Lessons Learned from Blockchain Consortiums & the Emergence of a New Type of Network

[Music] i don't know if i'm pronouncing well sorry about that but i'm really happy to have him here he will do a very interesting presentation about the lessons learned from blockchain consortiums hello welcome today hi danielle thank you very much for having me today thank you you're welcome let's start the the stage is yours all right um so today we're going to talk about the blockchain consortium and the emergence of a new type of network uh but first of all to introduce myself i'm guillaume de sho i'm the head of sales and business development at consensus i joined the company three years ago and the rest of my career have been mainly in financial institutions so for those who don't know yet consensus consensus is a world leader a pure blockchain company providing blockchain infrastructure and application to developers enterprises and to users as a decentralized waves some of you know our products most probably truffle has a nine million uh users uh inferior which is the main access to the main the portal to the to the domain net uh has uh 14 000 developers daily uh active on the on the platform um quorum is the number one uh uh ethereum client adopted by uh most companies and super nationals and um encodify is our suite of application where we have issued more than a billion dollars of tokenized assets most of our clients are our french authenticians industrials but also startups and protocol on the decentralized web so we are we tend to cover the the whole spectrum of uh of blockchain so to talk about the lessons about consortium it makes sense probably to first step back a bit and look at what happened over the the the last four four years um indeed opportunities have evolved over time uh with the technology so as the nature of those consortiums so if we look back at 2017 and uh 18. the first use case were really very much in track and trace um uh like lvmh and uh and a few others commodities with act uh congo uh coventies and trade finance particularly on the on post trade so blockchain at the time and uh still now because those platforms are now in production are mainly used to encore data on private networks digitize workflows and create those decentralized network of nodes between the participants with the main idea to reduce fraud and the cost of processing or to increase efficiency of some processes uh we'll see later that uh um these first consortia uh the results are mixed in fact uh what you can tell already after two three years that not all of them managed to go to production despite the millions of dollars spent in into them in some cases some business models were not probably sold the adoption model uh the need for uh from the users taking into account the integration into legacy system the cost to run the network um so it's been a learning curve for all those sponsorships and but we'll see a bit later the result and then there is a new uh wave of opportunities and types of consortium with uh the rise of the tokenization and uh it's interesting to see that uh from uh where at the beginning those consortia were focusing mainly on the unused cases uh slowly slowly now they've been focusing more on the on infrastructure indeed all financial institutions asking themselves how can i custody digital asset but also how can i custody cryptos because my clients get are have now cryptos how can i shoot digital assets it can be bonds green bonds equity security loans shelf and structured nodes how can i distribute them to my clients more efficiently and settle them on and finally how can a whole process and distribute digital currencies and how can i process instant payment uh unchained so all these infrastructure parts of the french institutions um are uh are growing and they will need to be uh interpretable with each other with uh or between the old institutions and they will have to um to find a common network uh to operate and this is why we see now some the emergence of a new blockchain consortium around asset organization digital coins and cross-border payments it's interesting to see that the regulators uh will be and are the key enablers for those uh consortia as an example in january the occ has allowed franchision to validate and record and process payments um and other bank activities by issuing stable coins and exchanging them against fiat currencies such as dollars so regulators are key to enable the creation of a new blockchain consortium finance and it's true for example that [Music] the regulators will be needed in particular for the settlement of securities this is currently uh done by csds and of even though the csds may participate in the in the setup of those new types of consortium regulators will have to approve them as uh those platforms as a new source of truth and registry for securities so regulators are um probably underestimating the need of the french institutions to build this common infrastructure they they're very cautious and it's interesting to see that there will be probably a competition between uh local regulators uh in europe and then probably uh in another region uh to host uh those consortium because it will redefine the future of finance so let's talk about the uh the lessons uh that we uh we learned over the last of the last few years not all consortia as they were saying and introduction have uh succeeded um 10 million dollars have been spent in to do most of them but unfortunately only a handful of consortia have succeeded so what does a success look like for a consortium the first wave of consortia are now in production and not all of them are success for the second wave of consortium we're just mentioning issuing assets or current digital currencies processing payments some of them are getting ready to be in production but it will take still a bit of time so three main parameters to look at the success of these platforms adoption uh it's easy to look at the number of legal entities on those platforms uh nodes or uh tenants but also the number of users of uh of the platforms those platforms have been built ultimately by for the some end users most most of them are in back office a middle office function and even their top management want them to to use a platform if it's more work for them to use or if it's not a friendly user if the ux is not good enough those uh those people will not use the platform so it's easy to look at the number of transactions of uh on the on the platform it's interesting to see that for a number of years not many transactions have transited through those platforms it can be a shipping platform can be a trade finance platform there is given that the importance of the legacy systems the the number of transactions have been limited it's interesting to see that uh on the contrary for coventies for instance which is in production since uh january um all transaction uh in the trading of agriculture goes through uh the platform there is no parallel run uh which means that the users or traders are not booking at the same time uh a trade in their legacy system as well as on the under platform everything is done to the platform so that's really a key criteria for for adoption uh prevent uh well make sure that people are not double spending that time on the one platform and at the same time using their legacy systems revenue not many platforms have managed to generate reviews so far as far as i know i can only manage congo in trade finance committee trade advantage which managed over time to generate several million of dollars of uh of of revenue um it's not easy because you need to find users are keen they love decentralization but all equally they it's it's hard to find a pricing model to to attract new users to process uh to process a kyc or uh to deal with a letter of credit um is relatively cheap obviously in the current setup and blockchain needs to bring additional features uh to help users uh like a speed uh prevent fraud etc some consortium have tried to monetize the network so the idea is here is to be the apple store of uh of the consortium to build the network it costs quite a lot of money to build a network between large entities and then you build your own use case and try to open yourself to other startups and and companies willing to build on top of the network and i said that so far not many consortium have allowed external companies to do that it's still closed but it's uh it's one way for them to uh to monetize a network in the long run and finally um equity value and so here um we know that uh when consortium create a new social uh uh are emerging uh they usually have money for a year or till the mvp sometimes six months after but they still always need to go to us to a second or third round of equity funding and only those who are successful uh managed to do so um so equity value is important it's interesting to to see that uh congo for instance went through uh two two other rounds of funding with original and new investors uh it's worth mentioning as well the trade lands um which even though it didn't create uh well it managed to create uh adoption probably not a lot of revenue yet uh but it has managed to create a strong equity value because it got almost all the market so i won't go through all the details here um but it's uh [Music] taking into uh consideration all what happened over the last few years we know what works and what probably doesn't work uh when financial institutions or corporates are building a construction in fact it's all about governance uh whether it's a strategic and business governance or operational governance or network governance it's uh only uh governance so um let's look at a a few uh items for instance so business model for adoption um [Music] and a key success factor is to have a larger disabled market confirmed by future users and it's true that uh we have seen uh many consortiums who saw there was a large adversarial market uh but in fact and so they built those networks they developed the application but in the end there was no uh addressable market i i can give an example of for instance issuing a private shares issuing unchained uh shares for smes for instance well there's uh it's a great use case and there was uh some uh consortium around it but there was no real market around it funding is a key criteria as we just said of a success um those consortium need to have funding for at least uh mvp mvp can take uh between six months for in the case of congo to uh 18 months and uh there's a really uh the second round of equity rates come usually six months after mvp so to finance uh consortium for 18 months [Music] level of funding required is relatively strong platform structure and design the the the main disease sometimes for uh for those platforms is to uh try to replicate the current workflow uh in the uh uh in the industry while those those uh platforms which are successful they try to reinvent workflows uh they know that they will disrupt uh sooner or later some interiors but it's inevitable and it has to go through that successful platforms are also designed for uh users uh as we said before let's remember that the at the end of the chain there are some concrete people using those platforms and those places need to be made to make their life easier finally tech choices as part of the strategic and business governance uh let's try to avoid the vendor locking let's try to choose a technology which allows you to uh to go away from uh from the initial vendor or the uh technical supplier um let's try to find a a [Music] vendor which can go into production uh we know that for those consortium uh blockchain is probably 20 10 20 25 and maxima of the whole developments and not a lot of japanese have a experience in going into production control of the infrastructure cost and scalability so those infrastructure cost a lot of money and the idea is really to control the cost cost of uh of your supplier licenses for instance uh it's sometimes easier to go on the open source technology there's a second uh type of criteria which is more operational which means the network governance which is more when the company is set up and and when the other business models have been done and what happened with the [Music] concretely how the the platform is built we know that from our experience when there is no independent a new company where there's a no dedicated team uh with product owners and program manager as part of this uh legal structure um it's it's harder to to be agile to move forward to be innovative we know that yeah when when shareholders get involved into the governance too often it becomes very difficult the pricing is one of the tricky things of those consortium they need to find an efficient pricing model for the users uh then to attract them make sufficient features uh attractive for those users and and be able to recharge part of the cost of building those consortium i'm gonna move to the next session which is so you understood that um those consortiums are difficult to build right uh competing companies uh institutions or corporates of a certain industry need to work together uh define the proper governance between them convention management build the decentralized network go into production all of that take minimum of two years from the start of the discussion between shoulders to the production so i couldn't make that speech we start talking about the uh the rise of defy and the market attention because this is going to impact the way consortia are behaving and uh and and the next type of uh of consortium so i wanted to uh to talk about this quickly about the rise of uh of defy and explain the impact of those [Music] on on corso so you all know uh that uh that over the last uh few months we've seen the rapid rise of of g5 and i've listed here a few uh a few companies like uni swap or chain link or rv for instance those companies which didn't exist only a few months ago and uh have which have a market values or market cap of uh uh for billions so if you look at the uni swap for instance they have a now a market cap of 17 billion dollars they are making revenues of 115 million dollars every month so those startups in defy which are reinventing um finance and the traditional finance have managed to do the three things i was mentioning before they managed to get adoption they managed to generate revenues and they managed to get a strong equity value and those startups which are all on the midnight are emerging they will continue to grow i'm mentioning t5 but i could have mentioned as well other types of of of startups on chain uh like uh filecoin for instance conferencing protocol lab falcon didn't really exist uh maybe in october i think 2020 and which has already a market cap of 9 billion dollars so it's not only defy it's also um it's also the way i really interact with uh with the webtree so it's interesting to see that for uh every financial instrument or function there is already a protocol so on the mainnet those startups are reinventing finance it can be mine in monet in exchanges brokerage insurance payments asset management there is already a startup reinventing the traditional uh business model so i wanted to show you as well uh this one this slide uh which compares you uh the the defy ecosystem between 2018 and 2020. and as you can see it has a triple and between 20 20 and 20 21 it will continue to to grow and those device startups are replicating uh multiple patterns in financial services and they have grown in parallel of fintech solutions fintech solutions called startups so they will continue to grow and and and probably compete with the the consortium that that i just mentioned before there is also mainstream attention adoption um of the blockchain technology you all heard about the nfts this is a rush uh that we have seen for the the last few weeks uh only uh and here i'll provide the example of the uh 16 million dollar auction at the at christie so everybody is interested by those non-functional tokens and uh that's another sign that the main net but also blockchain technology is evolving the regulators are paying attention to that they are providing licenses granting um authorization or e-money licenses to uh to those startups so they're not very they're not defensive they're not uh trying to prevent those uh startups from emerging uh so here we're providing the example of rv which has an electronic money license rv which is also rethinking about uh how to lend money to uh to to smes to the real world of assets so all those startups are reinventing finance so what does it mean exactly for uh for consortium it means that um the traditional institutions uh so so far they built private networks on the on above the main net and they were concerned concerned by um [Music] by the privacy or the scalability of some data etc the main net has evolved a lot now the technology is ready so those financial institutions and consortium need to move to the uh to the main net they need to keep innovating to answer the need of their customers they need to create platform which will create immediate benefits for the customers it can be issuers like like a client and finally they need to create business model we generate strong revenues and equity value to keep investing and we've seen that this is the paradox that if they don't do that they're facing uh the risk of being disrupted uh in their current business models so i wanted to thank you very much for allowing me to make that keynote and if you're interested to see how you can adapt and keep up with the rapid space of development in the industry uh feel free to contact me and danielle i don't know if there is any question you want to ask me here i think there's one question uh from uh yeah correct yeah there are a couple of questions that i paste them here one is from rodolfo who is one of the speakers also in the coming days he's head of blockchain at hankel and he was asking if you could elaborate on how best to avoid this vendor lock-in you spoke of especially if you have no or small in-house blockchain team yes so the answer to that is to focus on a large ecosystem so if you look at the ethereum you have half a million developers in the world building on solidity that's a huge ecosystem and so you have the choice uh to choose your uh your vendor and if you use that technology then you will be able to switch from one vendor to another on the other extreme if you [Music] take a technology where the developer ecosystem is very very limited or it's not open source then you're locked in with your uh with that provider i i just make a quick comment on the fact that some technologies have introduced themselves as being agnostic to uh to technology uh independently from uh agnostic to corda fabric or even ethereum let's look let's remember that those companies are um are small they precisely don't have an ecosystem and this is type of uh locking vendors that you will face by using that sort of technologies any questions okay great there's another question that asks is there a real life example of where blockchain is actively working um yeah well so i can probably talk about uh what i've been doing myself so we launched coventies in production in january uh covetous is a consortium about uh of the main agri traders with uh gargle which refuses adm and um [Music] the use cases is a pretty simple you have a buyer the ultimate buyer is buying from a seller and this seller is himself or herself buying from 10 or 20 buyers and and the chain of buyers and sellers is extremely long at the same time the those uh the documentation uh need to flow from the first buyer to the ultimate seller and from the internet seller back to the ultimate buyer and here it the chain was everything was done by email or legacy systems it took week weeks or weeks to um to get the information from the first buyer to the ultimate seller and now thanks to uh to coventis 100 of those transactions are are done on on the platform uh the documentation um is flowing instantly from the first buyer to ultimate seller and uh and transferred in real time and so that's i think a very good example of where blockchain works and bringing immediate uh added value to companies and users it's all good great answer yeah i saw a couple of questions regarding nft i mean i mean you're global head of sales and business development so you are closer to you know bigger companies b2b sales but is there any interest of those bigger companies in the all these nft craziness sorry what what's your question daniel exactly what is what yeah if you are seeing some interest from bigger companies in all these nft craziness if they are actually interested in how they can apply what we've seen recently uh into the the industries it's not um yeah it's i i don't think it's a it's crazy um so on our side at the consensus we're just launching a new platform called palma plm uh which will um issue and uh in which we create a network for uh for nfts uh this system is joint venture with uh damian hurst uh the very feminist artist but also uh david ayman the uh the producer of all the harry potter uh movies but beyond that and beyond that platform we got interest every day from uh the best uh luxury brands in the in the world uh it can be watches maybe bags but yeah it's uh it's flowing as you can see uh christie's has uh issued a sold an nft for 69 million dollars so all the ritual brands are looking at it it's also in the uh in the area of sports football club soccer teams uh or basketball teams are selling their collectibles they're all getting ready for that it's it's already a success it's already working actually so but this will be only growing because users actually want to buy nfts great we have two minutes left so i think we have the light the last question here i saw a comment that said consortia works best in concentrated industries such as pharma where you only have a handful of big global players what do you think yeah it's uh it's it's all about adoption so if you need to um uh if you need to if you represent uh uh with the four or five big players you represent 70 or 80 percent of an industry it's uh it's much easier obviously to uh to get adoption uh you need to be cautious as well that uh uh about the antitrust regulations so all those big platforms need to be approved by your local uh by anti-trust regulators but yeah agree um but maybe it depends uh probably so in pharma it's true you'd have a limited number of uh of players uh in banks you the community is uh is quite quite wide but if you look at at the bond market probably you have probably 10 to 15 participants which represent 80 percent and this is still manageable i think in the end the issue is governance and it's much harder to do to uh to have governance with 15 big players than five but as long as those platforms are open and can invite more players there's nothing preventing the emergence of consortia with five six players yeah okay thank you we have just one minute left people were asking if they will be able to download the presentation yeah sure with pleasure i will send it to you danielle and if you want to check it out we'll make it we'll make it possible great thank you so much