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LEADERS LEAGUE: What proportion of the Swiss economy does cryptocurrency and blockchain technology represent?
Francesco Abbate: It represents a mere fraction of it, potentially below 0.1% of GDP and employment. Despite the market capitalization of coins reaching around $1.1 trillion, this is still less than Apple’s stock value alone, thus the industry remains niche. Major players have yet to fully engage.
Notably, cryptocurrencies like Bitcoin and Ethereum are only fourteen and eight years old respectively, underscoring how nascent the industry is. The rapid pace of innovation is evident, with daily updates and improvements, especially in decentralized finance (DeFi). The current framework is more an investment in the industry’s future potential than a reflection of its modest present influence.
Given the rapid transformation and acceptance of crypto in the financial sector, how will it dovetail with traditional banking in the coming years?
When we started in 2017, we struggled to even open a bank account, due to the word “crypto” in our name. But in just six years, we now have relations and engagement with all the major banks. This shift was primarily driven by consumer demand.
Banking partners told us they kept getting questions about crypto. They realized that not having any crypto interests at all was a bigger risk than having minimal crypto exposure. Diversification was shown to reduce the overall risk and enhance portfolio performance. If you have a small level of exposure and things don’t work out, it’s manageable. But if things do go well, the upside is substantial. It’s an asymmetric bet. Many asset managers have come to the same conclusion. Instead of betting on just a few potential winners, it’s smarter to spread investments across various technologies, blockchains and companies.
Remember, in 1998, many might have bet on AltaVista, not Google. Where’s AltaVista today? Hence, companies are leaning towards investments that offer a wider exposure like trackers, baskets or funds. This way, if an asset like Terra-Luna or FTX doesn’t perform well, the overall portfolio can be rebalanced and protected. I firmly believe this approach is the future.
In 1998 many bet on AltaVista, not Google, so it’s smarter to spread investments across various technologies, blockchains and companies
What is the nature of your collaboration with traditional financial institutions?
We provide them with a streamlined solution for investment ideas, consulting, and products that they can offer to their clients. This way, they don’t have to build an extensive in-house team, particularly given the technical skills required in understanding protocols, blockchain dynamics, and finance. Without this expertise, it’s hard for banks to make progress. With the asset and wealth management market being so fragmented, many managers are eager to rely on industry experts like us.
What current approaches do blockchain startups or established companies employ for market entry?
Blockchain startups often employ a distinct marketing strategy. Initially, the focus is on community building. Startups look for a niche of enthusiasts who appreciate what they offer, such as efficient cross-blockchain swaps or lending protocols. Uncommon channels, like Twitter (X), are pivotal in this space. Additionally, platforms like Discord or Telegram are extensively used to nurture the initial community. Once established, word-of-mouth takes over, driving growth. However, challenges arise when scaling. *
The leap from zero to 1, in terms of growth, is usually achieved through the aforementioned channels, which demand specific expertise. But progressing from 1 to 100 entails more advanced marketing and business strategies. Early-stage startups often lack this expertise, having been founded by product and software engineers with a guerrilla marketing mindset.
As scaling demands increase, startups begin to attract professionals from major companies, mirroring the trend of individuals transitioning from web 2.0 to web 3.0 entities. This talent from giants like Google, Facebook or Microsoft bring essential managerial skills. Some startups even offer lucrative packages, potentially utilizing token-centric models, where tokens from the company’s treasury or foundation compensate employees. The expectation of token appreciation further entices talent.
The ability to efficiently swap blockchains is a significant consumer pain-point right now, and there’s immense benefit for those who can provide a solution
Regarding emerging investment opportunities in the crypto space, what do you believe holds the most potential?
I genuinely believe that DeFi hasn’t yet showcased all its potential. We have much left to explore, particularly in the areas of lending, borrowing, and incorporating real-world assets into DeFi. A recent article from JP Morgan pointed out that RWAs, or real-world assets, are projected to surpass $1 trillion. It’s a vast domain and we’ve only just begun to tap into it.
Another trend that has caught my eye is the Layer 2 (L2) on Ethereum. Ethereum’s blockchain can be particularly cumbersome and costly, especially during periods of network congestion. Layer 2 solutions like the newly launched Optimism and Arbitrium aim to make operations more scalable, cost-effective, and quicker.
Lastly, while the crosschain protocol remains a challenge that no one has truly mastered, it’s a crucial area of focus. The complexities and risks associated with it are high. In fact, many of the hacks we witnessed in the past year were linked to bridges and crosschain points. However, I’m confident that some companies will navigate these challenges successfully. The ability to efficiently swap chains is a significant consumer pain-point right now, and there’s immense benefit for those who can provide a solution.
As pioneers in the security token offering (STO) space, could you shed some light on this landscape?
We began delving into the STO space quite early, back in 2018 in fact. That was a time when the concept was so nascent that it was challenging to even explain to people. The backdrop then was the busting of the ICO (Initial Coin Offering) life cycle. A key issue with ICOs was that people mistakenly thought of them as securities or at times were not registered securities, leading to complications in the process. This paved the way for companies to think: why not sell real shares or securities using a new method? This method evolved into something of a hybrid between an ICO and a crowdfunding campaign. When you integrate this approach with blockchain, you unlock numerous advantages like simplicity, transparency, cost-effectiveness and liquidity. A token can represent a share of a company, and trading such a token onchain is straightforward.
However, this STO trend didn’t pick up as expected, primarily due to poor timing. 2018 marked the end of the 2017 Bitcoin bull-run, which led to waning interest. Though the technology and the idea behind STOs were solid, very few companies managed to capitalize on it. Fast forward to now, the trend has evolved into real-world asset tokenization. This feels like the natural progression for STOs, whose time may now have come.
Interview by Aude Ghespière
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