant is in the room, here too. Its name is `The Big Three`. The concentration power of three US-based companies, Blackrock, Vanguard, and State Street, and its ramifications has gone largely unnoticed.

Blackrock just passed the $7 trillion AUM. An increase of $1.5trillion from last year.

Vanguard just passed the $6 trillion AUM and State Street the $3trillion AUM.

These three corporates manage $16 trillion AUM. This is a 45% increase from 2017 ($11 trillion AUM)!

Through a visualization produced by Corpnet Research what becomes clear is that `The Big Three` are the largest shareholders in 40% of all publicly traded stocks in the US[i]!

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The growth of low cost investing, the disruption of the brokerage business model and the digitalization of the investment process, has created this excessive concentration in the Big Three asset managers.

Blackrock, Vanguard, and State Street have corporate control over 40% of the US stock market! These giant index fund businesses have too much shareholder voting power. That is one of the reasons that it matters a lot what the Fink says about climate change and ESG. In this case, we like his commitment but let’s be aware of this Corporate Governance entity in the room

The Harvard Law school forum on Corporate Governance is also researching this theme. In their paper The Specter of the Giant Three they look closely into this issue and estimate that the Big Three could well cast as much as 40% of the votes in S&P 500 companies within two decades.

Even though, the Big Three own less shares than 40%, their impact is amplified because they exercise their voting power 100%, whereas smaller asset managers do not. The Big Three currently collectively hold an average stake of more than 20% of S&P 500 companies and each one of them (BlackRock and Vanguard) now hold positions of 5% or more of the shares of almost all of the companies in the S&P 500.

Even more interesting is that this corporate governance problem was identified initially as the “Problem of Twelve”[ii] — the likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.

In just these last two years, the problem has become more acute. If we continue to focus on democratization (access, low cost) of financial products and services with no innovation in corporate governance, we will end up pretty much in the same corner as we have with the Big Tech companies.

We need more fintechs innovating in the shareholder voting process. We need to increase the shareholder voting participation and make it 100% transparent for majority shareholders that are already required to publicly disclose their holdings.

The Big Three references

BlackRock, Vanguard and State Street Own Corporate America

[i] Hidden power of the Big Three? Passive index funds, re-concentration of corporate ownership, and new financial risk

[ii] The Future of Corporate Governance Part I: The Problem of Twelve

 

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Bitcoin Bears vs Bulls

Bulls-vs.-Bears-1000x589.jpgBitcoin started the year with a bang. In the last 24 hours it went up 3%, topping $9,000. The entire week has been exciting week, with one rally after another feeding the bulls. Bitcoin has exploded by over 30% since January 1, and we’re just a couple of weeks into 2020. What a difference from what happened in January 2018. Market watchers are pointing to Bitcoin’s halving as the catalyst for the next big price push. 

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

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There are two major forces we need to consider. On one end we have the Chinese New Year, which has always been bad for cryptocurrencies. On the other, political uncertainty is providing a fertile ground for the value of cryptocurrencies. Both these forces are pulling crypto from opposite ends and will cause major price swings in the moths to come.

For some reason Chinese New Year has always been bad news for Bitcoin. This year, just like the last four years, you can expect, a little dip right before the Chinese New Year. In January 2019, Bitcoin dipped to around $3,300. In 2018, the Chinese New Year, kicked off the bear market, with a huge slide from around $16,000 to $5,000. In 2017 we had a mini dip, dropping from $1,200 to $700. Some people attribute the price drops to the Chinese cashing out and giving gifts to family and friends. Personally, think a lot of market makers take time off, and as a result potential orders don’t get filled, which causes the entire market to drop.

On the other end of the spectrum, Bitcoin’s decentralized governance combined with the global uncertainty, because of the relations between the United States and Iran, Trump impeachment and the US and China trade war are pushing people towards crypto and driving prices up. People are trying to find ways to maintain the value of their assets, avoid potential confiscation and limit effects of the possibility of the US government printing money to fund a war.

On May 13th the halving will be important, because it will directly impact the amount of Bitcoin produced per day. Today, 12.5 coins are created every 10 minutes, with a total of 1,800 Bitcoins per day and a value of around $14 million. That number will drop to 6.25 and along with that, inflation will drop. Even though halving event is not a secret, it’s part of Bitcoin’s predictable monetary policy, most of the the general public does not know exactly what the halving means, and this will create most likely create FOMO.

But beyond halving, Bitcoin’s upgrade later this year the could be another important driving force. The soft fork, which will most likely happen int the last quarter fo the year is expected to improve Bitcoin’s privacy and scalability. Schnorr signatures, Taproot schemes and Tapscript language, will bring smart contracts to Bitcoin, eliminate penalties in terms of fees for multisig wallets and improve security with Taproot.

Crypto assets, are here to stay and prices will rise. Governments, central banks and big tech is coming in. Look at China’s central bank, Libra and JP Morgan for example. But thinking that Bitcoin and crypto will go ballistic because of the halving or something else, is just wishful thinking. Volatility is the name of the game, so expect a lot of crazy swings, as bulls and bears duke it out.

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This Week in Fintech 17 Jan

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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.

Bernard Lunn is CEO 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 Ilias Hatzis @iliashatzis our Greece-based crypto entrepreneur (Founder & CEO at Mercato Blockchain Corporation AG and Weekly Columnist at Daily Fintech) wrote What could kill Bitcoin?

Defining what life is has always been a challenge. Scientists and philosophers have come up with many definitions to differentiate the living from the non-living. Are viruses alive? DNA molecules? Computer viruses? The inventor of cryptographic hashing, Ralph Merkle, has made the argument that “Bitcoin is the first example of a new form of life.” If something is alive, then it can be killed. Over the years, Bitcoin has survived technical attacks, internal conflict and outside criticism. Bitcoin has shown a quality that goes beyond resilience, that doesn’t just withstand the shocks, but improves when facing volatility, randomness, disorder and uncertainty. Bitcoin has an “antifragility” quality. But is there Bitcoin kryptonite? Can something kill Bitcoin?

Editor note: Ilias looks at why so many ways people predicted Bitcoin will fail have proved wrong. Takeaway: buy and Hodl. 

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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 Blockchain Thematic ETFs from the West to the East

Listing on exchanges continues to dominate. Whether listing on regulated or unregulated Centralized exchanges (CEX) or Decentralized exchanges (DEX) of any sort; this has not changed at all for assets.

Brian Armstrong, the CEO of Coinbase, in his New Year medium post, foresees that we will be moving from a predominantly trading & speculation phase of cryptocurrencies and Tokens of all sorts, to a phase of actually Using Tokens.

In the meantime, however, incumbents and startups continue building all the necessary infrastructure to issue, custody, settle and clear, trade and invest of all sorts of digital assets.

Editor note: Efi’s Post is a great resource for anybody who invests in publicly traded Blockchain companies. 

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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 Australia’s Open Banking Dream Drifts Away

It would seem Australia’s hopes of having a quickly implemented open banking regime are fading fast, if not completely transparent already. An already delayed start date of February 2020 has been pushed out to July 2020, causing much consternation in the startup community, as fintechs continue to battle with unpredictability around the regime.

Editor note: Jessica’s post describes startup frustration with the delays in open banking access. 

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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 Addressing some symptoms of insurance issues, and not the underlying causes?

There’s an odd contradiction in some of what the insurance industry does; the industry is built on predicting risk and strategizing risk sharing, yet in many ways it is victim of knowing its own concerns and reacting to and pricing the reaction, and not working to mitigating the effects of the outcomes.  And in at least one case looking to backfill its model to fit corporate strategy and perhaps not customer choice.

Editor note: Pat describes some well funded and executed initiatives in Insurance that did NOT pay off as expected due to applying old thinking to new technology.

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Friday  Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy, wrote: The Week ending 17 January 2020 in Security Tokens

Editor note: Security Tokens, the disruptive force in the equities market. This weekly snapshot is the news that matters for busy senior people in this market.

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Week ending 17 January 2020 in Security Tokens

Announcing the Daily Fintech weekly news curation on Security Tokens

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

One. Securitize Opens IRAs to Digital Securities Investors With Partnership

Digital asset issuer Securitize has facilitated what it says is the first direct IRA investment in security token offerings (STOs). A customer of alternative investments gateway AltoIRA purchased an initial investment in security tokens representing CityBlock Capital’s $20 million venture fund, with tokens issued by Securitize.

IRA is a mainstream way for retail investors in America to get exposure to this new asset class.  We can expect other pension friendly initiatives in other jurisdictions soon.

Two. US SEC Seeks $16 Million Penalty from Token Sales Platform Operator.

The United States Securities Exchange Commission (SEC) is seeking a default judgement against token sale platform ICOBox and its founder Nikolay Evdokimov. Documents filed with the Central District Court of California on Jan. 9 order the defendants to pay over $16 million in disgorgement to the agency within 14 days of the judgement’s entry. 

This again shows why anybody operating in this market must pay close attention to regulation, particularly what the top cop (SEC ) is doing.

Three. Quantum-Resistant QAN IEO Is Officially Starting on Bitbay Exchange.

The first IEO to launch on BitBay exchange is poised to commence its token sale on January 20. QAN, an Estonia-based crypto project that proclaims to be the world’s first quantum-resistant blockchain, went live on the Launchpad on December 16.

This shows where the Security Token market is today – Blockchain centric startups launched by Crypto exchanges as an Initial Exchange Offering (IEO).

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. 

You get 3 free articles on Daily Fintech. After that you will need to become a member for just US$143 a year (= $0.39 per day) and get all our fresh content and our archives and participate in our forum.

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Addressing some symptoms of insurance issues, and not the underlying causes?

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There’s an odd contradiction in some of what the insurance industry does; the industry is built on predicting risk and strategizing risk sharing, yet in many ways it is victim of knowing its own concerns and reacting to and pricing the reaction, and not working to mitigating the effects of the outcomes.  And in at least one case looking to backfill its model to fit corporate strategy and perhaps not customer choice.

 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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Backfilling or buyer’s remorse?

Allstate Insurance (US P&C carrier) recently announced its digital insurance brand, Esurance, will be discontinued as part of Allstate’s migration into being an omnichannel carrier where customers have options under one access point/model for agency based or digital insurance acquisition and service.

Looking back to 2011 with Esurance being a $1 billion acquisition by ALL wherein the company’s CEO announced, “Allstate is uniquely positioned to serve different customer segments with unique products and services,” said Thomas J. Wilson, Allstate’s president, chairman and chief executive officer. “This transaction provides immediate incremental growth in customer relationships and makes Allstate the only company serving all four major consumer segments based on their preferences for advice and choice.”

Appears that ALL figures customers in 2020 expect only one access point that will provide purchase options.   Here’s the thing- Allstate had internal rules that inhibited customers from switching agents and/or internal brands, not external barriers; this change will reportedly alleviate the ALL system problem, and empower agents to better serve customers (per leadership and aligned with a previously announced commission decrease) as ALL migrates into being an insurance technology company.  But what of the 1.5 million Esurance policyholders who consciously chose the Esurance model, and may balk at being tied in with the legacy brand?  And, will marketing costs truly be saved if digital customers still need targeted messages?  It’s certain that Allstate’s advertising partners will create a clever omnichannel ad campaign, but legacy brand is legacy brand, and buying culture is buying culture- can ALL be a cleverer digital carrier under the parent name than was Esurance?  Additionally, will rolling the Esurance policies into the parent change how staff handle claims?  Perhaps, but the effects of several years of underwriting losses for the Esurance PIF will not disappear simply because those claim customers are now called Allstate customers.  Would it have been a more direct action to fix the Esurance claim handling issues? And what does this move in combination with centralizing customer service away from agents suggest for the agency model?

 

Maybe a good idea earlier in the finance value chain?

Swiss Re announced this week the placement of US $225 million in parametrically triggered cat bonding for Bayview Asset Management’s MSR Opportunity Fund, covering mortgage default risk for Bayview’s loan portfolios in the states of California, Washington, Oregon, and South Carolina.  Bayview does manage ‘credit sensitive’ loan portfolios and derivative funds that include packaged mortgage portfolios, so a parametric product is an immediate hedge in the case of an event that meets the USGS survey index associated with the bond.  Seems a suitable move for the management company as it does not have direct ownership of properties but does have exposure to indirect loss if there are mortgage defaults for its funds mix of loans.  Makes one think- loan originators would be doing the market a service if along with property insurance requirements for loans in the respective states there would be either an EQ insurance requirement, or even a parametric option for mortgagors in the event of a trigger occurrence.  Hedging ‘up the food chain’ is good for the portfolio manager but does not help address the potential cause of default.  Swiss Re also has the unique opportunity to market the parametric default risk products to primary mortgagees.  It’s a changing risk mitigation world.

Problem hiding in plain sight

First California, now Australia in the news due to property owners encountering challenges with property underinsurance and unexpected increases in property repair costs.  These concerns are not new and become front burner issues each time a significant regional disaster occurs, always attracting the attention of those who sit at the head of the political insurance table, the insurance commissioners.  California’s commissioner enacted a moratorium on policy cancellations in brushfire areas (1 million property owners involved), and Australia’s Treasurer Josh Frydenberg recently asked Aus property insurance carriers for detailed information to help the government and population better understand where insurance recovery efforts stand.   Not Dutch boys with fingers in the dike, but certainly ex post actions for circumstances that pre-existed the respective regions’ disasters.

At least in California the primary drivers of the problem are property owner valuation knowledge (or lack of it), ineffective underwriting valuation tools, policy premium and market share competition driving carrier lack of enthusiasm for change, and unpredictability of post-disaster rebuilding costs. Also- misconception on the part of the public- few policies (close to zero) include wording of restoring to pre-loss condition, or replacement with like kind and quality.  The reality of the underinsurance problem is that there is now a de facto rise in insureds’ ‘deductibles’ after a disaster due to inadequate coverage limits. The ‘deductible’ effect is mitigated by insureds employing personal property settlement proceeds in the dwelling rebuild costs, but all in all it’s a relative fools’ game.  The worst effect is the extreme hardening of the property insurance market to the point where dwelling insurance becomes unavailable and/or unaffordable. The easy fix is better upfront estimation of rebuild costs, but even with that there is then a problem for carriers- the marginal premium increase suggested under current methods in moving from a $500K limit to a $750K limit is far less than a comparable change from $250K to $500K, so is there an overarching lack of motivation to raise coverage limits?  An unexpected related potential effect for carriers- earlier triggering of reinsurance treaties due to the weight of maximum losses and lessening of rei appetites for renewals under existing agreements.   Without question structural changes (no pun intended) are needed in property policy valuations and underwriting for areas where the frequency of regional disasters is high.

*Contrarian viewpoints of an industry observer, not to be confused with that of mainstream press, and presented in the light of knowing that there are many forward-thinking players in the industry who will work to lessening the effects noted above.

#innovatefromthecustomerbackwards  #newinsurancebalance

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Australia’s Open Banking Dream Drifts Away

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

It would seem Australia’s hopes of having a quickly implemented open banking regime are fading fast, if not completely transparent already. An already delayed start date of February 2020 has been pushed out to July 2020, causing much consternation in the startup community, as fintechs continue to battle with unpredictability around the regime.

On top of this, fintech advocacy groups have highlighted the significant costs that fintechs will face to become accredited to use the system, making testing product-market fit near impossible, without significant upfront funding. As most founders will know, this is hugely problematic – most investors want some of the chicken and at least the egg before they’ll part with their dimes.

To add insult to injury for fintechs downunder, consumer groups are pushing for screen scraping technologies to be banned once open banking is in play, arguing that legacy fintechs must migrate to the higher standards of the open banking regime.

In principle, I’m sure many fintechs, even those on ‘legacy’ screen scraping technology, would migrate in a heartbeat – if it were commercially viable and simple to do so. But the fact of the matter is it isn’t. Firstly, it’s not even available, and secondly, what should be a simple and open set of standards, is mired in controversy and debate amongst stakeholders.

What seems to be lost in this debate is that for decades banks have sat on legacy data that has seen them pass on billions of dollars in unnecessary costs to consumers. If the nation is serious about actually challenging the stranglehold banks have on consumers, and the free-for-all of fee taking that currently exists, they would be bending over backwards to create an environment that allows fintechs to flourish.

Australia needs to invest in this infrastructure and invest fast. We need to stop talking about it and just do it. Internationally, it is somewhat embarrassing that we cannot even get this done. The UK is already years ahead of us. Developing nations, on our doorstep, are likewise leapfrogging us.

Stagnation and uncertainty are the enemy of progress, and fintech seems to be caught right in the thick of it. Investors and founders be warned.

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Blockchain Thematic ETFs from the West to the East

blockchain ETFs

Listing on exchanges continues to dominate. Whether listing on regulated or unregulated Centralized exchanges (CEX) or Decentralized exchanges (DEX) of any sort; this has not changed at all for assets.

Brain Armstrong, the CEO of Coinbase, in his New Year medium post, foresees that we will be moving from a predominantly trading & speculation phase of cryptocurrencies and Tokens of all sorts, to a phase of actually Using Tokens.

In the meantime, however, incumbents and startups continue building all the necessary infrastructure to issue, custody, settle and clear, trade and invest of all sorts of digital assets.

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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Blockchain exposure a la ancienne

Investing via listed equities will never die. In fact, I foresee Blockchain will enable it grow exponentially. More listed equities, across more jurisdictions, better information, fractional ownership.

For now, the traditional way to participate in the growth of the Blockchain sector is to buy publicly traded stocks. For example, mining companies, companies building enterprise software, or hardware.

Hut 8 which is the largest publicly listed bitcoin-mining company worldwide. Listed on the Toronto stock exchange Hut 8 Mining (TSXV:HUT) has a market cap close to $100million. Most pure blockchain companies, have small capitalization (less than even $10mill). As a result, the market sees more potential to capture the upside in Blockchain by investing in publicly traded tech companies with significant strategic exposure to the sector.

Blockchain Stocks that lists and tracks such stocks, shows companies like Accenture, MasterCard or funds investing in the sector; as their picks in the List of Blockchain stocks and their list of Large cap Blockchain Stocks.

Traditional investors can otherwise consider public equity exposure to the Blockchain sector through thematic ETFs. In the US, there are 8 Blockchain thematic ETFs that have accumulated $240million?

Screen Shot 2020-01-13 at 10.42.03

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Only 4 of them have managed to accumulate more than $10million and none of them have surpassed the $100million mark.

The top holdings of the two largest Blockchain ETFs are companies like the Japanese IT providers – GMO Internet and Digital Garage.

GMO is the company preparing for the launch of the first Yen backed stablecoin – GYEN. It is also expected to launch a new Bitcin mining device with low cost and electricity consumption, the B2 miner.

Digital Garage another Japanese company (4819-TYO) with and an ADR. They teamed up with Blockstream last year to serve institutional needs in the sector in Japan.

BLOK ETF has more than half a dozen Japanese companies in its top holdings, like LINE, KAKAO, SBI Holdings, and Korean Rakuten.

BLCN is more diverse with some Asian companies, like JD, Baidu, and LINE.

All Blockchain ETFs contain Bigtech companies, like Alphabet, SAP, or Nvidia.

In Europe, there is the Invesco Elwood Global Blockchain UCITS ETF listed on the LSE (BCHN:LN) with $38 million AUM since its launch last March.

Top holdings are similar to the US ETFs

Screen Shot 2020-01-13 at 11.18.01

In China, the Shenzhen Stock Exchange just launched a Blockchain 50 Index that includes listed companies on its exchange in the Blockchain sector.

blockchain-50-index-constituents-1536x765.png

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The top holdings are Ping An Bank, Midea Group – electricity company, East Money Information.

The Shenzhen Stock Exchange, has applied to the China Securities Regulatory Commission for permission to list a blockchain exchange-traded fund (ETF) benchmarked off its index.

All these investment wrappers, are essentially offering tech exposure with a Blockchain tilt.

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