FinTech trends in big data, data science and machine learning have turned the industry on its head in the last two years, and now ICOs and security tokens – emerging as the first blockchain killerapp – have further revolutionised the space, coaxing it out of its niche corner into the light of multiple-sector markets and the awareness of the general public. This powerful combination could provoke a huge economic boom as illiquid shares become liquid assets that anyone, from anywhere in the world, could have access to.
The FinTech industry has long since been at the spearhead of innovation, with the industry benefitting from significant investment capabilities and fast speed of processing, evaluation, and adoption of disruptive technologies. But only in recent years has this once largely behind the scenes domain exploded with a boom so bright it has attracted the intrigue and interest of the world.
Like many other societal shifts, the eruption of FinTech innovation into the mainstream mind has come after a blend of underlying currents that have gathered momentum over the last 5-10 years, laying the foundation for unprecedented explosion of opportunities and innovation.
Automatisation, including investing in automation software to help with endless spreadsheets and emails and using different trading robots for trading and investing, were among the most prominent trends of the previous 5-10 years. But the same period also gave birth to the concepts of P2P lending and crowdfunding, which laid the foundation for the emergence of the ICO and security token.
From 2016 onwards, these trends, combined with big data and machine learning, have accelerated time in the FinTech world into fast-forward motion. Meanwhile, data science and Artificial Intelligence (AI) captured the imagination of the world as technological breakthrough promised to bring disruption not only to big business, but to society at large.
“We had a rise in payment systems, including social payments, and saw the beginning of more widespread coverage of cryptocurrencies,” notes Nodari Kolmakhidze, Chief Investment Officer at Cindicator.
Now, three quarters of the way through 2018, its a year that has already made its mark in history as the scale and speed of FinTech innovation continues to escalate. The focus has been on developing next generation protocols to scale up blockchain capabilities, on security tokens/STOs, and on a clean-out of the ICO concept. These trends in turn have helped to reduce market volatility.
Kolmakhidze expects to see a further rise of high-throughput blockchains and DApps that will be able to handle large volumes of transactions and clients: “We will also see huge improvements to UX in applications because most of them now are just not ready for wider adoption. Applications have become clean and simple with most of the unclear blockchain stuff working in the background.”
The first half of 2018, he says, “was overwhelmed with ICO projects that were focusing on building high-speed blockchains.”
This started with Credits which launched its ICO in February 2018, as a project aiming to hit 1,000,000 transactions per second (tps).
Then other competing projects emerged including Matrix and Quarkchain, with ambitious aims of 100,000 tps or higher.
“I think this surge was mostly because of ETH network congestions
(Cryptokitties as an example) and Bitcoin’s slow transaction time that
kills any possibility of Bitcoin’s pure retail usage, i.e. in stores,” Kolmakhidze explains.
Next year, he believes, “we will see the rise of high-throughput blockchains when current or new projects will run their mainnets – because there could be a huge demand for such platforms from industries where the time of transactions really matters – retail stores, banking, fintech, IOT etc.”
An example of this, he says, is Binance, which started developing their own high-throughput blockchain to build decentralized exchanges due to existing solutions not being able to support such products.
The ICO fledgling space has already begun to see a clean-out this year, “basically we will see how non-efficient ICOs will go bankrupt because of high costs.
“We will have a cleaner market for new ICOs without obvious bad projects.
“ICOs will have to have clearer grounds to launch and have any chance of competing in this field,” says Kolmakhidze.
“We are expecting dozens of projects to go bankrupt or just stop all work, the cause would most likely be bad management of company’s funds.
“In order to survive, other projects will cut their spending, reduce their staff, salaries, and cut budgets for advertisement spending,” he says.
This could have a knock-on effect of helping to cut the costs of launching an ICO as exchange listing and advertisement prices drop along with decreasing demand from companies.
The good news, says Kolmakhidze, is that “in the end this will lead to a more healthy ecosystem – overall costs/prices will get down to normal and this may be a cause for future new projects to come in this field again.”
As the ICO market space undergoes a clean out, the security token and its surrounding infrastructure continues to gain momentum: new blockchain projects aim to build a platform for security DApps, with smart contracts supporting security token features like paying dividends, buybacks, and voting.
“We notice several projects with already running businesses that are ready to sell a part of their equity in the form of tokens,” says Kolmakhidze.
Increasing use of STOs is also expected to be spurred by that fact that it will become harder to sell utility tokens, since utility token holders receive no specific rights to dividends. Companies will likely aim to attract funding using tokens with direct financial returns in the form of dividends or buyback.
However, Kolmakhidze warns that all these developments will depend on regulations: “Some experts claim it’s already here in many countries, not specifically in the form of tokens, but just for usual securities like shares or bonds. But it is still unclear if companies may use this existing regulatory framework for securities in the form of tokens.
“We will also further develop valuation models which might help make prices more efficient.
“In contrast to traditional equity markets, the crypto markets are quite
volatile and to a large degree, news driven. The entrance of new large
market participants, clearer regulations, as well as more widespread usage
of common valuation metrics can have a stabilising effect on the market.
Kolmakhidze forecasts that further research and acceptance of valuation models could help to spread a more fundamentals-based view of certain crypto assets which would lead to more efficient pricing. This will help to
identify over- as well as undervalued assets and drive investors accordingly.
As innovative methods of exchange and fund-raising in the FinTech space progress they will become continually more efficient, the market less volatile, and this will further open the doors to professional market-makers and fund managers.
The knock-on effects will be felt throughout wider society as illiquid shares become liquid assets that are open to a democratic and open investment process.
“Anyone from anywhere in the world will be able to own a share in a small local company on the other side of the globe,” says Kolmakhidze, “it’s pretty much a process of opening up all businesses to global liquidity.”