What to expect from the new FATF crypto-guidelines?

Published Juli 12, 2019 on Hackernoon.com and Altcoin-Magazine and Medium.com and Thetokenizer.io and Blockchain4innovation.it


The FATF (Financial Action Task Force) has recently issued a new set of guidelines which are applicable to the crypto sector, mainly with regard to Virtual Assets (VA) and Virtual Assets Service Providers (VASPs). But let´s bring some order into something that might  otherwise be slightly confusing and which implications have generated some degree of alarm in the crypto community. 


 What is FATF

This financial task force was created back in 1989 by the then G7 ministries to set standards and promote the implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.  The FATF is not a legislative body, it does not have binding regulatory power, it is therefore merely a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. Its guidelines are just that, guidelines, which means they are neither laws nor regulations and are not binding for anyone until they are adopted and implemented within national jurisdictions by member states.  However, FATF power shall not be underestimated. In fact, member states who do not comply with its guidelines could be blacklisted and therefore subjected to stricter controls in their interactions with other countries within the legacy financial system. At present only two countries, Iran and North Korea, are blacklisted while a number of other countries are being closely monitored, among them Panama, Syria, Bahamas, Pakistan and Tunisia. Since 1989 FATF has grown into a network of 38 member countries covering over 200 jurisdictions worldwide thanks to a number of affiliate organizations. Its reach is undoubtedly global.


Recommendations and Guidelines

FATF has operated by releasing a set of Recommendations and subsequent interpretative guidelines.  The latest set of Recommendations was released in 2012. Periodically then - whenever new developments arise - it is necessary to re-interpret the Recommendations based on the new developments.  Therefore new interpretative guidelines are regularly released. In February 2019 an Interpretative Note was issued, which then became final in June 2019 when this new set of guidelines - dealing with VA and VASPs - has been released.


Background - Virtual Assets and Virtual Asset Service Providers

This new set of guidelines is applicable to VAs and VASPs as they were defined in the previous October 2018 guidelines.

Just to recap, a Virtual Asset is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. The guidelines exclude digital representations of fiat currencies such as e-money or stablecoins, as well as security tokens or other financial instruments already covered elsewhere by the recommendations. Cryptocurrencies - such as BTC, ETH or XMR - and various types of non-security tokens are falling under the guidelines. As far as utility-tokens are concerned, it seems that the deciding factor which makes the guidelines applicable or not - according to para § 47 - it is whether a token is transferable, exchangeable, fungible or not. Indeed FATF clarifies that it does not seek to capture the types of closed-loop items that are non-transferable, non-exchangeable, and non-fungible...such as airline miles, credit card awards, or similar loyalty program rewards or points, which cannot be sold in a secondary market.


Virtual Asset Service Providers are defined as natural or legal persons who carry out one or more of the following business activities:


i) exchange between VAs and fiat currencies;


ii) exchange between different VAs;


iii) transfer of VAs


iv) safekeeping and/or administration of VAs or instruments enabling control over VAs


v) participation in and provision of financial services related to an issuer’s offer and/or sale of VAs.


The above definition is wide enough to include exchanges and transfer services, wallet providers, custodial services such as those that host wallets or maintain custody or control over another person’s VAs, wallets, and/or private keys, as well as providers of financial services to an ICO.

But that´s not all. Included might be escrow services, like those involving smart contract technology, when the entity providing the service has custody over the funds; brokerage services that facilitate the issuance and trading of VAs; order-book exchange services, which bring together orders for buyers and sellers, typically by enabling users to find counterparties, discover prices, and trade, potentially through the use of a matching engine for buy and sell orders; and advanced trading services such as trading on margin or algorithm-based trading.


 How VASPs will be impacted by the Guidelines

The guidelines update and impact in particular the existing Recommendations nr. 10 and 16.

Under Nr 10 the threshold above which VASPs should carry out a customer due-diligence for the purpose of AML/TF (Anti Money Laundering/Terrorist Financing) is lowered to a transfer of merely €ur/US$ 1.000, instead of the normal €ur/US$ 15.000 applicable to fiat transfers.

Under Nr. 16 the VASP of the transferor must identify and collect all personal information about the transferor and share it with the VASP of the transferee. The same should do the VASP of the transferee. Basically both parties to a transfer must be identified (just like it happens with bank wire transfers).


Comments and practicalities

Frankly, I miss the rationale behind the above provisions which are mostly unenforceable and of little practical use and which will not adversely impact ML/TF activities but will rather increase compliance costs, needless paper-work and maybe slow down the growth of the crypto sector in those countries which will implement them.

How lowering 15x the threshold for occasional VA transactions can be effective against ML when - facts based - crypto laundering represents only 0,081% of the annual US$ 2 to 4 trillion global fiat money laundering problem?

It is like reducing global CO2 emissions by prohibiting farts.

Moreover, how do you practically identify the beneficiary of a non-custodial BTC address? (i.e a new address of which someone privately holds the keys and not an address at an exchange or broker or custodian).  No way.

In addition, this provision will encourage peer-to-peer transfers via non-custodial wallets, which makes it much harder - if not impossible - to track and control for the authorities. For example, I could send funds from an exchange to a non-custodial wallet (where I control the private keys). From that wallet I could then send the coins to a different exchange, and neither platform would see both sides of the transaction.



Unless you believe that the FATF is staffed by grossly incompetent people on crypto related matters, then the only conclusion to be drawn is that the real reasons for implementing both impractical and unenforceable guidelines lie somewhere else.

Is this a try to damage the sector? Is this maybe a clumsy attempt to strengthen the grip of the legacy financial industry on the crypto sector, like they did with the infamous Bit-Licence in New York?

Or maybe is this a US led move to make it more cumbersome for sanctioned countries - such as China, Russia, half of the Middle East, half of Central and South America, half of the African continent and maybe soon also the EU - to circumvent the sanctions by using crypto instead of the greenback?

I ask: Cui prodest?

Time will tell.

Luckily, truly decentralized blockchains (like BTC) were born for that very same reason: to be censorship resistant, resilient and without central points of failure.

Now, the FATF can blacklist financial institutions in non-complying countries.  But what the blacklisting of a VASP will practically achieve? Let´s assume X country does not implement the guidelines. Assume also that FATF blacklists a crypto exchange in X country. The blacklisting can only apply to fiat transactions between financial institutions within the legacy financial system which will be subject to more scrutiny. It will affect investors wanting to transfer fiat funds to that exchange.  But as shown in the above examples it cannot affect peer-to-peer crypto transfers and it will not prevent you and any other individual and business from transferring - from any non-custodial address - cryptos to such blacklisted exchange regardless of the sanctions/blacklisting.  And vice-versa.


As always, draw your own conclusions.

blockchain #bianconiandrea #crypto #thinkblocktank #fatf #bitcoin #moneylaundering #terroristfinancing


The questionable Block.one buyback, the EOS ICO and why with security tokens it would be different

Published May 26, 2019 on Hackernoon.com and Altcoin-Magazine and Medium.com and Thetokenizer.io and Blockchain4innovation.it


The latest news are that Block.one, the developer behind crypto-token EOS, will use some of the record US$4 billion it raised in the 2018 ICO to buyback - in a private deal - at least 10% of Block.one´s shares from early investors. According to Bloomberg, which released the news, this will value the company at a record US$2,3 billion from the US$40 million evaluation of its seed round in 2017.

More details about who are the fortunate shareholders who will benefit from a stellar 6,657% return in 1 year are not known, nor are the modalities of the buyback.


 The problem with ICOs

ICOs have raised only US$300 million in 68 deals so far in 2019 compared with US$6,2 billion in 2018.  Regardless of that and despite the many obituaries, ICOs can still play an important role in funding blockchain based projects with a native token.  ICOs will find their place along with STOs. The problem is that, so far, they have been used instead of STOs, as a way to circumvent securities´ regulations and raise equity - disguised as utility tokens - in an unregulated manner. 


The simple lessons which ICO investors should learn here are:


  • ICOs are not STOs. The token does not grant you any equity or participation rights into the company.
  • always do a thorough due-diligence.  This is basic, but it is too often overlooked by many and I wrote about it in the article Tips for the ICO due-diligence back in 2017. For instance, Block.one is a Cayman Island based company (this is already a red flag) and it is the developer of EOS. EOS is not a company by itself. It is an asset, a product of Block.one. When you buy the EOS token you give your money to Block.one and - in consideration for that - you get nothing else than the simple expectation that they will use your money to develop the product. This may or may not happen. You have no guarantee for that. There are no legal obligations. Block.one can use this money to do that (if honest) or they can pay themselves a fat dividend or buyback their shares (like they plan to) or spend it all to party. They can do anything they want with that money and you have no saying whatsoever.
  • do not even consider buying ICOs which do not have an escrow in place, in a reliable jurisdiction, with very clear terms and conditions and with reliable escrow agents to supervise the use and allocation of the funds raised.

 The difference with STOs

If Block.one had done an STO instead, it would have been different. Depending on the terms and the rights attached to the security token you would have either bought equity rights or a profit participation. Likely, you would be granted voting rights to influence the management of Block.one. To circumvent those rights would be much more complicated and you could still be able to enforce some of your basic rights as a security token holder. Ultimately, you could also benefit from such a buyback (though this is not automatic, it largely depends on shareholders´ agreements and corporate bylaws, which is why a proper due-diligence is very important).


The EOS ICO, red flags were everywhere

For EOS token holders, there have been plenty of warning signs since the very beginning. The amount raised was out of proportions. The company did not have a product. They did not have - and still do not have - a clear plan on how this money should be invested. According to Bloomberg they invested the cash raised in Treasuries, BTC and also US$174 million in VC deals either directly or through Novogratz firm - Galaxy Digital - which was then bought-out with another fat US$71 million check paid with the ICO funds.

Worse, the promoters of the ICO - i.e. Block.one wealthy shareholders - were Wall Street investors who did not need any of that money to bootstrap a blockchain tech start-up. They could have done it easily with their own pocket money.  The ICO was a windfall for them, practically a gift, a US$4 billion wealth transfer from naive token-holders to wealthy, smart and unscrupulous WallStreeters.

That such people would pocket the money was predictable. The signs were everywhere to be seen.  The following thread was posted on Reddit more than 9 months ago:


Token holder 1: Imagine if Block One did an EOS buyback of around $1 billion and then got rid of the coins lowering the supply? Or what if Block One at least comes out and says what they plan on doing with the remaining $3 billion? Either of these could more than double the current price.


Token holder 2: It’s a nice idea, but the reality is that “cash” on hand doesn’t and shouldn’t translate into token valuation very well.... Simply put, tokens are not equity: as a holder, you have no contingent claim on the assets in the event of liquidation, so cash cannot effectively be used as a means to determine market cap. All that cash would go to the shareholders of B1 in the event of liquidation. Very important difference.


Token holder 3: All true, but do not think B1 are doing a good job at deploying resources...


Which is why I would love for B1 to declare where the other $3 billion is going, but of course I guess they could always not honor their promises... Luckily it’s founded by US citizens and has Peter Thiel as an investor (top startup investor)...not likely this is a fly by night in my opinion.


Token holder 4: Bernie Madoff was a US citizen with a stellar reputation as an investor too, and had many prominent people invested with him.


 Token holders taken for a ride

The token holders´ faith was clearly misplaced. Indeed the buyback will happen, but it will benefit solely the shareholders. And the fact that the shareholders were well known US citizens and Wall Street investors did not change a thing. Pecunia non olet, specially for Wall Streeters.

Talking about ethics and principles on Wall Street is clearly naive.  If principles and ethics have ever been there, they are now long gone. That is not the issue.

More importantly though, this questionable buyback shows that token holders are not worth the slightest consideration. In fact, by pocketing the ICO funds, Block.one´s management and shareholders signal a total disregard for token holders´ legitimate - though not legally enforceable - expectations. If anything they will pat their shoulders and will be congratulated by their pals for taking naive token holders for a ride.  Their Wall Street reputation will not suffer, this is just another successful deal on their CV. They will pay themselves and their Wall Street buddies a stellar return and this will secure them plenty of funding opportunities for the next deals. Otherwise - if they had the slightest consideration for the token holders and concerns that their actions may somehow backfire - they would act differently.

At least - before cashing in on a 6.500% plus return - they would give some back to EOS token-holders who are losing 70% plus from the peak and say - at least - thank you.

So token holders, now ask yourself this simple question: if the EOS developer gives you the finger, how much is the EOS token worth for the developer? Moreover, how much should then the EOS token be worth for the market?


Draw your own conclusions...


I will sum it up with Gordon Gekko´s famous quote "Greed, for lack of a better word, is good... Greed captures the essence of the evolutionary spirit. Greed, in all of its forms... has marked the upward surge of mankind...".

In the meantime though, the only upward surge is that of Peter Thiel and his pals´ wealth among the Forbes billionaires...thanks to your money.


Disclosures: I do not own any EOS tokens nor have any interest whatsoever in Block.one activities and businesses

#eos #blockone #blockchain #securitytokens #bianconiandrea #crypto #thinkblocktank #sto #ico


The fundamental reasons to be bullish on BTC and the crypto-sector

Published May 16, 2019 on Hackernoon.com and Altcoin-Magazine and Medium.com and Thetokenizer.io and Blockchain4innovation.it


After a long winter the optimism is back in the crypto world. Sure enough I also share this widespread feeling... though for mostly different reasons.

 So which are the real reasons behind the recent crypto run up?

 Investors have pointed to the Chinese fearing capital controls and to a general flight to safety because of the global geo-political tensions. Although both motives may well be (temporary) concurring reasons - which incidentally also increases the risk for short term speculative spikes and painful wash-outs - my optimism never faded in this long winter and it is much more long term based because it lies with fundamental factors. 

 Simply, it is the institutional money - increasingly attracted to the sector - which drives the growth and will continue to do so.

 The long term planned allocation of institutional funds is enabled by new services being made available to the sector. And this is clearly a far more important and a long term bullish driver than the temporary/speculative flight to safety of the last month.


 Institutional investors have increasingly positive sentiment

Fidelity Investments, one of the largest asset managers in the world, recently announced that it will start trading BTC for its institutional client base. They clearly see the potential. In a recent survey 46% of their institutional client base expressed their willingness to invest in crypto. And this despite BTC was - at that time - down 80% from the 2017 high. Surprising? Not really, institutional investors think long term and are less influenced by short term price fluctuations.  

 Goldman Sachs, despite outspoken critics, has quietly invested in crypto firm Circle. And Circle is now issuing a new stablecoin, the USDC.


New stablecoins are being created

 Also JP Morgan announced its new JPMCoin.  It is an important step. Stablecoins are fundamental to enable frictionless transitions from fiat funds to crypto-tokens. The sector cannot appeal to institutional money without trustworthy and well functioning stablecoins. And the issue here is mainly subjective rather than technological. Can we trust the issuer of the stablecoin? Can we trust that funds are kept segregated? Can we trust that the coin is fully backed up with fiat?

 The Tether (USDT) story is revelatory. Leaving personal opinions aside, the facts are that the latest official declarations by the company point to a back-up ratio of 74% of the coins issued, this despite the company had always maintained that the coins were fully backed-up by fiat funds 1:1.

 With Tether´s credibility tattered, the JPMCoin - or Goldman´s Circle-USDCoin for the sake of it - are very much needed in order to channel investments into the sector.


 STOs and STexchanges are coming

Slowly yes, but this is the key to open the door to investments from the VC sector, from the real estate sector and create regulated markets where tokenized securities can be traded. The tokenization of bonds/debt is already a fact. But the tokenization of real assets and equities needs to overcome regulatory hurdles in most jurisdictions. Still, a few countries are getting ready and the rest will - sooner or later - be obliged to follow. A new regulatory prospectus regime is also coming into force in the EU, which will facilitate investments flowing into the sector.


New custodial, clearing and settlement services for institutional investors are being set up.

Self-custody, frictionless peer to peer transfer, easy clearing and nearly immediate settlement of crypto transactions are often touted as great benefits and advantages compared with the complexity of the custody, clearing and settlement chains of the legacy financial sector (see figure below).

Source: Richard Gendal Brown - A simple explanation of how shares move around the securities settlement system - 5.1.2014


I tend to agree...but only for us individuals. The sector can grow exponentially only thanks to the trillions which will be invested by the legacy financial sector. And institutional money does need institutional grade custodial, clearing and settlement services to operate, the likes of what Nomura, JPMorgan, BNY and Northern Trust are interested into and Fidelity starts to offer or BitGo recently announced here. Clearly, until events like the Quadriga CX can happen, institutional money will wait on sidelines.

Surely this means that some of the complexities of the legacy financial sector (see figure above) will be replicated also in the crypto-sector and that the likes of the DTCC and Clearstream or Euroclear will be needed, but there is no alternative way for institutional money to operate.


To illustrate, in the recently announced services by BitGo one recognises all the tracts of the legacy custodial, clearing and settlement services adapted to the crypto-sector:


- one party acts as trustee, custodian and settler for buyer and seller


- assets are held in trust in segregated accounts (in cold storage)


- firstly an off-chain settlement of the transaction is completed and then the on-chain reconciliation follows


- both parties must have accounts with the trustee to enable the frictionless clearing and settlement of the respective positions



Such new services address fundamental operational issues and risks for institutional investors. The only risk that cannot be taken out of the equation is the solvency risk of the custodian.  But this is a risk that the legacy financial system is accustomed to and which will be dealt with more stringent regulations, capital requirements and insurances.

Does this mean that the too big to fail issue - which was one of the core motives for inventing the Bitcoin protocol - is going to become an issue also in the crypto-sector? Possibly yes, but at least only for the big boys.  Let them play the way they like. We individuals can continue playing the decentralized, peer to peer and self-custody game. But - most importantly and despite the daily critics - the big boys like the crypto-game, they want to be part of it and want to make it big so that they can make a lot of money with it.  As a consequence they will mobilize their trillions, they will invest heavily to engineer a suitable for them infrastructure to trade crypto-tokens and this investment wave will lift all boats. And this will be inevitably reflected also in the appreciation of BTC and all correlated cryptos. This process is ongoing and it is irreversible.

That is the real reason for being - long term - very, very bullish in the sector.

#bitcoin #securitytokens #bianconiandrea #crypto #thinkblocktank #sto #stablecoin #custody #settlement #clearing #tether


The new Growth Prospectus regime: a potent instrument for security token offerings

Published April 27, 2019 on Hackernoon.com and Medium.com and Thetokenizer.io and Blockchain4innovation.it


The time is ticking. On 21st of July 2019 the new Prospectus Regulation (2017/1129) will become applicable in all the EU member states. This regulation will repeal the previous Prospectus Directive 2003/71/EC and introduce a new set of important provisions which may just well be the boost needed by the crypto sector to launch intra EU public offerings of security tokens (STOs).

This new regime was conceived with the purpose of allowing SMEs easier and cost effective access to capital markets across the EU. The regulation enters into force in two different phases.


Exemptions from the obligation to issue a prospectus.

Firstly, as of 21st of July 2018, member states have adopted a new set of provisions in order to exempt security issuers from the obligation of drawing up a prospectus if the offering is under the thresholds set out in the Table below. The thresholds have been discretionally set by member states according to Art. 3.2 (b) of the Prospectus Regulation.  The regulation however sets the discretionary range for such exemptions, which is between €ur 1 Million (non-discretionary lowest threshold which is exempted in all EU member states) and €ur 8 Million (highest discretionary threshold that could be set by any member state).

Countries such as Italy, France, UK, Denmark and Finland have opted for the highest threshold, which could theoretically favour STOs in such jurisdictions. It goes without saying that those exemptions suit really well the average sized crypto startup to enable an easier access to funding within the home jurisdiction. Please note that, because no prospectus is issued here, the fundraising must be limited to the home country and the passporting regime does not apply.


The updated country list can be found on the ESMA website https://www.esma.europa.eu/sites/default/files/library/esma31-62-1193_prospectus_thresholds.pdf


The new Growth Prospectus regime for SMEs

Secondly, as of 21st of July 2019, EU companies not falling under the exemption thresholds mentioned above - and willing to issue security tokens - may do so by taking advantage of a new simplified prospectus regime called "Growth Prospectus". This should be a relatively straightforward and cost effective process if compared with the standard/basis prospectus otherwise needed.


Art. 15 has broadened the definition of SMEs, which could issue the Growth Prospectus, to include companies which meet at least two of the following criteria:


  • had less than 250 employees on average during the year
  • had a total balance sheet not exceeding €ur 43 Million
  • had an annual net turnover not exceeding €ur 50 Million.

Likely, most SMEs in the EU would fall under the above definition. But the EU legislator has gone further than that.  It has opted for extending the benefit of the Growth Prospectus also to non SMEs, in particular to:


  • any other issuer whose securities are traded or are to be traded on an SME Growth Market (such as MTF - Multilateral Trading Facilities), provided that those issuers had an average market capitalisation of less than €ur 500 Million on the basis of end-year quotes for the previous three calendar years.
  • any other issuer provided that:

- the offer of securities to the public is of a total consideration in the EU not exceeding €ur 20 Million over a period of 12 months, and

- such issuers have no securities traded on an MTF, and

- such issuers have an average number of employees during of up to 499.


The specific format and the information content of the Growth Prospectus have been laid out in a delegated act recently adopted by the EU Commission.


Simplified passporting of prospectuses within the EU

Thirdly, also as of 21st of July 2019, the process for obtaining the certificate of approval attesting that the prospectus has been drawn up in compliance with this regulation should become simpler. In particular, the previous Prospectus Directive was implemented differently across the EU. This created a number of frictions with sporadic requirements by certain member states of additional burdens for the issuer - such as the publication of the prospectus on magazines, more publicity requirements, payment of fees and translations.  Conversely now, because this is a regulation and not a directive, no implementation is required by member states in their national legislations. This regulation will be therefore automatically enforced in the national legislations, thereby eliminating the risk for the above mentioned inconsistencies.

Once a Growth Prospectus for an STO is approved in a member state it will be therefore valid for any offer of security tokens to the public across the EU.



The entry into force of the new Prospectus Regulation, with clear exemptions for some security issues coupled with the new Growth Prospectus regime and the simplification of the passporting procedures, should become a potent instrument for companies willing to tap EU capital markets by issuing new security tokens or by tokenizing existing securities.

In the summer 2020,  after one full year from the entry into force of the Prospectus Regulation, we will be able to assess its impact on the crypto sector.


#securitytokens #bianconiandrea #blockchain  #crypto #thinkblocktank #EUCommission #regulation #sto #prospectus #growthprospectus #prospectusregulation #prospectusdirective #passporting


Switzerland and Liechtenstein improve their crypto friendly regulations to favour STOs

Published April 12, 2019 on Hackernoon.com and Medium.com and Blockchain4innovation.it and Thetokenizer.io


Nowadays, tokenized securities are the hottest crypto topic.  Of all possible tokenizations - debts, real assets or equities - that of equities catches the most interest. This despite the fact that it is really debt tokenization that presents the "low hanging fruit", because it is fairly straightforward to implement and it has very little regulatory constraints. In fact, the first EU debt tokenization was recently completed in Germany.

Instead, the tokenization of equities is much more complex due to the amount of regulatory constraints.


The regulatory hurdles to equity tokenization


Understandably, the tokenization of equities is highly appealing to VC firms, investment bankers, business angels, and SMEs; all salivating at the opportunities that this may bring.

Nonetheless, although increased liquidity, tradability, and low issuance and transfer costs are frequently touted as the biggest advantages of the tokenization of equities, few are fully aware of the legal constraints that still limit these potential advantages.

At a recent thinkBlocktank event - organized in Warsaw by Wardynski & Partners - the most prominent among European blockchain specialist lawyers met to discuss recent regulatory developments; such as, the progress made by Switzerland and Liechtenstein towards implementation of a frictionless regulatory environment regarding tokenization.

The main obstacles surrounding tokenization of equities remain: (i) the format of the shares,  (ii) the means and the proof of the transfer, (iii) the link between the shares and the token, and (iv) the objective and subjective requirements for DLT based security token registries. Whenever a jurisdiction prescribes - for instance - the paper format for the shares, the need to enter them into a register held by a public authority, a written form requirement for the transfer, or a notarial authentication to prove it, then such regulatory constraints clearly nullify the purpose and the benefit of a tokenization.


The Swiss solution


At the meeting, Stephan Meyer, a colleague from the Zurich and Zug based MME law firm - which already played an instrumental role in setting up the Ethereum foundation -  has explained the legal and regulatory basis for creating equity tokens in Switzerland. This has been done by a joint venture tokenization platform recently created in partnership with Swisscom.

Under Art. 973c of the Swiss Code of Obligations, uncertificated shares can be issued and the issuer shall keep a book recording the ownership of the shares. Since no other requirements are prescribed under Swiss law, tokens representing equities can be registered and transferred using a blockchain/DLT infrastructure. To illustrate, the Daura platform was set up to run on the private/permissioned Hyperledger Fabric blockchain, where uncertificated shares are registered and corresponding equity tokens are issued and managed via smart contracts.

The transfer of the equity tokens is structured as tripartite agreements to avoid the written form, otherwise legally required also in Switzerland. From 2020 the introduction of a new "DLT-right" is expected in Switzerland. The Swiss Federal Council proposed in March 2019 several legislation amendments to further facilitate blockchain projects and security tokens in specific. The legislation optimization is now in the formal consultation process.

Furthermore, there are additional advantages which make Switzerland an incredibly friendly jurisdiction for issuing equity tokens. No licences and no prospectuses are required for direct primary market issuances, the only requirement being a very simple "civil law prospectus" which implies civil law liability in case of unfaithful declarations by the issuer. Although, a simplified "regulatory" prospectus will be required from 2020.

Moreover, there are no compulsory AML duties for the direct primary market issuer of security tokens to comply with. Finally, while centralized exchanges do need a secondary market licence - such as the currently proposed DLT Trading Facility license - per to peer transactions remain unregulated; and, as a consequence, also fully decentralized exchanges.


The German complication


One can contrast the flexible, straightforward, and "light" approach of the Swiss legislators with the corresponding intentions of the German legislators. Regarding the very same issue of the registers in which securities tokens can be held, the German legislator - in a proposal issued by the Ministry of Finance the 7th March 2019 - intends to limit the ownership of blockchain based security token registries to either governmental authorities or authorized intermediaries under MiFID. This defies the very purpose and the properties of a blockchain. If anything, the debate should focus on the type of blockchain which can be used for such registries, rather than bring the blockchain based security register under the direct supervision of an authorized intermediary - which is by no means more trustworthy than a properly set up blockchain. Blockchains are intrinsically suited for issuing and transferring tokens, because they are tamper-proof and allow for tracking of the legal title. Consequently, the issuing, clearing, and the settlement of securities´ transactions on blockchains should be one of the main applications and uses for DLTs. Although currently the German legislator seems to completely miss the point, hopefully they will reconsider the issue in the future.


The far sighted Lichtenstein approach


Liechtenstein, on the other hand, is more aligned with Switzerland.

Colleague Thomas Nägele of Vaduz based Nägele Attorneys at Law, has highlighted some important parts of the newly proposed Trusted Technologies Law.

This draft law is a comprehensive piece of legislation dealing with DLTs, tokens, and their legal treatment.  As far as security tokens are concerned, it also deals with issues which the Swiss law does not explicitly address, such as a bona-fide purchase of rights and the liberation/discharge of the debtor from its obligations.

This will be achieved through the §81a clarification of the Persons and Companies Act (PGR) of 1926, and additional provisions including the following:


- an explanation of the pre-existing provision within the PGR which has allowed for the existence of dematerialized shares for almost 100 years;


- the format of the register which will hold uncertificated rights is not defined by law but "Trusted Technologies" expressly include DLTs;


 - in case DLTs are used, the transfer of uncertificated rights is only valid when done on the DLT; this excludes - by law - the potential conflict between a "real world" pledge or assignment of the uncertificated rights outside the blockchain and the blockchain based transfer of the token representing such rights;


- anyone acquiring uncertificated rights on the blockchain shall be protected, even if the seller did not own the underlying "real world" rights;


- the debtor making payments to a creditor entered into the DLT based register is liberated from their obligations.


This Liechtenstein draft legislation is also - at least so far - one of the most advanced in Europe and it raises important issues and legal challenges that we will continue to debate in the future.


Special thanks for the support in preparing this paper to Alexis Esneault attorney at Nägele Law in Liechtenstein


#tokens #bianconiandrea #blockchain  #crypto #thinkblocktank #tokenization #switzerland #liechtenstein


The first STO milestone is German: Bitbond issues the first BaFin approved security token bond

Published March 6, 2019 on Hackernoon.com and Medium.com and Blockchain4innovation.it and Thetokenizer.io


Lastly it happened: a German company has won the race to issue a fully regulated security token, at least in Europe.  Despite others having claimed to have "tokenized" something in the past, this Bitbond issue is a radical shift in the STO narrative so far.

Indeed Bitbond - a Berlin based crowdfunding company - has released a prospectus approved by German regulator BaFin to raise funds by issuing a security token bond on the Stellar blockchain, without a depositary bank, without certificates or coupons and intermediaries. Differently from what happens with traditional bonds, no commission/premium/agio will be charged to subscribers. Also the size of this STO is considerable, with an ambitious hard-cap of €100M.

This is a big step forward, this is finally the game changer that I have been waiting for in the last 12 months.

If anything, my bet would have been on a smaller and more flexible jurisdiction to be able to finalize this first (such as Switzerland for instance). The German move is therefore important for the industry. It sends a clear signal that Germany is now leading the STO race and is ready to take your business. At least among conservative German medium sized company owners - who in my experience are very much keen in "keeping base safe at home" - this basically means "hey guys, why take your business elsewhere? Take no risks and look no further, you can now conveniently raise funds through STOs at home".

And with the uncertainties of Brexit - which may penalize London´s financial hub in the short term - the Germans might even be able to attract potential STOs from other EU countries. In the end the financial infrastructure in Frankfurt is top notch, Berlin is a top tech and crypto hub with plenty of very experienced crypto consultants and legal advisors and the market for potential STO candidates among German SMEs is simply the biggest in Europe. So it´s all there for the German STO market to prosper and grow.

Now, as promised here, I have thoroughly gone through Bitbond´s prospectus and I also exchanged e-mails with the company´s General Counsel - Henning Franken - to clarify some points. The following is my analysis of Bitbond´s STO bond issue.


1. Bitbond´s Business background

Bitbond´s platform brokers loans between investors and small business owners. Through its fully owned subsidiary Bitbond Finance GmbH, they aim to raise capital to directly finance small business owners through the Bitbond platform.


2. Bitbond´s - Security Token Offering (STO)

In order to raise capital Bitbond Finance will issue a security token bond with a hard cap of €100M. The currency of issue is the Euro, although investors can also pay the principal amount in crypto.

The company will issue BB1 tokens having nominal value of €1 and representing a debt instrument (Bond) paying an annual interest of 4%, payable in quarterly instalments. In addition, it will pay a variable interest amount equivalent to 60% of the profits realized by Bitbond GmbH in its business activities (if any). The BB1 tokens will be issued on the Stellar blockchain. The duration of the bond is 10 years.

For obvious practical reasons, the contractual assignment of token rights or their pledge - otherwise possible with standard securities under civil contract law - are negated in this case (art. 7.2.8 limited prohibition of assignment). This is because the transfer of rights to the token must be allowed only if done through the Stellar blockchain, which enables the sale and transfer of the full ownership of the token and not ancillary rights. Therefore the investor acknowledges with the prospectus to substantially refrain from pledging or otherwise assign the rights to the tokens outside of the Stellar blockchain. This is necessary to avoid a conflict between what would be legally possible under civil contract law and what is practically feasible with the blockchain.


3. Comparing the token-Bond vs a traditional bond


3.1 Costs

First of all the issuance direct costs are a fraction of those with a comparable traditional bond. The biggest direct cost is for marketing and sales at around € 400.000, then € 120.000 for legal and prospectus and € 80.000 for software development. A mere 0,6% direct costs if the bond is fully subscribed, excluding all indirect costs such as commissions for tips, referrals and rewards for affiliates.


3.2 No Intermediaries

Then there are no financial intermediaries to deal with, and no commission/premium/agio will be paid by the subscribers. The issuance is direct to the investor and the BB1 tokens will be allocated via Smart Contract directly to the Stellar wallet of the investor.


3.3 Potential for Liquidity

The liquidity is still an issue to be verified since there is no real market for trading such tokenized bonds. So it remains to be seen both how much of the €100M will be subscribed and then how liquid the BB1 tokens will be and which market will be chosen by the issuer for trading them.

Anyway, the potential advantages are there and liquidity will gradually improve with the growth of the sector and the involvement of traditional financial players. I have no doubt that financial operators, while being "disintermediated" on the token-bond issuance phase, will carve themselves an active and profitable role in trading those tokens and thereby will bring liquidity to the markets (market-makers will come). Besides, traditional financial instruments such as commercial papers or small corporate bonds are also highly illiquid. Here we have at least the potential to create a global blockchain based market where those securities can be traded. It will all come, with time.


3.4 Programmability

Another advantage is the programmability of the tokens via Smart Contracts. In this particular case a script is programmed that executes automatically all the steps relating to the payments of interests and redemptions, as well as the calculation of the exchange rate and of the amounts due and the allocations to the wallets. The script however is activated manually by the issuer, so in the end it is semi-automated.


4. Risks

The risks are properly set out in the prospectus. I wish however to dig in more deeply and examine more attentively some of the risks.  Leaving aside the clear risks which are common to any business and to any investment in financial instruments, I´d like to focus on those risks which are more opaque and intrinsic to the business of crypto lending.


4.1 ERP Loans and exchange rate risks

When Bitbond lends crypto to small businesses via its platform it enters into so called ERP Loans (Exchange Rate Pegged loans). Simply put, if the borrower borrows €1.000 this sum is transferred to him in crypto which the borrower then converts again into fiat. When it will have to pay it back it will pay back always € 1.000 at the crypto-fiat exchange rate of that moment. This clearly protects Bitbond from crypto volatility. On the other side the borrower is exposed to crypto-fiat exchange rate fluctuations for the time it takes to receive the crypto-loan and exchange it into fiat funds. According to the company´s General Counsel Henning Franken this takes usually only a few minutes. Since 2018 however the company claims to have improved its business model and now, instead of using cryptocurrencies, it uses a stable-coin - the EUR Token - to transfer funds to borrowers as explained in para 4.2 below.


4.2 EURT risk

To do so Bitbond has partnered with platforms (such as Tempo) to covert fiat into a digital stable-coin backed up with Euros 1:1 which is called EURT (Euro Token). According to Henning Franken - Bitbond´s General Counsel - "Tempo emits so called "Euro-Tokens" on the Stellar blockchain. So they do not use Stellar-Lumens (XLM) but only make use of the underlying ledger provided by Stellar.

Compared to the model described above (4.1) the exposure is even further reduced since every fiat Euro transferred to Tempo gets exchanged to one Euro-Token which keeps its value of 1 Euro at any time of the transaction. This way there is even between transfer to the borrower and exchange no exposure to fluctuation anymore. Furthermore the transactions are faster, less cost intensive and more secure.

Bitbond has introduced the latter model to all German and most of its European customers and will continue to do so in 2019 and further.

Bitbond Finance GmbH (the emitter of BB1) will probably invest the BB1 funds mostly in German and EEA-loans because the majority of our existing customer base is located there". 


By the way - on that same issue - it is worth noting that JP Morgan has recently announced that it will start issuing its own stable JP Coin pegged to the US$. It will be used initially for internal operations but the way forward here is clear. When large financial institutions get involved, then any third party risk related to the issuer of the pegged-coin (such as this third party solvency) can be at least mitigated and properly rated, even more so if the counterparty of your fiat-pegged-coin is JP Morgan or Goldman Sachs instead of any small start-up. This is certainly important to allow the investment of institutional moneys.


4.3. Repayment of principal (Redemption at maturity) and interest payments

All the interest payments, as well as the redemption of the BB1 tokens at maturity, will be made exclusively in XLM. This means that the euro sum due will be converted at the moment of payment into the corresponding quantity of XLM which will be transferred to the wallet of the investor. The investor therefore bears the same exchange rate risk described under 4.1 above until XLM are again converted into fiat.

An alternative mechanism to the repayment in XLM of principal and interest is not indicated by Bitbond. Also it is not clear why EURT will not be used in this case to repay interest and principal. My point is that XLM is not exactly the US$. What if in a few years it does not exist anymore? At least a general purpose clause to establish an alternative payment mechanism in fiat currencies or a fiat-pegged-coin could have been inserted.

There is another risk to consider though which is not so apparent. XLM market capitalization at the date of writing is a mere 1,6bn US$ equivalent, not exactly in the league with BTC (67bn US$). Therefore price manipulations cannot be excluded. If the XLM price is artificially inflated ahead of key payment or redemption dates, less XLM will be paid out to the investor who bears the exchange rate risk until XLM are converted into fiat.

In addition, the investor cannot be guaranteed adequate XLM liquidity and its convertibility into BTC/ETH or fiat. In other words the investor carries an "exit" risk with such cryptocurrency. This is important.


4.4 Coding errors and lack of dispute resolution mechanism

Another issue is the lack of a dispute resolution mechanism. Due to the still experimental nature of tokenizations and the technical risks that comes with it - think about a bug in the code or a mistaken token or payment transfer which is irreversible on the blockchain - I would have appreciated an arbitration procedure to allow investors to quickly settle those issues.

Fair to say that Bitbond duly acknowledges those risks in art. 2.2.14 and thoroughly explains the way the semi-automated payments are executed, but it fails to indicate the solution in case of failure. German law regulates the BB1 issue with the non-exclusive jurisdiction of the Berlin Court.


5. Reactions

Strangely enough, what is the biggest achievement for the securities token industry so far, has gone almost unnoticed by the largest international crypto media. Some have reported the news but no real comments. Though the news have clearly made the headlines among the specialized German media, this is by no means a local achievement. It is a global success for the industry.

Therefore I have asked a prominent German crypto expert, to share with me his views.


Oliver Krause - my colleague at Untitled-INC - comments: "it is clearly a milestone that has been achieved here, although I see substantial potential for improvement of STOs from the investors perspective. I expect more maturity coming to the space as soon as STOs will gain traction. We look forward to contribute with a number of projects we are currently working on. Andrea Bianconi´s analysis [i.e. this article] also shows that there is a clear need for investment advisory expertise as most retail investors will not be able to correctly assess the complex risk reward profile of these investments. Overall I have no doubt that STOs will gain traction as an alternative asset class over time"



Notwithstanding Bitbond´s milestone achievement, it remains to be seen how this digital bond will be subscribed. My feeling is that the BB1 token bond will be very likely successful among crypto investors who may want to switch and hedge risky crypto positions and convert BTC/ETH or other cryptos into this bond. Crypto whales, miners and those who have accumulated fortunes in 2017 can easily oversubscribe this Bitbond.

Because this is really the first time that such a digital bond will be open to fiat investors it is difficult to predict how it will go. Objectively though - in a world of zero or negative rates, where even real estate yields less than 2% (in Germany at least), a 4% fixed yield plus a variable amount - is undoubtedly a valuable proposition for any investor.

Finally, regarding the involvement of institutional investors, I feel that until a market for hedging fiat-crypto exchange-rate risks is not developed - with liquid enough options and futures contracts - and a stable-coin backed up by a major financial institution is created (see the JP Coin), it will be hard to see institutional money flowing in.


But Rome was not built in a day and we are getting there much faster than it seems.


Legal Disclaimer: This paper is for general guidance only and it does not constitute legal advice. As such, it should not be used as a substitute for consultation with lawyers on specific issues. All information in this paper is provided "as is", with no guarantee of completeness, accuracy, timeliness or warranty of any kind, express or implied.

Disclosures: I do not have any interest in the company Bitbond or in the offer which is the subject of this article, I did not know any of Bitbond´s people before writing this article and I have not been paid or otherwise hired by Bitbond for any services and I have not been promised any economical rewards or benefits for writing this piece, which is a totally independent piece of information about their offer.


#tokens #bianconiandrea #blockchain  #crypto #thinkblocktank #tokenization #sto #stable-coin

An update on recent Crypto regulatory developments around the world

Published March 2, 2019 on Blockchainflashnews.com and Hackernoon.com and Medium.com

The beginning of the year has brought some important regulatory news for crypto from the US, the UK and the EU.




In the crypto-friendly and dynamic US State of Wyoming, 2 new legislative bills have been filed in January. The first one aims at classifying digital assets as "intangible personal property" within the applicable Uniform Commercial Code as well as introducing an opt-in framework for banks to provide custodial services for digital asset property.

The second one proposes to allow Wyoming corporations to issue "certificate tokens" and substantially recognizes "certificate tokens" as equivalent to normal stock certificates. Of course these are not enacted legislations and we will see how the process evolves before those bills can become law.




In Europe, the English FCA has issued a consultation paper on its proposed Guidance on crypto assets which I have recently commented here.




After the Italian Senate proposed to recognize the legal enforceability of both Smart Contracts and DLTs time-stamping, Luxembourg follows with the proposal to legalize the use of blockchains and DLTs for the holding and transfer of financial instruments. The Law proposal n. 7363 aims to introduce a new Article 18bis to specifically recognize the circulation of financial instruments via DLTs.  This is the same procedure which was adopted in 2013 when the very same Law of 2001 was amended to take into account the circulation of dematerialized shares which were then given lawful recognition.

Luxembourg´s initiative seems to go a step ahead of the above mentioned recognition of the effects of DLTs time stamping by the Italian Senate.

However, both legislative moves do not seem to deal comprehensively with the issue: on the one side, Luxembourg recognizes the transfer of financial instruments using DLTs but does not expressly gives legal validity to the data embedded in DLT´s (time-stamping).  Italy, on the other side, recognizes the legal validity of DLTs time stamping but does not expressly acknowledges the circulation of financial instruments via DLTs. Both seem to fall short of the objective. This is more material to analyze legal comparative aspects at ThinkBlockTank.




On the tokenization of assets, the German Bafin has approved the first Prospectus for the issuance of a security token by German based Bitbond GmbH. The token represents a debt instrument paying an annual interest of 4%, plus a variable interest amount equivalent to 60% of the profits realized by Bitbond GmbH in its business activities. Two important points are worth noting: a) the token holder is paid back principal and interest in Stellar Lumens (XLM) thereby always bears the exchange-rate risk with Euro or other accepted Crypto such as BTC or ETH; b) Bitbond Finance will buy back the token at the original price of €1 at maturity after 10 years. In the meantime, with the German colleagues at ThinkBlockTank, we have looked into this Prospectus and here is my opinion on this interesting topic.




On the EU regulatory side, the ESMA and the EBA have released 2 long awaited reports on ICOs and crypto-assets.

The EBA report is aligned with the ESMA report but specifically analyses crypto-assets in the light of the Payment Services and Electronic Money Directives (PSD2 and EMD2). The results can be summarized as follows:

(i) A crypto-asset qualifies as "electronic money" only if it:

- is electronically stored;

- has monetary value;

- represents a claim on the issuer;

- is issued on receipt of funds;

- is issued for the purpose of making payment transactions;

- is accepted by persons other than the issuer.

In all such cases, authorisation as an electronic money institution is required to carry out activities involving e-money, unless a limited network exemption applies in accordance with Article 9 of that Directive.

(ii) PSD2 will then apply only to crypto-assets that qualify as e-money as clarified above under (i).

(iii) Regarding the secondary market services - i.e. crypto-asset trading platforms and custodian wallet providers - the EBA voices again its concern about money laundering risks and risks to the consumers.

(iv) Finally, the EBA shares ESMA´s conclusions about the EU Commission´s need to create a regulatory level playing field across the EU.


The ESMA report is based on a survey carried out by 28 European NCAs (National Competent Authorities) on 6 different ICOs completed in 2017-2018, which tokens have differing characteristics that ranged from investment-type, utility-type, to hybrids and payment-type. Pure payment-type tokens were not included in the sample set on purpose, as they are unlikely to qualify as financial instrument.

The results of this survey can be summarized as follows:

(i) The crypto-assets sector remains modest in size and ESMA does not believe that it currently raises financial stability issues. However, ESMA is concerned about the risks it poses to investor protection and market integrity.

(ii) The outcome of the survey highlighted a NCA majority view that some crypto-assets, e.g. those with profit rights attached, may qualify as transferable securities or other types of MiFID financial instruments.

(iii) However, because of differences in the implementation of MiFID at national level, the definitions of what is considered a "financial instrument" differ among member states. This leads to confusion and jurisdiction arbitrage by the players.

(iv) if the "financial instrument" test is positive then the whole set of EU financial rules will apply such as MiFID II, the new Prospectus Regulation, MAR etc.

(v) if instead the "financial instrument" test is negative then such set of rules do not apply.  In this case however ESMA advises that all operators shall be subject to AML regulations.

(vi) ESMA is concerned that the strategy of certain member states to regulate individually crypto-assets does not provide for a level playing field across the EU and therefore proposes that the EU commission steps in to coordinate an EU-wide approach.

Interestingly, if one bothers to look into the Annex of the NCA survey, the discrepancy in what constitutes for NCAs a financial instrument and then a security under different EU jurisdictions appears pretty clear. Take in fact the CRPT (Crypterium) token for instance: for 15 NCAs it is a security, for 10 it is not and 3 do not even know the answer.


No doubt that some consistency is needed at EU level.


#tokens #bianconiandrea #blockchain  #crypto #thinkblocktank #EUCommission #regulation #wyoming #smartcontracts


Will Italy be the first to enforce DLTs time-stamping and Smart Contracts?

Published 30th January 2019 on Blockchainflashnews.com and Medium.com


Italy never stops to amaze me. It is what we Italians call "genio e sregolatezza" - genius and insanity. It is a country which has produced talents and excellence since the Roman times in many areas and still does. Italian artists, products, style and technology are known, appreciated, sought after and often imitated worldwide.  It is a country full of talents which could still lead in the world in many ways, but it is chronically plagued by internal conflicts, self-interest and lack of leadership.  This makes it very hard for Italian businesses to compete internationally and many young Italian talents are compelled to leave "il bel paese" to look for better opportunities abroad. We know this all too well.


With Blockchain technology it was not different. For years, when the rest of the world was already salivating at the opportunities that blockchains could offer, this was hardly a hot topic in Italy.


Then - mainly in the last 18 months - it seems that Italy has suddenly woken up to the opportunities that DLTs can bring in the future.


Surprisingly, also the politicians have been fast in taking some steps in the direction of technology adoption. Last September the Ministry of Economic Development selected a group of 30 Italian experts who have volunteered (strictly unpaid) to contribute shaping the future blockchain policies of the new government.  


Then - this January - came the Italian stroke of genius.  The Senate has proposed to introduce an important modification to an existing Legislative Decree which was aimed at cutting down administrative red-tape. The proposal is to recognize the legal enforceability of both Smart Contracts and DLTs time-stamping.


This legislative amendment may well make Italy the first country in the EU and - as far as I am aware worldwide - to practically equate a Smart Contract to a written contract, thereby recognizing Smart Contracts digital format as being equal to the written format (Art. 8bis § 2). Under §3 then, DLTs time-stamping will be recognized under Art. 41 of EU Regulation 910/2014 (Legal effects of electronic time-stamps).


It is not clear whether the effects of that are to simply qualify DLT time-stamping as legally enforceable in legal proceedings or to extend them the features of "qualified time stamps" under Art 42 of the same EU Regulation. Meaning that DLTs would have the capability of binding together time, date and data because they are "signed using an advanced electronic signature or sealed with an advanced electronic seal of the qualified trust service provider, or by some equivalent method".


I would personally advocate the latter interpretation - because of the tech features of DLTs - which would practically mean that the whole block of data, time and date will be bound together in a legally enforceable certification (and not only the date). But we have to wait and see which position the Commission will take on that.


If the legislative amendment is passed, the AGID (Italian Digital Agency) will have to set the technical specifications for the application of the law. 


It remains to be seen if "the stroke of genius" becomes a law in the short time. This is however a remarkable step in the right direction.


#untitled-inc #bianconiandrea #blockchain  #crypto #thinkblocktank #smartcontract #timestamp #dlt

The FCA proposes guidelines on crypto-assets

Published 29th January 2019 on Blockchainflashnews.com and Medium.com


In the UK, the FCA has recently issued a consultation paper on its proposed Guidance on crypto-assets which is open to stakeholders to provide their feedback by April 2019. The objective of the Guidance is to determine the regulatory perimeter within which existing UK laws or implemented EU Directives (such as the MiFID, MAR or Prospectus Directive) will apply to crypto-assets based on the standard categorization of exchange, security and utility tokens.


The Guidance indicates when crypto-assets may be considered "specified investments" under local UK law or "financial instruments" under MiFID II or e-money under Payment Services and Electronic Money Regulations.


The key points of this Guidance can be summarized as follows:


1. Exchange Tokens: exchange tokens (i.e crypto-currencies such as Bitcoin) remain outside the perimeter of the regulation. This means that the transferring, buying and selling of these tokens, including the commercial operation of crypto-asset exchanges for exchange tokens, are activities not currently regulated by the FCA. But by the end of 2019 the 5th AML EU Directive will be implemented also in the UK and therefore AML obligations will apply to such activities.


2. Security Tokens: the definition of "security tokens" is to include tokens that meet the definition of a "Specified Investment" under UK law, and possibly also a "Financial Instrument" under MiFID II. For example, these tokens have characteristics which mean they are the same as or akin to traditional instruments like shares, debentures or units in a collective investment scheme.


The FCA does also some useful practical evaluations and reports interesting case studies from their Sandbox experience. For instance:


(a) tokens are equivalent to shares if negotiable on capital markets, but listing on a market is not necessary. It is sufficient that they are transferable. This is the standard MiFID definition.  However even if a token is not strictly speaking a financial instrument under MiFID - because it may have restrictions to its transferability - it still may be considered like a "Specified Investment" under UK Law.


(b) if voting rights are attached to a token, they must be directed towards the control of the company. For example, a token that provides its holder with the simple right to vote on future ICOs the firm will invest in, would likely not be considered a security as the voting rights don’t confer control-like decisions on the future of the company.


(c) a token representing a Warrant - a right to subscribe in the future - will be considered a security when it grants the right to subscribe to tokens which, when issued, are themselves considered like securities.


(d) a token conferring rights to tokenized securities is itself likely a security.


(e) a token issued to collect capital from investors - which is then pooled, invested and then yields token holders either interests or a profit participation - is likely either considered as a debenture or a participation in an investment scheme and therefore a security.


3. Utility Tokens: more importantly, the FCA brings much needed clarity on the most controversial of tokens types, that of utility tokens. The FCA seems to take a residual approach to identify utility tokens. Basically - if the token is neither a security nor e-money - then it may well be a utility token and thereby will fall out of the perimeter. Much like exchange tokens, utility tokens can be traded on the secondary markets and be used also for speculative investment purposes. This fact alone does not necessarily mean these tokens are securities.


4. E-Money:  Payment Services Regulations apply only to funds which are defined as "banknotes and coins, scriptural money and e-money", therefore not to crypto-assets.


The standard e-money definition derived from the E-Money Directive applies here to crypto-assets, in the sense that they are to be considered as e-money only if:


- electronically stored;


- with monetary value;


- representing a claim on the issuer;


- issued on receipt of funds;


- issued for the purpose of making payment transactions;


- accepted by persons other than the issuer.


Moreover the PSRs cover each side of the remittance, but do not cover the use of crypto-assets as the vehicle for remittance. Say a remittance service receives fiat from payer to be sent to payee in another currency.  Consequently it converts fiat into a crypto-asset for the purpose of facilitating the transfer internally and finally delivers the sum to payee in another fiat currency. No party had any exposure to crypto-assets here. This is also out of the perimeter.


5. Conclusions: The Guidelines are a long awaited step in the right direction by the FCA. Particularly when bringing more clarity on the issue of utility tokens or definitely putting exchange tokens outside the perimeter.


On comparative legal issues though, the German expert colleague Nina Siedler - fellow Board Member and Chairman of the Think Block Tank - points towards the differences in token categories between the FCA and the German supervisory authority BaFin. While the trisection of token categories is the same, the three categories vary in detail. The FCA defines exchange tokens as tokens “not issued or backed by any central authority and […] intended and designed to be used as a means of exchange”. In contrast, the element of having a decentralised issuer seems of no relevance to BaFin, which classifies this category of tokens as “payment tokens” and defining these as "units of account" which are a "financial instrument" according to German national law (while FCA considers those tokens to be outside their perimeter and expressly stating that they are not units of account). Further deviations arise according to national law for the security token category. This highlights once again the need for an EU wide harmonised token categorisation to create a functional European single market for tokens.


#tokens #bianconiandrea #blockchain  #crypto #thinkblocktank


Can the EU still win the tokenization race?

Published 23rd November 2018 on Blockchainflashnews.com and Hackernoon.com and Blockchain4innovation.it


Just one year ago - at the top of the ICO mania - the EU was well positioned in the race towards crypto use and blockchain/DLTs adoption. When regulators around the world, led by the US, started cracking down on ICOs and crypto markets, the EU took a bit of a "laissez faire" attitude. In hindsight this was good since - despite the initial worries - the damages were very much contained and there was a substantial growth of new businesses and investments in the sector.

And whether this was due to the slow reaction of EU regulators to new developments or - rather - a voluntary policy stance, is anyone´s guess.  The result was however positive, specially when compared with blatantly wrong and highly damaging regulatory interventions - such as the NY BitLicense.

Anyways, that was last year in cryptoworld - which is more like 10 years in a traditional sector. Today we face a radically new situation.

I mean, if with ICOs the issuers have profited from a regulatory loophole to issue - in most cases - securities´ tokens disguised as utility tokens (see here for the best token classification framework), now that the sector is turning to securities´ tokens, there will be no more loopholes to exploit.  From now on everyone will have to comply with applicable securities´ regulations.

Therefore what will make a difference in the future - in order for the sector to prosper and to grow - are a set of key policy decisions which need to be taken - urgently and decisively - by EU regulators and legislators. This, if we do not want to be left behind by countries which are either more reactive and agile in issuing ad hoc legislation for the sector, or rather have in force a more flexible set of legislation to benefit the securities´ markets. The time for "laissez faire" is over. The EU must act.

Indeed, the competition for the EU is strong. Above all the US, which has the strongest infrastructure and a favourable and flexible set of laws and regulations when dealing with securities and capital markets.  Then the UK, which no doubt may take advantage from the Brexit to launch new, flexible and attractive regulatory packages for that sector, while also benefiting from a top notch financial infrastructure which is second to none. Then of course the Asian countries - such as China with Hong Kong - ahead of all.  And do not forget Switzerland which - with a great tradition in banking - has all the good cards to play the game and become a very attractive tokenization-hub for EU businesses. In fact they already are a very crypto friendly jurisdiction.

And finally, in case the EU will not act as a whole, there will be more agile, policy flexible and fast thinking countries within the EU, which will carve themselves out a privileged position in the sector.  This is in fact already happening with Malta and Gibraltar (depending on where exactly Gibraltar will stand after Brexit), which are able to attract substantial crypto business from all the EU and beyond.

This is however not a net positive for the EU, since it only enforces the trend - which is already under way - of intra-EU jurisdiction shopping.

Let me then articulate what I think is needed for STOs to grow and prosper in the future: 1) availability of investment capital, 2) technological hubs, 3) crypto-exchanges and 4) a friendly policy environment.


Let´s see then where the EU stands on those issues vs the competition.


1. Availability of investment capital for the Crypto sector

According to Crypto Fund Research data of 2017, the US leads by far with 50% market share. Then comes China with 8,8% and the UK with a 6,4% market share. Switzerland comes - after Singapore - with 4%. Germany, the first among EU countries, comes after Canada and Australia with only 2,2% market share. I could not find a detailed number for those EU based funds which have been included among the "other" residual category.

But then looking at the number of funds in isolation can be deceptive, if not compared with the dimension of those funds.

So how much money have those funds under management?

The vast majority of the 620 funds surveyed - 49% of them - manages less than US$ 10m. They are minuscule by any standard. Only 6% of them exceed US$ 100m under management.

And when we look at the top 10 funds by capital under management the EU´s weak position is evident: 9 of the largest funds are US based and 1 is based in China.  None among the top 10 is based in the EU.


2. Technological hubs


As far as the top tech global hubs are concerned, the statistics that I have looked at did not differentiate between general tech investments and specifically blockchain or crypto related investments. It is however illuminating to see which tech hubs are attracting more funds and therefore can count on key resources to fund research and development also in the crypto sector.

Even here the EU does not come out particularly well.

According to this report from CB Insights, Silicon Valley beats all by far, followed by Beijing, NY and Shanghai (figure below). Even London does not make the cut to the top 4 and comes only 5th. If we look at the hubs which did the most valuable deals (unicorns), the ranking is exactly the same, while EU tech hubs such as Amsterdam, Stockholm, Berlin and Paris come in that order far down the line. If we tentatively group the 4 most important EU tech hubs, they will all together rank somewhere in between Los Angeles and New Delhi (same figure below).

Also, it is interesting to note that CB Insights classifies the tech hubs as "heavyweight", "high growth" and "up and comers". While no EU city makes it to the "heavyweight" league (London does it), there are positive developments among the "high growth" hubs with cities such as Berlin - particularly active in the crypto sector - and Paris, followed by Amsterdam, Barcelona and Stockholm among the "up and comers".

This is, at least, encouraging.

Moreover, the data in the figure below from Crunchbase News, which looks specifically at Blockchain start-ups, evidences yet again the US, the UK, Singapore and Swiss dominance. Also here we have 46% of Blockchain start-ups which are based in "other or unknown" countries. Some of those will be certainly based in EU countries. But exactly how much of this percentage can be attributed to EU based start-ups we do not know.



3. Crypto-exchanges.


What about then the Top 20 Crypto Exchanges per market share and volume? When I looked up the ranking - the 12.11.18 - Malta based Binance stood out on the 2nd place with a 14% market share.  But then, unfortunately, there are no more EU based crypto exchanges among the Top 20. Please note that even if this ranking is extremely volatile - depending on which exchanges attract more trading on a specific day - the exchanges on the top 20 list are more or less consistently the same.

This indirectly confirms that the EU badly needs to incentivize crypto businesses, as it is evidenced by Binance having recently moved to Malta thanks to the efforts of the Maltese government.

Finally, if we take into account the upcoming specialized exchanges for tokenized securities, the situation does not improve. The biggest candidates here are likely going to be Bakkt in the US, the LSE in the UK and SIX and SCX in Switzerland. Again, I do not know where to place Gibraltar based GBX because of the Brexit issue. In the meantime also Deutsche Börse studies the sector, and there are "rumors" about Börse Stuttgart entering the sector. But even if this is confirmed, they will be likely behind the above mentioned early movers.


4. Policy environment.


A competitive policy environment is more important than all of the previous factors in order to foster the growth of the sector and bring a stable flow of investments.

The US has in force a very good set of flexible regulations which benefits so called Emerging Growth Companies (EGCs). This is dealt with by the JOBS Act of 2012, which provides a number of exceptions and relaxed compliance rules to the 1933 Securities Act to favour EGCs when dealing with prospectuses and other information requirements.

Under Rule 506c of reg. D for example, the issuer can do without registering the offering with the SEC provided it only sells to accredited investors. Or the so called Reg. A+, allows a simplified  "offering-circular" rather than a full prospectus, together with the possibility of selling securities to both accredited and unaccredited investors up to a US$ 50m offering threshold (please always consult a US qualified lawyer on specific issues).

And what about taxation?

In 2017 the US administration has cut the corporate tax rate from 35% to a flat 21%, a 40% reduction. Now, that´s an incentive to do business when compared with Germany´s 30% or France´s 33%.

But also other countries are not sitting on their hands.

The Swiss for instance, in addition to having an 18% corporate tax rate, they were the first to introduce a new set of ICO guidelines back in February 2018.  Since then FINMA did not address specifically the security token issue, but Geneva´s based Mt Pelerin - which claims to be the first tokenized bank - claims to have issued fully compliant tokenized shares representing 5% of its share capital. How they did this - based on the documentation available on their website - it is still not totally clear to me and I will report more on that issue in one of my future articles. However - if this is real - then we must assume that they have done this somehow with FINMA´s knowledge. If so, the conclusion to be drawn is that the Swiss are progressing towards either removing or at least by-passing some existing regulatory hurdles in order to make security tokenization happen.


Now, going back to Brussels, what happens there?


In October a resolution on DLTs and Blockchain was issued by the EU Parliament. It is a first step, but now facts have to follow.

Sure thing securities are thoroughly disciplined both at EU level - by MiFID, Prospectus Directive, AMLD etc - and at national level by overlapping internal legislations. So one may legitimately say that nothing else is needed right? Yet, it is not that simple.

Existing laws and regulations have been crafted for traditional and well known financial instruments and although the same regulations can be applied to tokenized securities, a thorough and unconstrained application may certainly hinder the sector growth. Specially in such a competitive environment where more agile countries create shortcuts and incentives for the sector.  In addition, patching up additional layers of new regs upon the old, is often less productive than making "tabula rasa" and have a fresh start with a new specially crafted piece of legislation for the sector.

As we stand now, a number of frictions and incompatibilities must be addressed.  For instance, Annex I to MiFID II provides for information requirements about the issuer or the tokens, which can be hard if not outright impossible to apply to start-ups or the trading of tokenized securities on the blockchain.

There are pros and cons for introducing exemptions to current regs. For instance, an Annex to MiFID II could be drafted only for tokens and kept as an evolving reg. paper which could be amended and integrated from time to time when need be. Or, alternatively, a brand new, EU wide, purpose made legislation could be drafted for the sector. Either way, the EU must act without further delays.




Single countries are already at work to solve those issues and to carve out for themselves a leading position to attract crypto businesses. We are aware - for example - of recent round tables and meetings taking place with German legislators and BAFIN regulators on those very same issues. The Merkel government has also announced that a blockchain strategy for Germany should be in place by summer 2019.  But, as I mentioned above, this will only increase jurisdiction shopping and, worse of all, this can only be a temporary advantage for single jurisdictions which may well backfire on businesses when the EU - as a whole - will move to create a regulatory level playing field.  Therefore my personal message to EU legislators is to come together quickly on that issue, if the EU does not want to loose the opportunity to stay with the leaders in this incredibly promising sector. There is "no need to reinvent the wheel", just look at what others do and improve on that.


What is needed - in my opinion - is the following:


- a task-force must be created at EU level to evaluate policy measures for the sector staffed with representatives of businesses, advisors and of course policy makers;


- a facilitated compliance "fast-track" is needed, with reduced prospectus and information requirements about the issuer, similar to those mentioned above in the US JOBS Act;


- bureaucracy and compliance costs can be dramatically reduced by doing all the filings electronically;


- a fairly high threshold for raising capital is needed, under which the issuer will benefit from the exemptions and "fast-track" compliance regime.  If the US have a US$50m threshold, let´s make it €100m here.


- Taxation is a national matter, however EU countries cannot compete in attracting the highly moveable crypto business with corporate rate taxes of 30% and above. We have to beat the US and Swiss tax rates to compete. 


- On the regulatory side a number of modifications to the Annex I to MiFID II will be required together with some other legislative interventions.

Much more on those very same issues you will hear soon from the Think Block Tank (of which I am among the founders and Board Members) which is about to release a pan-European paper, drafted with contributions by the leading lawyers and academics of the sector, analysing the laws and regulations which apply to tokens at both EU level and in seven specific European jurisdictions.

Once friendly and efficient regulatory policies are in place, then capitals will start to flow in and businesses will relocate.  Even if the EU lags behind others on availability of crypto funds or crypto-exchanges, once smart policies are enacted the rest will more or less automatically follow suit.


Looking at the business development side of things, at Untitled-Inc we are aware of substantial foreign capital waiting on the sidelines to be deployed to invest in EU tokenization projects.  They just wait the green light to start moving in our direction. The hope is that we can get that green light from our legislators sooner rather than later.

#tokens #tokenization #bianconiandrea #Blockchain  #cryptoexchanges #securitytoken #cryptofund



The latest on security tokens from Zurich´s Cryptosummit

Published 6th November 2018 on Blockchainflashnews.com and Hackernoon.com and Medium.com


One of the key events of the year took place last week in Zurich´s "Crypto Valley". The Cryptosummit was - for me - both engaging and stimulating because the broad focus and main topic of it was the tokenization of securities, which is where - with Untitled-INC - I am more involved.


Among the high level speakers were ConsenSys Joseph Lubin in video streaming, Charles Hoskinson, CoinDesk´s Michael Casey, VC investor Jalak Jobanputra, Outlier Venture´s Jamie Burke and many other top businesspeople.


Of course, with such a packed agenda and thought-provoking panels running simultaneously on 3 stages, I had to make a choice and follow only those which were - for me at least - the most compelling. Most certainly I have missed interesting stuff, but the following were for me the key "take-aways" from the event.


Charles Hoskinson, formerly Ethereum CEO and currently at Input Output HK, gave me comfort that the global adoption path of crypto is nowadays irreversible. He captivated the audience mentioning his experiences while travelling for crypto projects in lands such as Mongolia where - perhaps not surprisingly - cryptocurrency adoption is progressing at a faster rate than in many western countries. He emphasized that Securities Token Offerings (STOs) will be the key instrument for driving the growth and capital allocation to developing countries. This is the first time in history that developing countries are not constrained in accessing capital for development. And of course this will be a radical shift for those countries which will have the unique opportunity to free themselves from the chokehold of western powers and financial institutions such as the IMF. For the first time in history those countries can now sell tokenized bonds backed up by their commodities and rare earth resources, without the need to sell them out to multinationals in exchange of "peanuts". The first time in history that they can access a global, decentralized market of investors to fuel their growth. I find this is pretty exciting.


Juwan Lee, founder and CEO of Nexchange, presented interesting datasets to show where crypto investments stand today when compared with the hedge funds in the 90s. Crypto investments stand today where the hedge funds sector stood back in 1997, at the very beginning of its growth phase. Since then the hedge fund sector has grown in volume more than 15 times, going from the early phases, through institutionalization, consolidation and finally to the current maturity phase.


Crypto funds are also still quite minuscule in terms of managed funds. The large majority (approx. 208) have less than US$10m under management.  Only the largest funds - approx. 28 - manage over US$200m. This is laughable compared to traditional hedge funds. The main point here to be made is that there is still tremendous growth opportunity for crypto assets and for penetration of crypto funds, considering that global capital markets and other assets classes are worth approx US$ 513trillion and the crypto sector only US$ 0,2trillion.


Of course some of this data must be taken with caution - specially in such a young and fast evolving sector - but you surely get the point, even when a few billions can be added or deducted to those numbers the prospects are still extremely exciting. Finally, because many funds are deep in the red at this juncture, one can expect that they will be compelled to liquidate their assets by year end.  This could possibly cause the crypto market to drop lower before it can start trading higher. Definitely something worth keeping in mind. 


Throughout the event you could feel a justified excitement for the perspectives of the sector but also some unrealistic expectations and - at times - superficiality and a lack of in-depth analysis of what could be really achieved today with a security token. This was obviously from companies touting their products and services. But the "we tokenize the world" mantra is - for now at least - still unrealistic. 


Jesus Rodriguez, chief scientist and Managing Director at Invector Labs, brilliantly cut through the hype to make clear what is still needed before security tokenization can fulfil the expectations. To summarize his excellent presentation and his many slides in a few words is not easy, but that is in essence what is needed: liquidity and market makers, decentralised exchanges, on-chain programmability, trustless disclosure mechanisms about the underlying and possibly even ad hoc blockchains. As you can see we are not quite there yet.


Let´s draw then some conclusions on the complex topic of security tokenization.


The going live of the first decentralized exchanges for trading security tokens is to be expected sometime in the next 6 to 18 months, together with some traditional centralized exchanges - such as the Swiss SIX, the LSE, the Bakkt platform of the ICE - and some specialized crypto exchanges such as the GBX or SCX , just to name a few, who are also hard at work to go live as soon as possible.  The STO-go-live of innovative (decentralized) exchanges together with large traditional exchanges - which can bring vital liquidity pools to the market - will inevitably shake the sector and will likely cause a concentration among the numerous tokenization platforms which sprung up recently and which offer little value proposal for tokenizing securities; the majority are basically no more than a window for token sales, with little or no liquidity and do not differ substantially from a crowd-funding platform. Many of them will likely disappear, the best few maybe will be consolidated. Therefore some level of disruption in the sector is to be expected.


Despite the current hype on tokenized equity issuances, I would rather expect tokenized debt securities or other types of non-equity profit participation to become the broadest use-case for tokenized securities.  The reason is - as I wrote here - that debt or other forms of non-equity profit participation can be easily tokenized, made freely transferable on the blockchain and efficiently programmed to automatically execute "smart contract" functions such as paying dividend-yields. All this without the need for third party off-chain trusted entities - such as Companies´ Registries, Notaries, Land Registries or complex settlement and custody mechanisms - which instead come into play when transferring company shares or real assets.


Yet, in this fast evolving sector there are few certainties, both on the technical and regulatory side.


This is indeed the main concern when advising an STO project. We must always walk a fine line to balance out all the pros and cons of every technical and regulatory choice and try to maintain as much flexibility as possible, just in case we need to rapidly change the project's course of action.


Easier said than done.  


#tokens #tokenization #bianconiandrea #Blockchain #cryptosummit #decentralized exchanges #security token #crypto fund


Use the Blockchain and token-economics to fix privatizations

A Blockchain based model to reverse dysfunctional privatizations

Published 25th September on Cointelegraph.com and Hackernoon.com and Medium.com




When I wrote this article about the dramatic collapse of the Morandi Highway Bridge in Genoa, I did it out of anger.  Though it was clear to me that the roots of this tragic event were to be found in the wrong privatization model and its wrong incentives, I did not yet realize how this was a global issue. In the sense that the discontent and the failures of the privatizations are a worldwide phenomenon, little known, mostly unacknowledged and little debated.  


Indeed a quick web search under the key words "failed privatizations" results in a long list of global failures anywhere from Europe, to Africa, the USA, South America and Asia. This Columbia University paper and this Michael Hudson´s paper "Let us glory in inequality" are worth reading.


Privatizing state owned assets or stately run services and functions has been an easy option for Governments to raise money to contribute fixing their budgets.  If privatizations may effectively improve the efficiency in which some assets or services are managed - whenever such assets or services are subject to free market forces and competition - there are privatizations which rather replace a state monopoly with a privileged rent-extracting private monopoly, which is shielded from free market competition.  In practice, the state transfers its privilege of extracting rents - with a public asset or a service - into the hands of a wealthy private investor. This is the downside of privatizations, especially in so called "natural monopolies" or with key strategic assets or services which the public is compelled to use without any alternative option. Such is the case, for instance, with toll roads, water, general health services, electric grids or prisons.


Dissatisfaction for such model of privatizations has fuelled many calls to reverse them in many countries such as - for example - in the UK regarding its dysfunctional Railways system or the water and gas sectors.


In another interesting research paper the author - Mildred E. Warner - emphasizes how "the privatizations experiment of the 80s and 90s has failed to deliver.... This has led to reversals. But this reverse privatization process is not a return to the old model.... Instead it heralds the emergence of a new balanced position which combines use of markets, deliberation and planning to reach decisions which may be both efficient and more socially optimal."


Then suddenly it occurred to me that what I did elaborate - instinctively and out of anger after the events of Genoa - is exactly what is globally needed to achieve this new "more balanced position".    


So I went to work again on that initial proposal and the result is this article, which expands on the use of the blockchain and token-economics as a viable model to reverse wrong and dysfunctional privatizations in strategic public sectors. 


I also wish to thank my fellows Thomas Euler and Karl Michael Henneking at Untitled-INC who provided me with valuable feedback and ideas on the governance of this new model. 


Since the crypto space is moving at a rapid pace, I expect to see frequently new developments and innovative approaches to this topic. Thus, I regard this model as being very "fluid" and subject to future modifications and improvements.




Using token-economics




Although the origins of token-economics can be traced back to the early 19th century - in the field of psychiatric studies - the term is now commonly borrowed by the cryptoworld to refer broadly to a system of economic incentives used to influence stakeholders´ behaviour towards a predefined virtuous model which benefits the whole system. Token-economics is a branch of the social studies and it does not differ from traditional economics, except that it looks closely at behavioural economics and game theory in order to provide the right economic incentives to drive individual behaviour.




Creating a Blockchain/DL based system to manage strategic public assets




The template below can be applied to public assets or services which are strategic to the society as a whole, and would be better not left solely in private hands but, ideally, the state shall always retain at least the control of such assets/services in order to shield the society from the consequences of abuses by private operators. Such assets are - for example - vital water sources and its supply infrastructures, energy plants and grids, public roads, minimum healthcare services and infrastructures and prisons.




1. The Tokenization: equity or security token?


The term "Tokenization" is mainly associated with securities, equities and real assets, and it indicates the creation of a digital token which represents different types of rights - such as ownership, right to some economical payment, voting, etc - connected with the underlying asset.  The Token is normally issued on a blockchain.


In the proposed model, the tokenization is necessary to "translate" economical rights connected with the public asset in a digital format that can be easily distributed to stakeholders and to which smart contract provisions can be attached in order to guarantee the automatic execution of certain provisions which are key to the incentives.


The strategic public asset ("A") will be transferred into a special purpose vehicle ("SPV"). Here there are substantially two options.


Option 1 is to tokenize the shares of the SPV by issuing equity tokens which incorporate ownership rights, voting and profit distribution rights via smart contracts.


Option 2 is to issue security tokens - not representing equity participation in the SPV - but simply an economic right to share the profits of the SPV. 

The differences between the two options are: (i) in Option 1 equity tokens are issued and therefore also the corresponding ownership portion of the SPV and A are transferred; (ii) applicable corporate law will dictate the voting rights belonging to shareholders and - as a consequence - to all equity tokenholders. This will likely reduce the flexibility of the governance. Moreover, because applicable corporate law also dictates the formalities for the transfer of the shares (such as companies registries and public notaries), those "real world" procedures enormously complicate the reconciliation between the equity tokens issued digitally and the underlying share certificates, thereby impacting on the flexibility and the automated execution of smart contract provisions. Therefore I came to the conclusion that the second option is better because: a) A and the SPV remain always 100% in public hands; b) the security token issued does not represent equity in the SPV but simply the right to a monetary payment; c) even if this is still a security for the purpose of securities laws application and compliance, the issuer will have very little constraints in designing the monetary rights attached to it as well as their role in the governance (i.e voting rights); d) the issuance is not limited by physical ownership like in Option 1 (i.e 1 share 1 token) or by the value of the shares, but only by the profitability of the SPV-A or, if insufficient, by the willingness of the State to step up to guarantee for the shortfalls; e) such security tokens can also be airdropped to key stakeholders and/or properly auctioned to investors should the state need to raise money to either buy-back the asset or pay penalties to private investors in the case of reverse-privatizations or - if necessary - to revoke previously granted private concessions over public assets. In conclusion, Option 2 seems simply far more flexible.

2. Main Stakeholders and financial flows


The main stakeholders will be then:


- the state which owns the asset;


- the citizens who use the public services/assets;


- the maintenance and service contractors;


- token holders.




Financial flows will be:


- fees generated by the A and collected by the SPV, such as tolls for public roads or utility bills;


- SPV´s payments for maintenance services and repairs.




3. Blockchain and DLs


On my first proposal I have advocated for the use of a public blockchain with open access.

Some commentators have also disputed the need for a blockchain in that model. Some confusion is generated around the term "blockchain". This term is now widely used to refer to substantially any type of DL (Distributed Ledger) and certainly not only to the first and the purest form of blockchain which is the Bitcoin protocol.  Therefore the use of a blockchain/DL in this model essentially means creating an asset accounting system of the records stored. Since the way DLs can be built is both modular and optional, there is no need here to build a 100% permissionless and decentralized blockchain like Bitcoin.  Some functions can be decentralized, while others can be centralized.  Also, centralization can still be positively influenced by governance provisions in order to guarantee more distributed supervision and control. Moreover, whatever type of blockchain/DL and consensus protocol are adopted to make this model work, this remains a technical issue which is outside the purpose of this article and which will be solved by technically proficient people other than myself. What is here important to note is that it should guarantee mainly (i) transparency and (ii) immutability of the records stored. This means that the Stakeholders should be able to access all documentation regarding - for instance - the financials of the SPV, maintenance bills, safety reports, engineering reports, public tender procedures, bills from contractors, etc.  Everything should be under the light and open to public and governmental scrutiny and data could not be changed or corrupted by any stakeholder. This is a too well known problem. When dramatic events like that in Genoa happen, then key evidence and documents suddenly disappear from the servers.

4. Token-Economics and the right incentives for Stakeholders


A balanced system of economic incentives and governance tools is essential in order to influence positively the behaviour of key Stakeholders, such as the contractors, the auditors and the State itself. The contractors are an essential part of it.  Too frequently, especially in public procurement jobs - such as public roads for instance - the poor conditions of the works done and of their subsequent maintenance status - are of great concern to all the citizens.  In the best case, this is both a sign of the State´s incapability of managing its resources and of holding the contractors accountable for the bad jobs done.  In the worst case, this is a sign of corruption. 


To hold the contractors accountable, they must have an economic interest in the proper functioning and proper maintenance of the asset which generates the revenues.  This can be done by ensuring that contractors "have skin in the game".


In addition to being paid - as normal - in instalments at the reaching of milestones, contractors will also be paid-in-kind with the tokens issued by the SPV. This ensures that the contractor holds an interest in the continued functionality of the assets.  In case of disputes, the public administration will have an additional recourse against the tokens allocated to the contractor which can be automatically repossessed or burned via smart contract provisions. Clearly, dispute resolution mechanisms and so called "Oracles" must be in place as well.


More "skin in the game" can also be given by requiring the contractors to subscribe to an interest bearing government bond in percentage of the contract value. This government bond can be also "tokenized", thereby ensuring an additional recourse against the contractor should it be in breach of contract obligations or of its guarantees/warranties or maintenance periods. This bond will be held as a collateral in a smart-escrow.  While its function is similar to that of a traditional performance-bond - where a bank guarantees performance on behalf of the contractor - the difference here is that the state bond does not have a cost for the contractor and it benefits - in a virtuous cycle - both the government and the contractor which receives the interest payments, (simply put, it is a way to contribute internally to finance the governments´ debt thereby reducing reliance on institutional investors). The flexibility that can be achieved by programming different features in that digital bond is another key advantage.




5. Governance tools


Aligning private contractors´ incentives is only part of the game while influencing the State´s behaviour is much more difficult.  To do so we have to create the right set of governance tools.  The main concern here is to avoid that the State wastes money and to make sure that it allocates efficiently the revenues generated by the asset.  Therefore a proper set of governance rules for the SPV and all the Stakeholders are essential in this model.


The first step shall be to earmark the revenues generated by the SPV to be either (i) spent in maintenance or (ii) reinvested in new infrastructure or (iii) distributed to the tokenholders. The percentage of redistribution of the residual profits can also be programmed differently in the smart contracts in order to maximise incentives. For example by rewarding, with higher percentages, the most diligent contractors.


The second step shall be the creation of governance bodies.


In this model I have conceived 3 governing bodies, the Treasury, the Asset Committee and the General Assembly.


- the Treasury receives the revenues from the SPV and, in compliance with its mandate to earmark the revenues as indicated above, it allocates the funds as indicated by the Asset Committee.


- the Asset Committee shall be constituted by representatives of the State, of tokenholders and of technically qualified professionals in the specific sector of activity. The Asset Committee decides how to spend the revenues of the SPV, based on a set of priorities and reports received from third party controllers, auditors and technical experts on the conditions of the asset (i.e maintenance and/or new investments).


- the General Assembly is composed by all stakeholders and it will vote the composition of the Asset Committee and perform an ex-post supervision of the allocation of the funds done by the Asset Committee.

Interestingly, my fellow Karl Michael Henneking at Untitled-INC, has introduced the concept of Proof of Quality Management ("PQM"), which is basically a rating mechanism to evaluate how efficient has been the Asset Committee in allocating the funds. Essentially, a rating index - reflecting the status of the Asset - can be created by comparing the sums invested with the levels of satisfaction expressed by its users and with the reports from the auditors and technical experts. Simply, the more the funds invested and the lower the feedback received from Stakeholders, then the lower the rating and therefore the performance of the Asset Committee will be. Vice versa, the lower the sums invested and the higher the feedback reports received, then the higher the rating and the performance of the Asset Committee will be.



While the limitations and dysfunctions of past privatizations are now apparent and ever more publicly questioned, the need for a new approach and a new model for managing key public strategic assets becomes ever more pressing.  The interest with which my first proposal has been received was for me a pleasant surprise and the enquiries received from a number of public administrations - including that of Nigeria regarding the possibility to use this model to reverse the privatization of its electricity grid - brings me hope that something will change in the future and that new technologies, such as blockchain/DLs and smart contracts, will be instrumental to the creation of this new model. My hope is to see this model applied anywhere there is need to manage economically and effectively public strategic assets without leaving them neither blindly into private hands nor into wasteful public hands.


A new and more balanced model of management for strategic public assets and services is now at hand.




#tokens #tokenization #smartcontract #bianconiandrea #tokeneconomics #Blockchain #privatizations #reverse privatizations


The roots of the tragedy of Genoa, and how Blockchain and token-economics can help in the future

Published 22nd August, 2018 on Blockchainflashnews.com also in Italian and Medium.com

 and Hackernoon.com and Blockchain4innovation.it (Italian)


Collapsing infrastructures


The dramatic collapse of the "Morandi" highway bridge in Genoa has deeply shaken me.  I was taken by a deep sense of sadness as well as by a growing rage.


How could this happen?


I started searching for information about Atlantia SpA, the private company which holds the concession to the Italian highways, which was granted in the last wave of privatizations at the end of the 90s. Atlantia is owned by institutional investors such as Blackrock, HSBC and other Italian banks (5% each) and by the holding company of the Benetton group which holds the largest stake with 30%.


The anger grows while looking at the financials of Atlantia. How it is possible that a company which runs a privileged rent-seeking monopoly, which collects a clean € 3,6 billion in toll payments per year and makes a net profit of € 1,5 billion in 2017 can let a bridge collapse? Why was this company not obliged to reinvest in maintenance a substantial part of the revenues? Which were the safety nets and controls in place? Who failed to supervise what Atlantia was doing?


Wrong incentives are a recipe for disaster


Leaving aside the technical reasons behind the collapse and the specific responsibilities which will be ascertained by the competent authorities, there is one very fundamental reason at the root of this tragedy: the wrong incentives and a wrong model for privatizations.


Just as the 2007 financial crisis was fundamentally caused by the wrong incentives - which allowed the banks to engage in predatory lending practices which then triggered the sub-prime bubble - here the incentive is for the private monopolist to maximise the profits, which comes at the inevitable expense of maintenance and of public safety. By adding controls you can try to make a wrong business model - that of public strategic assets run by private concessionaires - work for a while, until, sooner or later, the controls fail and the dramatic consequences are for everyone to see.  


Therefore the best way forward would be to create a completely different model to run -economically and in the interest of the citizens - strategic public assets as an alternative to leaving them blindly into neither unscrupulous private hands nor ineffective and wasteful public hands. We have to set the incentives right, so we can have a sustainable business model functioning without the need of excessive controls.


The Blockchain and token-economics are here to help us create this new business model.


Token-economics to effectively align incentives


Although the origins of token-economics can be traced back to the early 19th century - in the field of psychiatric studies - the term is now commonly borrowed by the cryptoworld to refer broadly to a system of economic incentives used to influence stakeholders´ behaviour towards a predefined virtuous model which benefits the whole system. Token-economics is a branch of the social studies and it does not differ from traditional economics, except that it looks closely at behavioural economics and game theory in order to provide the right economic incentives to drive individual behaviour.


Building a new Blockchain based system to manage strategic public assets


Let´s take now the case of the Italian highways and how this failed concession system can be redrawn using the Blockchain and token-economics to give all the stakeholders much better aligned incentives to behave properly.


I am not aware that what follows has ever been proposed before, therefore take it as an experimental working proposal which can be subject to critics, improvements and modifications.  Moreover, I trust that fellows in the crypto world would be willing to contribute to the debate and improve on that proposal with tips, comments and suggestions.


1. The concession shall be terminated and the management of the assets shall revert into public hands. The grounds for terminating the concession are purely legal.  Without getting into this issue suffice here to say that the loss of 43 lives seems like a "just cause" to terminate immediately the concession.


2. The main stakeholders will be then:


- the state which owns the asset;


- the citizens who use the highways and pay the tolls;


- the maintenance and construction contractors.


3. Financial flows will be:


- tolls collected;


- payments for construction and maintenance works.


4. The whole system has to run on a public Blockchain with open access.  This means that any citizen will be able to access all documentation regarding - for instance - the financials, maintenance bills, safety reports, engineering reports, public tender procedures, bills from contractors, etc.  Everything will be under the light and open to public and governmental scrutiny and data cannot be changed or corrupted by any stakeholder.


5. The state assets will be transferred into an SPV/Newco whose shares are to be tokenized say 1:1 (1 share equals 1 token). Tokens will also be listed on a Blockchain. Equity Tokens will represent the economical right to a share of the profits identified as the tolls collected minus all maintenance and construction costs, all other indirect costs excluded. The reason to exclude all indirect costs is to avoid the incentive to use indirect non-business related costs to reduce the revenues and impact adversely on revenue distributions under 8 below.


6.  A predefined percentage of the tokens may be airdropped to highway users/citizens, for instance to all those using the Telepass Highway paying system.


7. Construction and maintenance contractors will be paid as follows, with Smart Contracts used to ensure enforceability of payment terms and recourse against contractors in case of breach of warranties on the works completed:


- a portion will be paid in instalments at the reaching of milestones.


- a portion will be paid-in-kind with equity tokens of the company holding the assets. This ensures that the contractor holds an interest in the continued functionality of the assets which generates stable cash-flows.  The Smart Contract ensures that the token cannot be sold by the contractor until expiration of the warranty period for the newly constructed or maintained asset. In case of disputes, the public administration will have an additional recourse against the tokens allocated to the contractor which can be automatically repossessed or burned via Smart Contract provisions. Clearly, dispute resolution mechanisms and so called "Oracles" must be in place as well.


- contractors will be also obliged to subscribe to an interest bearing government bond in percentage to the contract value. This government bond can be also "tokenized", thereby ensuring an additional recourse against the contractor should it be in breach of contract obligations or its guarantees/warranties or maintenance periods. This bond will be held as a collateral in a smart-escrow.  While its function is similar to that of a traditional performance-bond - where a bank guarantees performance on behalf of the contractor - the difference here is that the state bond does not have a cost for the contractor and it benefits - in a virtuous cycle - both the government and the contractor which receives the interest payments, (simply put, it is a way to contribute internally to finance the governments´ debt thereby reducing reliance on institutional investors and hinder their speculation on the Italian sovereign debt).


8. The governance should also ensure that the State does not waste money and allocates all the revenues (tolls collected) to maintenance and new investments.  This means that all the revenues shall be earmarked to be either (i) spent in maintenance or (ii) reinvested in new infrastructure or (iii) distributed to all the tokenholders. The percentage of redistribution of the residual profits can also be changed in order to maximise incentives by rewarding - with higher percentages - the diligent contractors and the citizens which can use the payment as a tax rebate or partial reimbursement against the tolls paid.


9. An effective governance system shall be build-in with tokenholders having - at least - both a supervisory and proposing role, even if the final decisions are then taken by the State representatives.




Clearly the practical implementation of the above mechanism will face a number of complex challenges, mainly political as well as legal and technical. Although I am reasonably confident that legal and technical issues can be effectively dealt with, politically it is a different game altogether. 


What is important to note here is that this new mechanism and the combined use of the Blockchain and token-economics will align much more effectively the stakeholders´ incentives and it will disincentivize the maximization of private profits and the minimization of maintenance and investment costs, which is the real root of this tragedy. Considering the current state of public investments in vital infrastructure projects in Italy and the call for a solution to the current impasse, the above proposal is at least worth some careful consideration and a constructive and unbiased political debate.


It is also a mechanism that can be implemented anywhere there is need to manage economically and effectively public strategic assets without leaving them neither blindly into unreliable private hands nor into wasteful public hands. Italy is not alone in this.


#tokenization #smartcontract #bianconiandrea #tokeneconomics #Blockchain #MorandiBridge


Why tokenization is still a Chimera

Published 31st July, 2018 on Hackernoon.com and Cointelegraph.com and Medium.com and Blockchainflashnews.com Italian translation



Tokenization is nothing new

The term "tokenization" is mainly associated with securities, equities and real assets and indicates the creation of a digital token which represents ownership rights to the underlying assets and which is issued on a Blockchain.

But tokenization is per se nothing new. It is an evolution of derivative instruments and securitized assets such ABS.

For instance, the CDOs and MBS at the heart of the 2009 financial crisis were substantially tokens representing debt. The first examples of securitizations go back to the 17th and 18th century.

Despite the promises that I also share about the potential of STOs and literally dozens of tokenization platforms springing up in the last 12 months and plenty of businesses willing to try to raise funds with it, very little practical progress has been done so far.  Notwithstanding the announcements of imminent issuance of tokens representing equities or real assets, none has yet been practically issued. 


Perceived advantages of tokenization


Governance participation mechanisms and automated dividend payments - which can be embedded in the smart contract - are often cited among the biggest advantages, together with the reduction of back-office work, the reduction of costs for the issuing companies and 24/7 trading.

Fractional ownership is indeed also important as it helps democratize investing, but it is also not new and tokenization is just a new tool to achieve what has already been done in the past through fractional ownership of real estate or club-deals.


Securitization vs tokenization


So in what, practically, securitization and tokenization differ?

Two things essentially:

(i) the issuance of the token on a Blockchain, and

(ii) the tradability/liquidity of the token on a digital secondary market.

But the Blockchain has one fundamental scope: enabling the peer to peer trusted transfer of digital values, while providing certainty and immutability to that transfer.  The first ever Blockchain - that of Bitcoin - was created to allow peer to peer transfers of bitcoins, not of real assets. By definition, its use can be easily extended to other digital assets or rights - such as digital photos, music or e-books for instance - which will benefit massively from the certainty and immutability which are intrinsic to the Blockchain.  But as far as real assets or equities are concerned, the transfer and ownership titles are regulated by the law. Each jurisdiction has its own legal authorities which enable and certify such transfers.  Real estate and land transfers are generally effective upon recording into Land Registries (at least in civil law countries, while the situation is more complex in countries such as the USA where the adoption of a public Blockchain based system can likely introduce certainty to the title ownership and cut conveyance costs and risks), car sales when entered into the motor vehicle registry, sales of equities in private companies when recorded into the companies´ registry.  All those transactions are also likely certified by public Notaries in most jurisdictions. And the issue here is not to advocate whether the future Blockchain adoption may enhance the existing public systems of real estate or corporate ownership titles of any individual jurisdiction - which thing is also probably true - but to simply evaluate whether the Blockchain has some scope of use for tokenizing real assets or private equities within the existing systems.

So the real question to answer is: can the on-chain tokenization of real assets and private equities bring more advantages or more problems in respect to a simpler off-chain tokenization?


Tokenization use cases


Let's look at two use cases: use case A is the issuance of tokens representing private equity, while use case B is the issuance of corporate bonds/commercial papers or other corporate debt instruments by the same private company.


In case A an SPV is needed as a vehicle for all the token holders to have a single entry in XYZ cap table. The SPV subscribes to XYZ share capital increase and owns the shares issued. The SPV will be managed by a nominee director under the terms of Trust Agreement I for the benefit of token holders. 100% of the shares of SPV will be owned by Trust I for the benefit of token holders. Trust Agreement I issues the tokens representing 100% of SPVs share capital. Under Trust Agreement II the shares of XYZ owned by SPV are held for the beneficial ownership of token holders. Note that in this case trusted third parties, such as a Public Notary and the Company Registry, are statutorily required in order to validate transactions. Therefore, in my opinion, the use of the Blockchain unnecessarily complicates things without bringing noticeable advantages.


In case B rather, the same private company issues corporate debt.  Because there are no statutory requirements for third party validations for the issue of debt instruments, such as the need to record it on a public registry, the token and the debt instrument are substantially the same thing and function on the same level.  Therefore XYZ can issue directly to single buyers the tokens representing its debt. Tokens can be issued on the Ethereum Blockchain. A Smart Contract will embed the terms of the debt issuance in the token, such as automatic coupon/yield payments and the repayment of the principal at duration expiration with subsequent burning of all the tokens redeemed. Case B is therefore a good candidate for on-chain tokenization.    


Tokenizing real assets off-chain


As seen above in use case A, when dealing with legally trusted authorities (such as land or companies registries) the Blockchain main functions - which are guaranteeing trust, transparency, immutability, non-corruption of data and non-duplication - are already performed by such authorities. Blockchain is therefore redundant.

Well practised traditional legal structures such as SPVs, trustees, nominees and escrows - backed up by collaterals such as a mortgage or a pledge - are still needed to guarantee the investor (buy side) that the issued token is tied to the real world asset. This because the contractual promise - even if embedded in the smart contract - remains just an "unsecured contractual promise" which, without a collateral guarantee, still poses all the enforceability issues of any unsecured (contractual) promise. And until those public registries are not on the Blockchain themselves, the smart contract has limited practical application. Enforcement/execution - for real assets - takes place off-chain and therefore must be secured with traditional guarantees which can only function off-chain.

Moreover, with such complex transaction structures, mistakes and disputes happen all the time and they need to be promptly rectified or solved. With public registries or with trusted parties mistakes can be easily rectified and disputes solved. Instead, Blockchains´ immutability and irreversibility features then become drawbacks. Without an appropriate mechanism for dispute resolution and reversibility, the Blockchain can render real asset transactions unmanageable.

Therefore, in my opinion, the practical aspects of an on-chain real asset tokenization are still generally not sufficiently appreciated but when this is done, it appears that - in many cases - it is more efficient to tokenize/digitize real assets off-chain.


Guaranteed liquidity is the key prerequisite


Most importantly, what is still missing from the picture - and it is certainly the essential prerequisite for any tokenization either on or off-chain - is the guaranteed liquidity and the possibility for the investors to effectively trade the tokens. Surprisingly, not much progress has been done on that very fundamental issue.

Only if deep pools of liquidity are brought in to ensure adequate market making, then tokenized assets may possibly scale-up in the future to match traditional financial instruments. 




Summing it up:

1. Above all, deep liquidity of the digital secondary market is a prerequisite for any tokenization.

2. We can tokenize assets on-chain or off-chain.

3. Not every asset is suitable to be tokenized on-chain.

4. On-chain tokenization is advisable when the asset can be freely transferred without the statutory need of a third party off-chain validation (such as with corporate debt - as in Case B above - or, as an example, with unregistered real assets such as objects of art or plain digital assets such as digital photos, music, Cryptokitties etc).  Here the Blockchain fully performs its main functions which are guaranteeing trust, transparency, immutability, non-corruption of data and non-duplication.

5. Off-chain tokenization is advisable when there is a statutory need for a third party off-chain validation of the transaction (such as with private equities - as in Case A above - or with real estate, cars, boats, planes, etc). Here the Blockchain is redundant because its main functions are already performed by the third party validation off-chain.

6. Of course, if and when those statutory registers will be on-chain themselves, then on-chain transactions will be possible also for real assets and the Smart Contract will be able to close the loop and to reconcile the ownership title of a real asset off-chain with the digital token (representing the asset) on-chain.

7. Of course the above conclusions may vary depending on the jurisdiction (eg. real estate on-chain tokenization may be advisable in the USA and not in Germany or Italy).


Legal Disclaimer: This paper is for general guidance only and it does not constitute legal advice. As such, it should not be used as a substitute for consultation with lawyers on specific issues. All information in this paper is provided "as is", with no guarantee of completeness, accuracy, timeliness or warranty of any kind, express or implied.

#tokenization #cryptoassets #bianconiandrea #STOs #Blockchain


Will Bitcoin vindicate Hayek?

Published 29th May, 2018 on CCN.com and Medium.com and Hackernoon.com

by Andrea Bianconi


The creation of money has been effectively in private hands since ... well forever. Looking at the modern times - after the creation of the US federal reserve system in 1913 - one of the greatest misconceptions instilled in the masses is the belief that public institutions, such as the US Fed or the ECB, are only expression of public interest and that money creation is the exclusive prerogative of sovereign "nation states". Although it is so widely purported - or simply conveniently led to believe - the truth is rather different.


Indeed, in addition to the fractional-reserve banking - which enables commercial banks to create most of the broad money in the system - the very same well known, too big to fail, privately held commercial banks, also own substantial direct interest in the above institutions.  Take the ECB for example, its governance is formally in the hands of 6 Executive Board members and the Governors of each of the 19 national central banks of member states. So you might think it is all politically endorsed by the democratically appointed governments of each member country. Well, not really.


In Italy for instance - though the same applies to other EU countries - the shareholders of the Banca d´Italia are mostly private banks or large insurance companies such as Unicredit, Intesa Sanpaolo and Assicurazioni Generali.


Though the situation is much more obfuscated in the USA, the concept is the same: nationally-chartered banks own each one of the 12 Federal Reserve Banks which are then part of the FED. As to which the members of the 12 FRBs are, good luck in finding, because it is quite difficult to come up with much information.  It seems like a closely guarded secret.


Regardless, exists a monopoly on money creation, which is awarded by the governments to the private banking sector - though it is concealed by the appearance of the FED and the ECB as being independent authorities  - and it is safeguarded by the very same governments which legally endorse privately issued fiat moneys and make them legal tender by decree, thereby perpetuating the privileges of the banking sector.


In 1976,  F.A. Hayek - the 1974 Economics Nobel Prize winner and one of the most prominent late members of the Austrian School of Economics - wrote a pamphlet titled "Denationalisation of Money", in which he foresaw the emergence of privately issued moneys which could compete among themselves and against the governments´ monopolies, which, in his words, has the defects of all monopolies as "it prevents the discovery of better methods of satisfying a need for which a monopolist has no incentive".


Despite his visionary and highly interesting theories, all his assumptions regarding the benefits of a competitive regime for moneys remained essentially untested because, so far, the monopoly and the "legal tender" privileges could not be challenged by any privately issued money without it being immediately attacked by the governments.


But Bitcoin has been the first privately issued money which enables a radical paradigm shift and may start testing effectively Hayek's assumptions, because it is able to challenge the monopoly privilege thanks to its decentralized nature and the properties that make it resistant to coercion, censorship and geopolitical manipulation.


Without a central point of failure, governments cannot effectively attack Bitcoin.


While granting to Hayek that the banking monopoly on money creation is one of the causes of the many illnesses of our financial system and of the increasing social inequality to levels not seen since 1929, the alleged advantages of competing moneys are still to be proved.


Hayek envisaged a competitive money regime which enabled currency price stability, preservation of purchasing power and store of value, as well as usability as a unit of account and medium of exchange for daily purchases.


The Italian professor F.M. Ametrano of the Universita´ Bicocca Milano and Politecnico di Milano, who is one of the leading voices in favour of Bitcoin, was one of the first to argue - back in 2016 - in favour of the new regime of competitive moneys foresaw by Hayek.


Professor Villaverde, of the University of Pennsylvania, is one of the first to have recently studied the impact of crypto currencies and this new regime of competitive moneys enabled by Bitcoin.  In his column he casts some doubts on the ability of a regime of competing currencies to maintain price stability.

But one must also consider that the crypto sector develops and experiments at lightning speed and this makes any analysis quite soon obsolete. Take the emergence - in the meantime - of stable coins as an example. Even if I do personally share most of the concerns highlighted here on their ability to maintain price stability under stress conditions, they are a clear and important sign that there is a growing trend of creating different crypto currencies with different properties and functionalities, which may all have a specific market and a good reason to coexist.  There is clearly a need for cryptos which preserve purchasing power and may become a store of value (such as Bitcoin), there is a need for stable coins to be used as unit of accounts and medium of exchange, there is a need for enhanced privacy issues (such as Monero), etc.


All those cryptos can theoretically fulfil different functions and being equally in demand among users.


Then of course issues - such as their interoperability and how to effectively exchange each crypto with the others, as well as their ease of use - are all to be answered by new technological developments in the due time.


But one point made by Prof. Villaverde in his column is chiefly important: "the threat of competition from private monies imposes market discipline on any government that issues currency. If a central bank, for example, does not provide a sufficiently ‘good’ money, then it will have difficulties in implementing allocations. This may be the best feature of crypto currencies. In a world in which we can switch to Bitcoin or Ethereum, central banks need to provide, paraphrasing Adam Smith, a tolerable administration of money. Currency competition may have a large upside for human welfare after all"


If Gresham's Law does not fully apply and good money does not drive out bad fiat money, then hopefully it will make fiat money a lot better and vindicate Hayek's vision after all.


#bitcoin #cryptocurrencies #Hayek #bianconi andrea #competitive money


Why We Shouldn’t Listen To Warren Buffet

Published 9th May, 2018 on Cointelegraph.com and Zerohedge.com and Medium.com

and Hackernoon.com by Andrea Bianconi


There has been a time when a saying was popular on Wall Street: “when Warren Buffet speaks, you listen.” Now Wall Street is better not to listen, if they do not want to become history faster than Kodak or Blockbuster.


The media are going mad reporting the latest senseless rants from Warren Buffet, Munger and Bill Gates, just to name the last few. The usual barrage of senseless observations, wrong assumptions, popular, but wrong and ignorant distinctions between “the technology behind Bitcoin” — which is good and everyone on the Street loves it — and the rest which is obviously very bad or just plain insults to the whole crypto community — as if instead Wall Street is populated only by honourable gentlemen and philanthropists.


Shall the crypto community start trading insults with them? Shall we respond?


No we shall not. For they are slowly becoming the past at an accelerating pace and they do not understand it. Besides, they know nothing about Bitcoin. It is like asking a rugby player to dance the ballet’s classic “pas des deux”.

It is worth repeating again and again what Bitcoin is (with capital “B” the protocol), what bitcoin is (with “b” the money), that Bitcoin was the first ever Blockchain, that it is today the largest, open, peer to peer system of payment without intermediaries and without central point of failure, that it incorporates “a planetary scale, self evident, thermodynamically guaranteed system of trust and immutability”, that it is tamper and censorship resistant, that it is resistant to geopolitical manipulation, that lives by consensus and has the features of money and that all this extraordinary complexity put together will change the world we live in and will be the backbone of this coming digital or 4th industrial revolution?


No, these are words wasted on them, because they represent the establishment and they are either too much ingrained in the current system to be able to see something different coming or they have too much vested interest in it to be able to acknowledge it.

They prosper in a system which is based on custody, control, intermediary chains, oversight, cronyism, centralized trust and manipulation. Bitcoin has none. Bitcoin is an alien to them.


The last time that Warren Buffet made very serious money has been with the financial crisis in 2007–2008. When millions of people lost their lifesavings and the hope for a decent future life he made more than $10 bln. By its own admission, this is not because he is a great investor:

If I didn’t think the government was going to act, I would not be doing anything this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly.”

Buffet told the above to CNBC after investing $5 bln in Goldman Sachs. Sure enough the US government did just that.


So you see, you do not have to be an “oracle” to profit from stocks of companies which you know will be saved with public money when you are pals with the President, the Treasury Secretary and the Fed Chair and they can guarantee that to you. There are few in Wall Street who can represent more egregiously today’s crony capitalism than Warren Buffet.


B(b)itcoin stands tall as a symbol against all that. Obviously he does not like it.

Of his despisal we must be proud. We, the Crypto community, see a different world coming, We hope to move away from this crony capitalism to a decentralized, open, trusted and democratized capitalism based on more honest money (just like Bitcoin).


So the message here is not for the Buffets´ of this world, it is for the crypto community of young and bright technologists and entrepreneurs. It is an appeal to stop bickering about which technology is better than the other. Do not waste your time in internal battles that only delay the progress. This is not a religion or a dogma. Yours is a fundamental contribution towards a better future, towards a better world. Put your heads down and whatever you do keep doing it together to improve the Bitcoin´s fundamental pillars of: (i) real decentralization and openness (ii) an inbuilt system of trust and immutability which must be highly resilient to coercion, censorship, geopolitical manipulation and tamper and (iii) cryptographic encryption. Whatever will be the solutions adopted to improve on that, then the result will bring progress to humanity as a whole.


The Buffets´ of this world will be soon the past. For it is a question of when, not if, the NYSE and the NASDAQ Blue Chips will start tokenizing their shares on crypto exchanges, when there will be no more IPOs but only STOs, when VC firms will bring their illiquid portfolios to crypto exchanges to be tokenized and when — in only a couple of years from now — the tokenization will be a trillion dollar industry, then also Berkshire Hathaway will do what Goldman Sachs is doing today, forming a crypto desk and buying tokens.


The irony is, to be able to do that, they will have to buy bitcoin.

Then, suddenly, it will all make sense to old Buffet as well.


#Bitcoin  #Bitcoin News  #Warren Buffet  #Goldman Sachs  #Bianconi Andrea  #Blockchain

The calm before the storm

Published 8th May, 2018 on CCN.com and Medium.com

by Andrea Bianconi


The coming crackdown on ICOs


In the last two weeks there have been a couple of events worth noticing.  The first went by almost unnoticed and did not spark the interest and comments that it should have.  The second just happened on May 3rd and will probably start raising some attention in the next few days if and when people will digest its implications.

The first event is the speech made by former CFTC Chairman Gary Gensler at the MIT Technology Review Business of Blockchain on April 23.  Gensler backed the SEC stance on ICOs saying that "Many initial coin offerings, probably well over a thousand, many crypto exchanges, probably 100 to 200, are basically operating outside of US law". He added that he expects that "2018 is the year to start bringing into compliance this sort of 1000 plus tokens" and that "when and not if, is the only question".

He added that except for bitcoin, bitcoin-cash and litecoin (which are not securities), also Ripple, Ethereum, NEO and EOS may very well be considered securities.

 The second event took place on May 3rd and it is a class action lawsuit filed against XRP II LLC, Ripple Labs and its CEO Garlinghouse for the alleged unregistered sale and offer of securities in violations of the US Securities Act and the California Corporate Code.

I will not comment on the legal aspects of the lawsuit, what is important here is to understand what this means for the sector.

There are two aspects to it: the first is what the regulators will do and the second is what are the practical consequences of the regulator's actions.

On the first aspect the SEC has many ways to tackle the issue - from the lightest to the more draconian - such as trying to enforce compliance of those "1000 plus ICOs" retroactively, obtain disgorgement of any money or proceeds of the illegal activity, impose civil penalties against exchanges, promoters, advisors or anyone who sold or even evangelized those ICOs. All this without even considering the independent criminal proceedings which may be brought by the DOJ and the individual U.S. Attorney's offices.

Even if this concerns mainly US based ICOs, also EU based ICOs can not sleep "sweet dreams" because (i) it is not clear how the EU regulators will act and if they will follow on the SEC steps and (ii) it is sufficient that only 1 US citizen bought a token and then even a Gibraltar or Malta based ICOs will start feeling the pressure of US authorities which are well known for their - mostly illegal - extraterritorial overreach (just ask the Swiss bankers about it).

The coming crackdown is however only one side of the coin which everyone is looking at, but it is by no means the most important nor the one that may have the heaviest implications for the market.

The second aspect is likely far more important and it is indeed the avalanche of lawsuits that the regulators´ approach will trigger.  Every disgruntled investor who has suffered losses is now legitimate to sue and get his money back because the ICOs did not comply with applicable Securities laws.

Of course this is not the first class action lawsuit against ICOs - in addition to Tezos I could count five being filed between the end of 2017 and the beginning of the year - Centra, Monkey Capital, ABT Coin, Giga Watt and Paragon Coin. But what is here relevant is the acceleration of the trend and the timing between Gensler´s talking about Ripple being a security and the lawsuit. Therefore this lawsuit may signal the acceleration of a trend that will have - quoting Gensler´s words - "a chilling effect on this frothy ICO market". Also note that, even if EU regulators did not take a clear stand like the SEC, they also did not legitimate ICOs (except Switzerland, Gibraltar or Malta), therefore an EU based ICO runs the same risks that token buyers may sue arguing that the token is effectively a security under EU Laws and the issuer failed to comply with EU Securities laws.

The impression is that the industry is taking those events too lightly and it is not preparing nor planning for the problems to come.  Those "1000 plus ICOs", should set up crisis management teams to evaluate the legal risks that they are exposed to and what measures they will have to take to reduce - as much as possible - the damages. The consumer industry does it routinely with product liability issues because they know that if left unchecked the risks will be too high for the business.  Some suggested a sort of Amnesty process to be negotiated with the SEC. Unfortunately, not much seems yet to be happening. The ICO industry is too young, the players are relatively inexperienced and likely inebriated by the quick riches and easy success.

For better or worse it will not last and this may well be the last calm before the storm.

The future of ICOs

Published 3rd April, 2018 on medium.com and CCN.com

The Beginnings

It is less than five years since in July 2013 J.R. Willet did the first ever ICO (Initial Coin Offering) for the Mastercoin. Since then ICOs have raised cumulatively more than 3,7 US$ billion until December 2017.  The year 2017 saw the explosion of the funds raised with this new funding technique. It is interesting to note that the historical high of deals closed by traditional Venture Capital (VC) - approx. 19.000 - is coincident with the beginnings of the ICOs in 2014.  Since then the quantity of VC deals has dropped by almost 50% to approx. 10.000 deals in 2017.  Moreover, the fact that the amount of money invested in VC has not dropped by the same amount, it is evidence that traditional VC is now focusing on less but larger deals. This means that VC does not fulfil the early funding needs of start-ups which then have turned to ICOs in order to raise funds.

(Source Techcrunch.com)


Also crowdfunding has shown all its limitations when compared with the ICOs.  There are numerous examples of start-ups which failed to raise even a few hundreds of thousands with crowdfunding campaigns and then raised millions in the first day of an ICO. Take Kickstarter - the most successful crowdfund - they raised less than 3,5 US$ billion in 8 years compared with the same amounts raised by ICOs only in the two years 2016 and 2017.  No wonder that both Kickstarter and Indiegogo are now pushing forward their own ICO platforms.

Advantages of ICOs vs. traditional funding

So what makes ICOs so appealing?

It is essentially the access to a liquid market. It is the possibility to "digitize/tokenize" any assets and trade it on a global market where one can tap into investors from all over the world without the need of financial intermediaries. In other words, it is the "democratization of entrepreneurship" and the end of the monopoly of traditional financial institutions on funding ideas and creativity. It is potentially a unique opportunity to scale and develop new ideas and products in each field of application, from consumer products to technology, to science and medicine, to the purest advanced research in any such fields where raising money traditionally is very difficult. It is an enormously powerful tool which will enable "creators" to retain more effectively the control and the ownership of their ideas and creations, without the need to sell out to the finance industry.

The ICOs have also many practical advantages compared to traditional funding:

- the access to a boundless worldwide market of potential investors compared to a small elite of venture capitalists;

- the lack of the usual barriers and constraints that make accessing traditional VC funding difficult, such as geographical limitations, language and cultural barriers, social class barriers and networking barriers.  VC has also high costs of funding in terms of equity share to be given up and high share capital dilution;

- the liquidity of a boundless worldwide secondary market in which tokens/coins, shares, bonds, commercial papers, derivatives of any type of assets, you literally name what, could be traded;

- the flexibility in designing the token-instrument - as well as the features and the rights that one can attach to it - is unconstrained;

- just as the ICOs will "democratize entrepreneurship", tokens will "democratize investing". This will do to the investment market what the internet did to the media. "Amateur" investors will become like tweeters and bloggers in the media today;

- the token aligns the interest of the entrepreneur and the investors very effectively. The investor buys the token because he shares the objectives of the project, loves the technology application, likes the developer and its team, he is happy to use the application and profits from the appreciation of the coin if the market develops. He always has a way out if he does not share the project anymore. In traditional VC the corporate structure is closed, it is not flexible. Also, the participation of the investor in the capital of the company via traditional VC frequently creates conflicts of interests, whether it is on the strategies, on the distribution of profits or future investments. It would be interesting to ask Bill Gates, Elon Musk or Steve Jobs if they could go back in their early days and - having this new opportunity - if they would go again with a VC or an ICO.  Clearly traditional VC has also its important advantages, such as bringing on board experienced and competent investors who can contribute very specialized knowledge and networking capabilities in key areas such as finance, marketing and business development. But comparing VC with ICOs is not the purpose here as it is not advocating if one is better than the other.

The Social value of the ICO

So far the large part of ICOs have raised funds for the financial sector. But ICOs will be even more important and disruptive in social or scientific fields. Take an industry with a bad reputation, lots of money and strong lobbies: Big Pharma. Stories abound about experimental drugs that can cost a fraction of existing drugs and be more effective, but never make it to production because they challenge existing "blockbuster" drugs which net the industry much bigger gains.

Luckily today a bright researcher has a new opportunity. Raising funds with an ICO may effectively end up stimulating competition in a sector which is substantially run as a cartel. The same goes for researchers who are fighting against rare diseases. A rare disease is defined in the EU as affecting less than 1 in 2000 people which may still add up hundreds of thousands or even millions globally. Since those numbers do not make it profitable enough for Big Pharma to develop an experimental drug, a researcher has now the option of reaching out directly to the patients and raise funds from them with an ICO campaign. Even a few hundreds of thousands raised will go a long way stimulating the research and saving people´s lives. I cannot think of a better social enterprise than this, where the interest of the drug producer and that of the patients who finance the venture are so much aligned and convergent. If the drug is successful it goes into production, the patients/investors buy the drug, a market for the drug develops and the token appreciates and lives are saved.  It works just like the old fashioned cooperative, except that the opportunity now is to tap into a worldwide boundless cooperative.  ICOs will have limitless opportunities of use in social ventures.

The status of regulations

It is commonly heard that the sector is like the "wild west" and it is unregulated.  This is not correct.  There is plenty of regulations at all levels. The question is whether new technological creations such as token/coins or cryptocurrencies fulfil the current definitions of securities/stocks, money or e-money. If yes, existing regulations will apply, if not then we may discuss if and what kind of regulation may be appropriate. In my opinion regulators shall refrain as much as possible from new regulations. What is needed is some coordination to clarify mainly in which cases coins/tokens are to be considered equivalent to securities. The example of Switzerland is illuminating of a generally balanced approach which aims at clarifying upon which conditions token/coins or cryptocurrencies are falling within existing laws, without the need for additional regulation.

Alleged risks

Unfortunately, instead of taking Switzerland as an example, central bankers, regulators worldwide and even the G20 have lined up recently to call for cryptocurrencies and ICOs to be regulated.


Tokens could post substantial risks for investors and can be vulnerable to financial crime without appropriate measures,” the finance ministers and central bank governors of France and Germany said recently. Moreover, “In the longer run, potential risks in the field of financial stability may emerge as well”. IMFs Head Christine Lagarde has released a chilling Blog titled "Addressing the Dark Side of the Crypto world". According to Lagarde, one of the major perils of Crypto-assets is that they are "potentially a major new vehicle for money laundering and the financing of terrorism." Here my comments on what to read between the lines of Lagarde´s Blog and generally on the ongoing "terror" campaign coordinated by the elites upon Bitcoin, ICOs &Co.

More disclosure rather than regulation

Don´t get me wrong. Of course there must be concerns for retail investors but - as Switzerland has effectively demonstrated - this does not mean necessarily that new regulations are needed.  Retail investors are easily protected by ensuring that they are given correct and transparent information. Disclosure is the key, not additional regulation. From the investor´s point of view the main issue is to make sure that there is no room for fraudulent schemes.  This is easily done by ensuring a few things:

- transparent corporate documentation and a minimum set of disclosure requirements;

- clarity as to which rights are attached to the tokens and how to enforce them;

- protection of the funds invested, which shall be deposited into an escrow in a reliable jurisdiction and released only upon fulfilment of the conditions set out in the Whitepaper.  An option would be to require that the escrow shall be situated in the country of residence of the investors, regardless of where the company is actually registered.  Multiple escrows in different jurisdictions may be an efficient and cost effective way of protecting investors. The escrow must be managed by an accredited financial intermediary. Smart Contracts can be deployed as well.

The above may well be sufficient to discourage plain fraud schemes.  Then a proper due-diligence does the rest (scroll down the page to reach the right article).  Once appropriate disclosure is ensured, then retail investors should take responsibility for their choices. Historically, the real risks are with the well regulated traditional financial sector where - when things go wrong - millions of people lose their lifesavings. See what has happened in 2007, the banks´ predatory lending practices which led to the sub-prime crisis and the bailout costs for the global economy.  

Real risks

So if money laundering risks alleged by the regulators are in fact negligible and can be easily dealt with the existing KYC/AML regulations and fraud risks to retail investors can also be effectively reduced with more disclosures as indicated above,  what are the real risks for the sector?

Personally, I believe that the biggest risk is not the lack of regulation, but most certainly overregulation or bad regulation which may cripple the experimentation and the funding of creative ideas. Just to understand what overregulation and bad regulation can do to the sector, look no further than the "infamous" New York´s State BitLicense which has been granted only to a handful of larger operators and caused the mass to pack their bags and move to more relaxed jurisdictions. If you go through the 44 pages of compliance requirements you cannot avoid thinking that the only reason to make it so burdensome was to actually cripple the sector.

Why do I see this as the biggest risk? Because the financial sector stands to lose big if they do not get soon a firm grip on the sector. Just think for a moment: a boundless, decentralized, liquid market where you can trade any assets. There will be no need for brokerage houses or intermediaries as we know them today, which may well be replaced by an open source node software like the XU. The trades will settle in seconds, with direct peer to peer payments made via mobile phone and without need of a bank account. Tokens will obliterate stocks as the most traded instrument in a large, open, decentralized, transparent market running 365days/24hours on the Blockchain.

Is this a fantasy? In technology terms sure not, it is more or less just around the corner. And this is what the financial industry is scared off.  They risk losing the monopoly on money creation and on wealth expropriation which is effectively achieved through the systemic manipulation of the current financial system. For the deep pocketed financial industry more regulation just translates into more costs which they can simply pass on to consumers or just absorb to achieve a competitive advantage, but for all the innovators this is a matter of life or death.

STOs will be the Future

ICOs have grown so rapidly also because they exploited an unregulated market loophole and — to be fair — the SEC is not wrong when they state that most of the utility tokens issued were in reality more like securities. Therefore it is safe to assume that, as the regulators will start to issue their guidelines — hopefully just like Switzerland did — this loophole will be soon closed. This means that the opportunity to do an ICO — the unregulated way like we have seen so far - will be limited to “real” utility tokens. Accordingly, unregulated or little regulated ICOs, will likely maintain their importance to fund mainly tech and innovative start-ups and social ventures where utility tokens will not fall within the application of securities laws.

But what about the rest then? What about the largest part of the market, all those more mature and proven businesses which are still interested in the ICO model as a new way of raising funds? Enter then STOs (Securities Token Offerings). STOs are today substantially unknown, but their potential is huge.  Just recently the first ever Real Estate STO worth US$ 400m has been announced.

Equities, loans, real estate, anything that is considered today by applicable laws as a security or asset can be tokenized.  While securities´ laws will clearly apply to this category of tokens, the attraction for mature businesses is to tap into a highly liquid, borderless and decentralized market.  Just imagine if US$188billion IPO market slowly migrates to STOs and then just a tiny fraction of the current global debts, derivatives and commodities market follows suit (difficult to quantify, it is a mind-numbing number in the quadrillion league, see here for a visual representation of money markets today).

This is probably what people at Polimath , T-Zero and Blockex are thinking.

In addition, a wave of STO deals is to be expected to come soon also from the traditional VC industry, in order to exit and liquefy the many otherwise illiquid shareholdings they hold in portfolio.

STOs will also impact the internal and organizational structure of corporations as we know it.  Think about the back-office work and the intermediaries involved in handling dividend payments and voting rights for securities listed on traditional exchanges and how the whole process could be streamlined with tokens and smart contracts.

Tokens will also allow corporations to run a much more decentralized business model. Just watch the growth of "network companies", with very little internal corporate structure and a decentralized mass of stakeholders coalesced around the common project, who share in the Project´s value growth via the token.   


The future of the ICO´s is likely to shape the future of the Blockchain.  The two are locked together. Real innovation on the Blockchain can happen only if creators will remain flexible and unconstrained in their ability to raise funds. It is no coincidence that Ethereum made it with an ICO.  Which VC firm would have funded Vitalik Buterin´s dream back in 2014 with ca. US$18m? None.

Disruptive innovations will not come from big industry players: IBM did not create Apple, Hilton did not create Airbnb, Wal-Mart or Metro did not create Amazon, and bankers did not create Bitcoin or Ethereum. It will be the young creative start-ups which will shape the future and they desperately need a simple and flexible funding mechanism to leverage their ideas.

Despite the fact that some of the risks highlighted above remain, young and bright technologists will continue to experiment, create and innovate and eventually those innovations will prevail and will quash the attempts of powerful lobbies and special interests groups to firm their grip on the sector. Only those who will understand early enough that this moribund financial system is ripe for a change - and that Bitcoin, Blockchain, disintermediation, peer to peer exchange of values and more honest money are here to stay - will survive. It is only to be seen which - among those who will resist the changes - will be the next Kodak or Blockbuster.  For the ones who will not oppose but adapt and embrace changes, will win.

"Change is the law of life. And those who look only to the past or present are certain to miss the future" - John F. Kennedy

(The Future of ICOs will be discussed at the Blockchain Summit Frankfurt on April 26, 2018)


Reading between the lines of Lagarde´s blog

Published 15th March, 2018 on medium.com

by Andrea Bianconi


IMF´s Christine Lagarde has issued a blog with the chilling title "Addressing the Dark Side of the Crypto world". According to Lagarde, one of the major perils of Crypto-assets is that they are "potentially a major new vehicle for money laundering and the financing of terrorism."


The key word here is "potentially". The reality is very different. Crypto-assets do not even get close to being - even potentially - a major vehicle for money laundering. Indeed, according to a recent study of the Center on Sanctions and Illicit Finance, in the years 2013 to 2016 the "amount of observed Bitcoin laundering was small - less than one percent of all transactions entering conversion services". Now let's play big and not consider only conversion services but let's assume that 1% of the entire Bitcoin market cap was actually laundered. Bitcoin´s historical market cap has been fluctuating and steadily climbing in the last 5 years. Make a very approximate calculation - take each year end market cap as reference - and the market cap in the last 5 years has averaged US$50billion per year, growing from US$9,2billion in 2013 to US$216 billion in 2017. The worldwide estimated amount of money laundered globally every year is 2% to 5% of the global GDP - therefore circa US$1,5 trillion to US$4 trillion are laundered every year. It is plainly clear that the circa 500million - 1% of 50billion average market cap in the last 5 years - of "Crypto-laundering" are a laughable amount compared to the global problem. It is like fighting global Climate Change by prohibiting farts. Even considering Bitcoin´s 2017 peak market cap of US$326 billion, if 3,26billion were laundered through Bitcoin, this would be merely the 0,081% of global money laundering, a "very, very, very tiny potential" problem to have the Head of the IMF so worried.


So why then Lagarde is busy wasting her precious time lying about trivial things such as Crypto-assets, instead of focusing on issues which constitute a "clear and present danger" to this collapsing monetary system?


Enter dissimulation/deceit. Sun Tzu quote, Part 7-15: "In war, practice dissimulation, and you will succeed". That is exactly what regulators excel at doing. They claim there are big risks - which are in fact negligible as demonstrated above - to justify the right to intervene and regulate the sector to favour their cronies.


Now let's dissect a bit more Lagarde´s statements and get a better reading in between the lines.


"Of course, money laundering and terrorist financing is only one dimension of the threat. Financial stability is another. The rapid growth..., and their ill-defined connections to the traditional financial world could easily create new vulnerabilities."


So, after conceding that money laundering and terrorist financing are only one dimension of the threat - i.e. sorry we lied you about it but we needed to raise the attention - she finally mentions her real concern, the threat to financial stability. But if Deutsche Bank's US$46 trillion derivatives off balance sheet are not a threat to the financial stability and no one at the IMF or any other regulatory body even thinks that this is worth investigating, certainly a mere US$354 billion global market cap of all crypto-currencies as of today March 14th, are not a threat to anyone.


So where is then the real threat to financial stability? What she really worries about is that the financial elites may lose their control over the monopoly of money creation, which is the most important pillar of this Fiat centred monetary system. Therefore, because the crypto world has "ill-defined connections to the traditional financial world", i.e. it does not belong to and it is not controlled by the financial elites - which is per se a threat - it is necessary to bring it under the control of the financial sector. This is of course the opposite of what Satoshi - the creator of Bitcoin - dreamed of.


She continues, "But we recognize more needs to be done to get a handle on the emerging threat posed by crypto-assets and to secure a stable financial system"


As if the systemic irrelevant crypto-assets could pose a risk to an otherwise "very secure and stable" financial system. A quick remainder of the last 40 years of financial history is clearly needed. Millions of lives have been ruined and the savings of millions of families have been lost due to the failures of the current system and its main actors, which have generated the credit excesses and the bubbles which brought upon the 1982 Lat-Am crisis, the 80s US Savings and Loan crisis, the 1987 Stock Market crash, the 1989 Junk Bond crash, the 1994 Mexican-Tequila crisis, the 1997 Asian crisis, the 2000 Internet bubble and the 2007 sub-prime crisis. The system that the IMF regulates and supervises generates on average a crash every 5 years. And this is certainly not the fault of crypto-assets.


"We can fight fire with fire..." Finally Lagarde reveals her Orwellian dream where the financial elites can use the very same tools and innovations such as DLT´s, biometrics, AI and cryptography to control both the crypto-world and the society in general.


Lagarde herself seems to have changed her rhetoric from the speech at the Bank of England only 6 months ago, in which she said that "For now, virtual currencies such as Bitcoin pose little or no challenge to the existing order of fiat currencies and central banks". Although she advised not to "dismiss lightly crypto currencies" because "they could give government-backed cash and monetary policy a “run for their money” in the future".


We can only speculate what has happened in the meantime that made her so much more worried. Maybe it is the dollar continuous fall, or the recent stock market flash-crash, or the growing liquidity problems in the Eurodollar market, or the popping of the US treasuries bubble, or the banks´ pattern of liquidating gold reserves to raise liquidity or maybe Bitcoin´s meteoric market cap increase and the fear that it may subtract liquidity to this collapsing monetary system when a new crisis will strike. Who knows.


But more importantly what conclusions can we draw from Lagarde´s blog as well as from the most recent crescendo of hysteria, critics, alarming statements and plain lies of Central Bankers and regulators worldwide?


Special interest groups and lobbies are always hard at work to quash the attempts to disrupt the status quo. Indeed, because of their disruptive nature and the potential threat that crypto-currencies pose to the financial elites and the current monetary system, they will try to embrace and control what benefits and serves their interest and will try to suppress what threatens their interest. Satoshi´s vision may well remain utopia and Lagarde´s dystopian vision of the Blockchain and her Orwellian dream of societal control may well become reality.

Time will tell.


The Swiss lead as the ICO hub of the world

A first analysis of the legal aspects of the newly released ICO guidelines

Published 27th February, 2018 on ccn.com and medium.com

by Andrea Bianconi

The Swiss are smart.  They have always been with money. In last 20 years Switzerland has progressively lost its appeal as the former secret banking centre of the world.  This has dramatically changed the landscape among Swiss professionals - mainly lawyers and fiduciaries - which have progressively lost clients and businesses and had to look for new areas of opportunities. And now they have been the fastest and smartest in jumping at this new business opportunity.  And this time the potential is really immense for the Confederation.

World Premiere for ICO´s

ICO`s, ITO´s or TGE´s, call it whatever you want, are the future of fund raising.  And the Swiss financial authority (FINMA) on 16th of February 2018, was the first regulator to officially issue fairly detailed ICO guidelines to help clarify if and how the current Swiss laws will apply to ICO´s.  As a lawyer, I must say that I am positively impressed. Due to the recent crescendo of hysteria, critics and plainly alarming statements on the part of Central Bankers, regulators and financial prominent people vs. ICO´s, Bitcoin & Co, I was fearing that a regulatory nightmare scenario would have rapidly ensued for the sector. Luckily, the Swiss move sets an important precedent for regulators worldwide.  Either follow the Swiss smart lead and improve their regulatory framework - thereby making compliance for ICO´s less burdensome and therefore a more attractive environment for ICO issuers, or go the other way and make it more burdensome than the Swiss and consequently shot yourself in the foot just like they did in NY with the infamous BitLicense. Then, say forever goodbye to the most promising business sector of the future.

I am optimistic that the countries that will soon follow the Swiss move - likely Gibraltar and possibly Canada, London, Singapore, Estonia and even Spain - will do the smart thing and start a race to the top rather than to the bottom, therefore making it easier for start-ups to go the ICO route. This is also a huge opportunity for Europe if the EU regulators will be smart enough to improve the path set by the Swiss.  If not, if they decide to do like the Americans, then I am sure that London will grab the opportunity to do the smart thing and attract very good business.  After all London is ideally positioned - after Brexit - to offer EU start-ups some generous incentives (also on the taxation side) to move there and steal precious business from the EU and its sclerotic bureaucracy. The Brits have all the infrastructure (just like the Swiss) to become one of the leading ICO hubs of the world. It would be a pity to lose this opportunity.

The FINMA guidelines.

Now, without getting too much into the legalities of it, let's see in simple terms what the Swiss new guidelines say. I will keep it short to five main points.

1. First of all there is no need for new regulations. Existing regulations are sufficient to regulate even recent creations such as tokens/coins or crypto currencies. This is known by legal practitioners as Analogia legis - a fundamental principle shared by all civil law jurisdictions - whereby the interpretation of existing laws can be extended to new cases if they are analogous. Therefore FINMA correctly classifies tokens/coins and crypto currencies in very practical terms based on their use and the rights attached to them. Then they decide if and when existing Securities´ Laws and AML (Anti Money Laundering) Regulations will apply.

2. Based on current experience, fundamentally 4 types of tokens/coins have been classified: payment tokens (i.e. crypto currencies), utility tokens, asset tokens and hybrid tokens.

(i) payment tokens are not securities - therefore all the burdensome compliance with securities laws is excluded - but because they are a means of payment, then AML (Anti Money Laundering) regulations apply;

(ii) utility tokens are to be looked into more carefully. Generally, they are not to be considered securities if they grant the right to a digital use or to a digital service.  In addition, the investor must be able to use the token already at the time of the ICO. This means that all the infrastructure of the issuer - that allows the tokens to be spent - must be already fully operational at the time of the ICO. However, if the token has even partially the characteristics of an "investment", then it will be treated as a security. Because they are not considered a means of payment, AML does not apply.

(iii) asset tokens are always considered securities and will fall within the burdensome application of Swiss Securities´ Laws (i.e. a prospectus is necessary, etc).  However, because they are not considered a means of payment, AML does not apply.

(iv) Hybrid tokens will have to be evaluated on a case to case basis.

3. All the above applies only to tokens which already exist at the time of the ICO. Whichever token will be issued post ICO is to be considered a security.  Therefore the procedure known as ICO pre-sale or pre-financing shall be avoided if you do not want to fall within the application of Securities Law.

4. FINMA also provides a well detailed Questionnaire which is to be completed by the ICO issuer to request FINMA´s opinion on the prospective ICO.  A fee will be due as well.

5. Finally, AML compliance can be easily fulfilled by hiring the services of a Swiss financial intermediary which will ensure compliance with AML laws on behalf of the ICO issuer.

Clearly, with the growing flow of ICO´s, FINMA will provide vital clarifications and interpretation to the guidelines and an interesting framework of practical ICO cases will soon develop, which will be a very useful precedent for practitioners and regulators worldwide.

All in all a positive and balanced approach which no doubt will bring very good business in Switzerland. Well done the Swiss.

Bitcoin, a scary chameleon

First published 15th January, 2018 on ccn.com then updated the 25th March 2018 and published in its current final version on medium.com


by Andrea Bianconi

Now, pretend you are in Davos sitting among the world's financial elite. You face a panel made of renowned central bankers. You slowly raise your hand and ask the million dollar question: "Can anyone tell me what Bitcoin is?". After a moment of stunned silence, the whole audience roars with laughter.  As the laughter subsides, the "masters of the universe of credit", will start the usual tirade: it's a fraud (J.Dimon), don't know ...but it will end badly (W. Buffett), it's only a speculative bubble (R. Dalio), it's a Ponzi scheme, it's backed up by nothing, it's nothing at all... and so on.

So what really is Bitcoin?

The definition that I prefer was given by Andreas Antonopoulos: "Bitcoin is a planetary scale, thermodynamically guaranteed, self evident system of immutability". Brilliant definition and you can see in this video what he means. This definition signals the many complexities of Bitcoin and how difficult it is to define it, because Bitcoin is many things together and it has many different features.  Indeed Bitcoin was the first ever Blockchain, is today the largest open and borderless peer to peer system of payments, it is highly resistant to censorship, tampering, coercion and geopolitical manipulation, it incorporates a mathematical "thermodynamically guaranteed" mechanism of trust, lives by consensus and it has the features of money.

Now, when engaged in discussions about Bitcoin, regulators, central bankers and generally the financial elites, only see the tip of the iceberg and have very little or no idea of what lies under water.  The tip of the iceberg they see are solely the features of money. So let me engage them on that and see if Bitcoin is - among all the other important features - also money.

The Position of the Regulators

On January 8th, the Bank of Israel was the last Central Bank to issue a press release trying to define what Bitcoin is or - better - what it is not.

Here they go, "Bitcoin and similar virtual currencies are not a currency, and are not considered foreign currency and should be viewed as a financial asset".

For the State of New York, Bitcoin is a digital unit that is used as a medium of exchange or a form of digitally stored value".


For the German BaFin it is a "unit of account" and therefore a "financial instrument".

More comprehensive definitions have been attempted by the EBA in 2014 (European Banking Association) and the Banca d´Italia, which both define Bitcoin as "a digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to a fiat currency, but is used by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically".

Quite to the contrary, the Bank of England and the English FCA have not taken a position yet.  In fact, the FCA has gone as far as to state that it does not regulate digital currencies and has no intention of doing so.

Money and Currency in history

Let's see then how monetary history defines both money and currency.  Money first.

In history there have been many forms of money, but just looking at modern times, one can identify essentially two forms of money: representative commodity money and fiat money.  Throughout history gold and silver, as commodity money, have been the purest form of money. Because they have an intrinsic-use value and cannot be debased.

At the beginning of the 1900 - with the gold standard - commodity money became "representative commodity money", which was fiat money backed and redeemable for gold. Our current system instead is based solely on fiat money (from the Latin, fiat - let it be) - which has no intrinsic value and is irredeemable - and whose value is in fact sanctioned by the government which makes it legal tender within a nation. Fiat moneys are guaranteed by the authority of the State and backed by its tax collections and the solvency of its finances. Money must have some essential properties, such as being (i) a medium of exchange, (ii) a unit of account and (iii) a store of value. Money must also be fungible, portable, durable and cognizable.

When a money circulates within an economic system and is accepted as a means of payment - through banknotes and coins - then it is also a currency (from Latin currens-entis - in circulation). Which is essentially "a generally accepted system of money which circulates within an economic system". Therefore you can have a money which is also a currency and moneys that are not currencies.  For example, the moneys par excellence - gold and silver - have been also currencies throughout history until Bretton Woods.  Today, one can argue that they are not currencies anymore, but still they remain the purest form of money. Although, to be precise, some gold coins are still today legal tender at face value in the US and therefore still a currency. In 1912 J.P.Morgan, when called to testify before the US Congress, said his famous words: "Gold is money, everything else is credit".

Bitcoin´s money features

So let's see how Bitcoin fits in this framework:

- the EBA acknowledges that Bitcoin has the features of money, such as being a unit of account and a medium of exchange. To be more precise one should say that Bitcoin has - at least the potential - of being a unit of account and a medium of exchange.  This because it still lacks the wide adoption as a means of payment and, by being too volatile, makes it still hard to price and sell goods. The same one can argue for the store of value and the stability features. However, at the same time one can legitimately assert that all our fiat moneys are not in fact a store of value, considering the central banks institutional policies of debasement and monetary inflation.  As evidence suffice to look at the graph of the US dollar vs. gold from 1970 to date, to comprehend that the "king dollar" is definitely not a store of value having lost 97% of its purchasing power in terms of gold in 48 years.


Bitcoin´s volatility is also a function of its small market cap and young age.  This will change with time and more widespread adoption. So, as far as the store of value is concerned, it is arguably more suited an instrument which has shown since its inception a deflationary trend which resulted - despite deep corrections - in an increase in its value by orders of magnitude.

- Bitcoin is clearly fungible, portable, durable and cognizable, like money should be

- Bitcoin is not however commodity money nor fiat money.  But the historical definition of money cannot be kept immutable in the face of time and technological advancements. Clearly, a digital form of money is nowadays possible.  However, if one can easily accept all forms of digital money which are either derived from fiat or derived from commodities, with regard to Bitcoin one must go a step further. For no government nor a commodity with intrinsic value stays behind Bitcoin, it relies solely upon the trust that users, investors and miners put into it. For that reason, it is very important to analyze here what "trust" means.

In money we trust

There are two forms of trust in money: objective or intrinsic trust and subjective or extrinsic trust.  The former is the trust that one has in commodity money. One trusts that mother nature has made gold scarce enough and costly to extract as to ensure a limited supply.  One trusts its scarcity, objectively.  This form of trust is intrinsic in precious metals´ nature. On the contrary, the form of trust in fiat moneys is subjective, extrinsic, meaning that one trusts groups of individuals or societies - such as governments or central bankers - to act in a way that does not jeopardize their finances and not to debase its fiat issued moneys.

This type of subjective-extrinsic trust is the basis of the social construction that makes fiat money valuable for the exchange of goods and services in a modern society. The Bank of England for instance, clarifies that the trust in the fiat GBP is instilled by (i) measures to avoid counterfeiting and (ii) low monetary inflation.  Simply put, one trusts the government's promise not to abuse the printing presses and - in short - to be able to repay its debts and remain solvent.

Since 2007, the unprecedented monetary experiment of massive credit creation by central bankers worldwide has dramatically eroded the residual "trust" that people had left in their governments and the banking system. The social construct that attributed value to fiat moneys then started to collapse and Bitcoin was born as a consequence. Therefore, if this type of "government instilled trust" is nowadays irreversibly broken, do then people have more reasons to continue trusting their governments (i.e. fiat money) or a mathematical algorithm (i.e. Bitcoin)?

The question is by no means irrelevant. In fact, one can argue that Bitcoin is closer to commodity money than fiat moneys - in the sense that the social consensus that makes Bitcoin valuable as money is coalesced around its mathematically pre-determined monetary supply and its technological features.  For, math, thermodynamics and technology do for Bitcoin what mother nature does for gold and silver. This perception is amplified at this historical moment when all social constructs that back up this dollar centric fiat monetary system seem to be falling apart.

One can hardly refute that an objective-intrinsic form of trust is far superior to a subjective-extrinsic trust. The latter can only be rated according to its historical record.  Unfortunately, the historical record of fiat moneys is pretty poor. The answer is yet again in Cicero's magistra vitae. Because history proves ultimately that, when humans have incentives - such as governments, politicians and bankers have in creating new money - they will always abuse it. The result is that no fiat currency in history has ever survived its inevitable debasement. There will always be another Roosevelt, another Nixon, more LTCM´s, more Lehman, more bailouts, more QEs..., it is just human nature. This form of "subjective" trust is easily lost and when in history the social construct that attributes value to fiat moneys breaks down, the results have been the collapses of past empires or - in modern times - the hyperinflations of the Weimar Republic, Argentina, Zimbabwe or Venezuela.

That is the fundamental reason why a Blockchain based decentralized monetary system, "thermodynamically guaranteed" by a mathematical algorithm, which ensures limited money supply, no duplication and no double-spending, which is highly tamper resistant, secure, transparent and which transactions are recorded in an immutable distributed ledger, is no doubt intrinsically and objectively trustworthy. And that is a huge argument in favour of Bitcoin.

If one agrees on this key issue of "trust", then Bitcoin is not only money but it is superior to any fiat money. Not that it matters, but more recently also Goldman Sachs has changed its opinion and now agrees that Bitcoin is money.

Not yet a currency

If Bitcoin is in no doubt money, can it be also considered a currency? Probably not yet. But it may well become a currency in the future, depending on how much Bitcoin will evolve into a "generally accepted system of money within the global economic system". For instance the Ether (ETH), which is in no doubt a generally accepted system of money payments within the Ethereum community, can be considered for all purposes a "private" currency today. Bitcoin however - unlike the ETH for the Ethereum community - does not perform a currency function within a closed system and for this reason it must be more widely adopted in the global economy before being considered a (global) currency.


Of the many properties that Bitcoin possesses, the money feature is the one that scares the establishment. Admitting that Bitcoin is money superior to fiat means that governments, central bankers and the whole banking system have lost the monopoly of money creation. This is an existential threat to the current monetary system. Christine Lagarde of the IMF, said "not to dismiss lightly crypto currencies like Bitcoin because they could give government-backed cash and monetary policy a “run for their money” in the future". More recently also Rodgin Cohen, the Senior Chairman of the giant Law Firm Sullivan & Cromwell, said more or less the same on Bloomberg TV, "crypto currencies may well in the future pose a direct threat to the Fed and other central bank policies´, as well as to the reserve status of the US dollar globally". 

Because of that, the future is by no means secure for Bitcoin. A fierce battle is to be expected by governments and bankers worldwide, because Bitcoin is their enemy nr. 1 and must be either controlled or suppressed at all costs. One feels the "winds of war" blowing in the chilling title of the blog recently released by Christine Lagarde "Addressing the Dark Side of the Crypto world". Here you will find my comments to that blog.

The financial elites will try to embrace and control what benefits and serves their interest and will try to suppress what threatens their interest. The path is clear, the financial industry is already the largest holder of Blockchain patent applications and they will fully embrace permissioned and centralized Blockchains to leverage their position. If anything, governments may issue centralized fiat-crypto-currencies, thereby achieving the double objective of removing cash - the last bastion of freedom - and enabling total control of their citizens, at will debasement, unlimited bail-ins and expropriation through negative interest rates.

If this scenario unfolds, Satoshi´s vision may well remain utopia and Lagarde´s dystopian vision of the Blockchain and her Orwellian dream of societal control may well become reality.

Time will tell.

The mother of all bubbles no one talks about.

Published 10th January, 2018 on Cryptodaily.co.uk

by Andrea Bianconi 


The meteoric rise of Bitcoin in 2017 is by almost everyone dismissed as a bubble. But it is not the only one. In a world where stocks, bonds, objects of art, classic cars and real estate are also at record highs, an investor should ask himself a very important question. Why? Why we have this bubble across all asset classes simultaneously? Could it be that this is just a sign? But a sign of what? One answer is "The most worrying sign of the implosion of the current monetary system awash with debt and credit creation". As dramatic as it may sound - and likely be - there are lots of signs for the attentive investor to notice. Investing with a medium to long term horizon is all about looking at the big picture, at geopolitical shifts which slowly but irreversibly change consolidated equilibriums and move money around the world in and out of different asset classes. Recently, Macrovoices.com published an interview titled "Anatomy of the US dollar end-game" with Jeffrey Snider (Alhambra Partners), Mark Yusko (Morgan Creek Capital) and Luke Gromen (The Forest for the Trees). By the way, Mark Yusko and Luke Gromen were also among the very few money managers who were right in making the call for a depreciating US dollar in 2017. This is a summary of the conclusions drawn, for an understanding of the arguments behind it, listen to the full interview.


1. The crisis of the Euro-dollar market


According to Jeffrey Snider, Head of Global Investment Reasearch at Alhambra Partners, the Euro-dollar market - a short-term money market facilitating banks’ borrowing and lending of U.S. dollars outside the US - does not function properly since 2007 and it has essentially morphed into a US dollar "short squeeze" generated by a scarcity of dollars. Even if this mechanically means tides of "a rising dollar or a falling counterpart currency" in the short term, it is not a net positive-bullish for the US dollar as a reserve currency. What happened in 2014 could happen again and would trigger another dangerous liquidity crisis at a moments notice.


2. The US debt problem


The US debt and unbalances have never been a problem. Up until the world economy runs with US dollars and world central banks keep buying treasuries and the world energy markets are priced in dollars, then there is no problem. But now, because of geopolitical shifts out of the US dollar and US treasuries, this debt starts to matter. And the most likely way to deal with the debt problem for the US will be to ultimately devalue its currency, through inflation.


3. Abandoning the Petrodollar system


For Mark Yusko of Morgan Creek Capital and Luke Gromen of Forest for the Trees, China and Russia are both actively seeking to reduce their dollar requirements. For them the reliance on the dollar is a chronic problem that must be solved and it has morphed into a national security issue. Therefore they are moving in a number of directions to both increase the dollar supply, while at the same time decrease the dollar demand by - for example - repricing oil into CNY. They also do bilateral trade, as well as trade with African partners or other Eurasian countries along the OBOR (One Belt One Road), in non-dollar terms. Another example, the Chinese lent US dollars to African countries and were repaid in oil last year, basically converting Euro-dollars into oil. Since Russia (with Saudi Arabia) is the biggest oil producer and China is the biggest consumer, the two partners have started in 2014 transacting oil in non-dollar terms. In addition, a new Oil Futures contract denominated in CNY was announced last year and started test trading in Shangai in December. As one of the interviewed puts it: " Oil has been the currency of choice to back up the US$ fiat since we closed the gold window. If the flow of oil could be persuaded by the efforts of the various nations not to be denominated in dollars, that will affect the world´s global financial flows more than anything else. Because oil is the world´s most traded and the largest dollar based commodity".


4.The role of Gold as a neutral settlement asset


The idea is nothing new. Already in 2010 Robert Zoellik at the World Bank called for the biggest 5 currencies in the world to be linked to gold. In 2011 Dominque Strauss Kahn did the same as head of the IMF, calling for the link between SDR´s and gold. Luke Gromen highlighted that the news is that the Chinese are now actively moving in this direction. In 2013 they announced to stop stockpiling US FX reserves and have imported physical gold. The same is valid for Russia and when this is linked to the oil trade, this may shift the oil trade from the Petrodollar to a new Oil-Gold system. As Luke Gromen puts it: "Russia bought gold the whole time now – unlike in ‘98, unlike in ‘08 – and the price of one ounce of gold in oil barrels more than doubled. It went from 13 barrels of oil per one ounce of gold to 30 barrels of oil per ounce. So if Russia got say 1,000 tons, then guess what has happened to the value of their gold reserves in terms of their largest economic output, oil? They’re richer. Their reserves rose. You see, what they’re doing makes their economy unsinkable and moves them irreversibly away from the dollar. And I think they’re being patient and playing the long term game. They know that all they’ve got to do is just continue doing this game and the dollar will collapse under its own weight. They don’t need to be aggressive."

Therefore patience seems to be the name of the game here for China and Russia. And they both know very well how to play it.


5. Effect on Asset Prices


There was also unanimous consent on the effect that these big monetary system transitions have on asset prices, in the sense that they are extraordinarily inflationary to the currency that’s losing status. Simply put, for Luke Gromen, "what you’re seeing in equity markets, what you’re seeing in Bitcoin, what you’re seeing in Da Vinci's and what you’re seeing in real estate – the everything bubble – is a completely rational response to the dollar bubble".

Indeed, just note that the very same is at this moment happening to the stock market in Venezuela, as it has happened before in Argentina and in the Weimar republic.


6. Conclusions


When the discussion gets to the point of analyzing where we currently stand in this transition to a new monetary system or which will be the best road to it, the opinions are diverging. The followings are to be closely monitored to gauge how fast the demise of the dollar - as the global reserve currency - progresses:

• the open interest and the volumes on the new CNY denominated Oil Futures contract, when it will start trading;

• if the decoupling of the usual relationship between interest rate differentials and the dollar index continues like in 2017. In other words, if treasury yields are going up at the same time that the dollar index is going down, things are getting serious;

• the holdings of US denominated reserves held by global central banks (and particularly by China, Russia and Saudi). Their holdings of US dollar denominated reserves have peaked already in 2014 and have been on a slow but steady decline since then. Further declines will signal problems for the US to continue sustain its current levels of indebtedness;

• If the "everything asset bubble" in the US keeps growing (emerging market style).

Finally, how should an investor invest in such a scenario? The three money managers agree to invest in gold, real assets, handpicked undervalued stocks and, hold your breath... yes, Bitcoin. Because the mother of all the bubbles could well be the dollar and not Bitcoin.

Uber’s Court Case: The Treatment It Deserved

Published 28th December, 2017 on Themarketmogul.com

by Andrea Bianconi 


The EU Supreme Court of Justice’s decision on Uber is likely to spark diverging opinions. However, the decision is legally sound. Uber also fully expected the decision and had already started complying with regulations applicable to taxi services in most European countries. This puts Uber back where it should have been since its beginning – a “smart app taxi company” which should comply with applicable regulations like all other companies do.


Although the decision has yet to be published on the website of the ECJ (1), the legal grounds were already laid out in the Advocate General’s opinion released in May 2017 (2). Essentially, the issue was to decide whether the services offered by Uber would be considered ‘information society services’ – and therefore benefit from the principle of the freedom to provide such services in the EU – or instead would be equivalent to those of traditional taxi companies.


The Advocate General had already established in May that Uber is “a composite service”. This means that one part is performed by electronic means through an app which intermediates between clients needing a ride and those who have a car and are willing to provide one. The other part is by definition not performed with electronic means and consists in driving the client. The view was also that the two services are not separate, but actively integrated by Uber which (i) imposes conditions on the drivers (ii) grants financial rewards (iii) exerts quality controls and (iv) effectively sets the fares applied.


Hard to Defend


Thus, Uber found it hard to argue that it is not a taxi company. Similarly, looking at Opodo for example, a company that sells flight tickets via an app, it is clear that it is not an airline because the two activities – selling the ticket and flying the plane – are clearly separate. And whoever operates the aeroplane is a fully regulated airline. So the surprise here is not the decision of the ECJ, but simply how long it took to finally bring some justice to all the taxi drivers who had to pay expensive licenses and make investments to run a regulated business before being put out of business by an unregulated and illegal player.


Will they now be compensated? Are their lawyers now smelling Uber’s blood and sharpening their knives for a court fight to finally get fair and just compensation? If some think that this is the end of the Uber business model – and generally for the centralized intermediary economy enabled by the internet – they may well be right, but for the wrong reason.


The Death of the Uber Model?


Even before the ECJ’s decision, the Uber model had already been dead. And this deadly blow was dealt by the flourishing Blockchain economy. It is just a matter of when, rather than if, Uber puts taxi drivers out of business and B-Uber (a futuristic blockchain-based Uber) will put Uber out of business (3). Then, finally, legitimately licensed taxi drivers will provide services directly to their customers without the need for intermediaries. Customers will gain because they will be safer in professional hands and will benefit from lower market prices.


Taxi drivers will also gain, because they will have more money in their pockets and will be free from the Uber-like intermediary. The state will also gain, because there will be more people who will want to invest time and money for a licence to be a taxi driver and work independently. It is also likely that tax revenues for national governments will increase, compared to what is currently paid by Uber and its fleet of unlicensed private drivers. Thanks to Satoshi and the decentralized blockchain economy, everybody will gain – apart from the “Ubers” of today.


1. It will soon be published here http://curia.europa.eu/juris/recherche.jsf?cid=402964 search for case n.  C-434/15

2. https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-05/cp170050en.pdf

3. "Blockchain Revolution" - 2016 - Don and Alex Tapscott

Tips for the ICO due-diligence

Published 15th December 2017 on Cryptodaily.co.uk- Chaining.ru

by Andrea Bianconi 

Twenty years ago it was the IPO (Initial Public Offering) frenzy. Most of those involved in today's ICO´s were probably too young to recall the end of the 90´s. It was exciting time. Then, suddenly, it popped... and it did not end well.


Whether today there are more ICO´s than then IPO's is hard to say, but today there are on average 20-30 ICO´s per month. This is a lot of work to do for an investor who is willing to catch the "golden egg" among the many less than mediocre business ventures, quick buck schemes or just plain scams.

Being careful and doing a proper due-diligence are the key words today, like yesterday. So where to start with the due-diligence for an ICO (Initial Coin Offering)?


Well there are mainly 3 areas to look into: (a) the technology behind the business, its current state of development, the milestones yet to reach and the foreseeable problems which may delay or prevent its full development; (b) the business model itself, how and when will it break even and be profitable, the Team behind it, the advisors behind it, the funding, the market and competition, etc; and (c) lastly (but not least) the legal issues. Leaving aside (a) and (b) for which articles and comments abound, let's look at the legal due-diligence.

Assuming that an Investment Fund, VC Firm, Business Angel or just a small investor is happy with (a) and (b) above it will start its legal due-diligence and it will be looking for something that "sets the alarm bells ringing". These are the main things to consider:


- Transparency: transparency is very important because it is a tell sign that an issuer may try to hide something. Lack of transparency can be spotted in corporate documents such as the Whitepaper or in the corporate structure and choice of jurisdiction, in the level of discretion in allocating the funds raised (Tezos?) and the level of safeguards for the investors.


- Rights attached to the Tokens/Coins: this is key. Little attention is to be paid to the given name of the Token/Coin but a hard look is to be given to the Whitepaper to understand clearly which rights, if any, are attached to it. There is so much confusion around Tokens/Coins that their names mean nothing. Despite the given name, there are essentially two classes of Tokens: those which have no rights attached to it and those which have (various) rights attached to it. If so called "Plain Vanilla Tokens" are being bought then there will be no rights attached to it. They are bought only to speculate on the future price movements of the Token itself. Short of demonstrating a fraud of the issuer or the issuer's failure to comply with applicable laws and regs, the investor is unlikely to have recourse against the issuer. It is different if Tokens/Coins with rights attached to it are being bought: for example voting rights or a right to share the profits/dividends of the business or to use the services of the company. Leaving aside the complex question of whether these can be considered Securities according to the applicable law (in which case it is for the issuer to comply with Securities laws by releasing for example the Prospectus etc), a hard look is to be taken at how practically one can benefit from or enforce its rights. For instance how discretionary is that a dividend will be paid, if there is a Smart Contract set up to pay dividends, or what services will the Token buy. If something does not look right then better to ask questions and make oneself heard in the social media, ask the Team to address and clarify the issue. After all they are there to answer investor's questions and get their money right? If not satisfied with the answers better to back off. Bear in mind that because as of today in most jurisdictions those Coins/Token have no clear statutory legal qualification, the investor's rights will depend on what the contract states. Therefore the clarity of the wording of the contract (i.e. the Whitepaper) is of paramount importance.


- Recourse: this also key. Take a hard look at the issuer's corporate structure. Is the issuer based in a reputable jurisdiction or hides somewhere in a small Caribbean island or in a jurisdiction where the investor will have more trouble going after him? Very important is also how and where the funds raised are deposited. How the issuer can access the funds and how they will be used. Are the funds used to "cash-out" others or to pay previously incurred costs instead of the future development? Without an Escrow in place to guarantee that the funds will be disbursed only at the reaching of certain milestones there is a serious risk that, if something goes wrong, the investor will be not able to recover its money. The same is clearly valid in case the funds have to be returned to the investors (for example if the soft cap is not reached). If there is an Escrow, then again is key to look into the details of the legal agreement and to know who the Escrow agents are and how reputable they are, the governing law and jurisdiction.


Switching sides finally, the ICO issuer will have to balance the maximum possible level of transparency with the need of limiting its compliance requirements to limit costs and reduce potential liabilities. Not easy. Experience tells that if the business, the team and the product/idea behind it are strong they will not fear choosing a more regulated jurisdiction. That will attract professional investors and boost the ICO value in spite of the increase in cost compliance. Because the ICO lies in a grey area which may fall within the application of more draconian Securities and Banking Laws across all EU jurisdictions and the US, It is advisable for the issuer to approach the local regulators to seek at least some informal opinion as to whether the Token/Coins issued will fall within said applicable laws and regulations. Given the current lack of regulation, a lawyer's legal opinion is not worth the paper on which it is written. In talking with the regulators there is nothing to lose, all to gain. Cutting corners can also be expensive and dangerous. As more serious money pours into ICO´s, regulators worldwide are starting to pay attention. In case of breach of Securities Laws and Regs there can be heavy fines and possibly also jail time. In particular the US authorities are legendary for the extraterritorial (mostly illegal) overreach of their judiciary. But also the Germans will come down heavy on the offender who has sold Tokens to German investors if those Tokens are deemed to be Financial Instruments or Investments under the applicable laws. Disclaimers not to target a certain market will only do if no evidence can be found of doing otherwise. And today a slight oversight can easily happen: a few compromising words on the web page, a Youtube video of a sales pitch which was supposed to remain private between the issuer and its investors, a tweet, etc.




In conclusion, an investor should use common sense, read all the corporate documents, ask questions and engage the Team on social media, figure out the worst case scenario and the possible avenues should he need to recover money in a foreign jurisdiction, seek legal advice and be careful, if something does not smell right better to back off, there are plenty of opportunities to get involved and only a very few are worth it.


An issuer should use extreme caution in the light of the recent SEC Statement (1) (which was totally expected). It is also to be expected that the EU Regulatory Authorities (likely ESMA) will follow up with some guidance to confirm the very same common sense legal principles set out by the SEC.


So this means the ICO Party is over? Sure not, but there is going to be much less booze and drunken around.


(1) SEC Statement of 11-12-2017 https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11



What if … Bitcoin is not a bubble?

Published 11th December, 2017 on Cryptodaily.co.uk and Chaining.ru

by Andrea Bianconi 


For most mainstream media and financial commentators Bitcoin is "just a bubble". Sure, despite most of them knowing very little about it, suffice to look at its parabolic chart and it is clear that it is like the Dutch Tulip bubble in 1636, just another mania.


But what if...


What if for instance Bitcoin is behaving today like Gold behaved in the 70´s after Nixon broke the Bretton-Woods Gold-Dollar standard and reneged on the US obligation to exchange 35$ with one ounce of Gold? 10 years later one ounce of Gold peaked at 677$ , which is almost a 20 times increase. Afterwards, while the monetary madness increased in the following decades and peaked with the Great Recession when all the Central Banks made the world awash with new credit, one ounce of Gold peaked at 1.825$ in August 2011. That's a 52 times increase. (1)


What if Bitcoin is not a bubble but more like the people´s revolt against a fraudulent monetary system based on infinite credit creation. Against the erosion of the people´s honest savings caused by the Central Banks´ aberration of zero or negative rates. Against this crony capitalism and "socialism for the wealthy" which has increased wealth inequality to levels not seen since 1929 and made the debtors and the issuers of credit (i.e. the banksters, the speculators, our governments and the political elites) rich at the expenses of honest workers, entrepreneurs and savers?


Think about it:


Bitcoin was created in January 2009. In a note, its creator was referring to the bailout of English banks by the then Chancellor. The reference is not casual. It is a "time stamp" that defines more than anything else the rational and the intent behind the genesis of Bitcoin: the repudiation of the fraudulent monetary system we live in. The creation of a Money which cannot be debased at will. Bitcoin´s money supply is fixed by mathematics and cannot be changed. Unlike Fiat money issued by central authorities it is capped since its inception. Who should people rather trust to issue Money the Fed, the ECB, whatever government, whomever politician or a mathematical algorithm? Who knows Monetary History would rather err on the side of math (and Gold). (2)


Bitcoin is "democratic", in the sense that it does not advance the interest of anyone, it does not belong to anyone and specially not to the "elites". Unlike Fiat money, which is the privilege of the Banksters who benefit from seniorage and create it fraudulently thanks to the fractional reserve system. Anyone can mine Bitcoin - even if one must note that the investment required in terms of computing power and energy is now getting into another league.


Bitcoin is world money, it does not belong to any particular State, and it does not confer anyone the "Exorbitant Privilege" cited by De Gaulle which the Dollar confers to the US. Since the end of the ´60s the US has massively abused this privilege by printing its currency to advance its imperial conquests both militarily and economically.


Bitcoin cannot be sized, cannot be confiscated by governmental decree like Roosevelt did with Gold. Short of a simultaneous ban by all the governments worldwide or a worldwide shutdown of the internet it is difficult to see how its use could be stopped. Shutting down local servers or nodes or miners does not prevent the distributed ledger to continue to perform its functions.


Bitcoin is just the tip of the iceberg. Blockchain technology which lies at the heart of Bitcoin is the real disruptor. Thanks to Blockchain based applications, finance can be finally "democratized" and taken away from the powerful grasp of the financial elites. Millions of unbanked people around the world will have the opportunity to access capital to invest, to create new businesses and raise their standard of living. The world desperately needs something like Bitcoin to "lubricate" an "economic renaissance" based on Blockchain applications.


Bitcoin is also more than what appears. Like any Blockchain application is a "living" thing. It represents a "society". Its citizens are the investors who mine it, the users and consumers who spend it, the developers who contribute to its technical advancement. Like any society Bitcoin lives by consensus. When consensus lacks then society breaks down. See for instance the forking of Bitcoin Cash, which some (otherwise) bright monetary economists reduced to the arbitrary "doubling" of its monetary base as if a bank spin-off could be done by doubling the deposits out of thin air (3). Sure this is arguable, but it misses both the important technical reasons behind it and, most importantly, the fact that the deciding factor for the future success or failure of Bitcoin, or any other Crypto or businesses based on open Blockchain technology, will be the societal consensus behind it. Most commentators who only think of Bitcoin in financial and monetary terms completely miss this point.


But more importantly, what if Bitcoin is a sign. The most worrying sign of the implosion of the current monetary system awash with debt and credit creation. All mainstream media point to the absence of inflation. But honestly, who buys that? Yes consumer price inflation is contained, although the reasons for that and the data officially circulated by the authorities are dubious at best. But what is the impact of monetary inflation on asset prices? They are through the roof. It is like the "everything bubble". Just name it, real estate, arts, classic cars, stocks. The artificial compression of interest rates and the massive credit creation pushes all this credit into the hands of the elites, not of those who may want to invest in new machinery for their small business and increase production thereby paying the lender an honest rate of interest. Of course not, this credit moves from one asset to the other in a speculative manner and the effect is for everyone to see: this is like an "hyperinflationary" asset price environment. The American politician Ron Paul asked more of 70.000 of its constituents what they would rather want if someone made them a gift worth the equivalent of 10.000$ and they had to keep it for the next 10 years. The answer was 54% would rather want to hold Bitcoin, 36% Gold. Only 8% would hold 10yrs Tresuries and only 2% would hold a Dollar credit note. No need to comment.


Since the beginning of the 19th century the world has transitioned, not without pain, through four different monetary systems. From the Pure Gold Standard which contributed to the longest time of financial stability and prosperity in modern history from ca. 1820 to the first world war (1915), to a system of floating exchange rates where most countries abandoned the Gold Standard to run the printing presses to finance the two world wars from 1915 to 1944. Then came Bretton Woods and a period based on the Dollar-Gold standard until it was unilaterally repudiated by Nixon in 1971. Since then it is the current regime of Fiat money creation and artificial compression of interest rates. Four monetary systems in less than 120 years. That is an average duration of 30 years each. The clock is now ticking and more likely than not the time for a new monetary reset is fast approaching.


Since that time when 1 ounce of Gold could be bought with 35$, it takes today, 16th December 2017, circa 1260$. This means that Gold has appreciated in dollar terms in each of those 47 years an average of 76% per year. But since Gold is the true Money and the Numeraire, it must be emphasized that it is not Gold which "goes up or down" but it is the purchasing power of the US$ that is being destroyed. And the same is true for the Euro, the Yen, the Cable and all the other Fiat currencies. Just take the trouble to do what nobody seems to do. Get any chart in any currency and plot it against Gold and look back 30-40 years. Bill Gross, rightly worried about the risks with the current status of the monetary systems, in his latest monthly newsletter (4) writes: "Someone asked me recently what would happen if the Fed could just tell the Treasury that they ripped up their $4 trillion of T-bonds and mortgages. Just Fugetaboutit! I responded that that is what they are effectively doing. “Just pay us the interest”, the Fed says, “and oh, by the way, we’ll remit all of that interest to you at the end of the year”. Money for nothing – The Treasury issuing debt for free. No need to pay down debt unless it creates inflation. For now, it is not. Probably later."


As the monetary madness continues, Bitcoin is up intraday 29%...


In conclusion, what will happen to Bitcoin is impossible to forecast, if it will take 1M$ or 1$ to buy 1BTC in the future, but two things seem pretty sure: first, dismissing Bitcoin as a "bubble" is likely made out of "ignorance". Meaning, literally ignoring what Bitcoin is and what stays behind it. Second, that we are certainly transitioning to a new monetary system, because the current fraudulent one has been running for too long and the signs that it is now exhaling its last breaths are plenty to see. What the role of Bitcoin (or other Cryptos or Gold for the sake of it) will be remain to be seen. What's sure is that Blockchain applications and an honest money based on Blockchain will revolutionize the current system and they are here to stay and shape the future of mankind. For Bitcoin there are still many challenges ahead, its scalability, its energy footprint, technical issues, the risk of regulators´ crackdown and the societal consensus behind it, just to name a few. But if not Bitcoin, it will be another digital world money, not controlled by the elites but belonging to all mankind and to benefit all.


1. 47 years of Monetary (hyper) inflation at work: how many US$ you would need to buy one ounce of Gold since 1970.  The dramatic loss of purchasing power starts clearly when the US started its massive debasement/credit expansion in the ´70s to finance its wars.   The US$ is called "Money", fact is it is a credit note, a debt instrument of the shortest duration which carries no interest and from the graph certainly not a "store of value".

2. Now it depends from which angle one looks at this chart (i.e which is the Numeraire, the US$ or Bitcoin?). Is this then the Bitcoin bubble or Monetary Hyperinflation at work: how many US$ you need to buy 1 BTC. Sure, different time frames from Gold above, but the parabolic price increase and the loss of purchasing power of the US$ credit note looks alike.

3. "The forking Paradise" by Monetary Metals https://monetary-metals.com/the-forking-paradise-gold-silver-report-3-sep-2017/


4. https://en-us.janushenderson.com/retail/bill-gross-investment-outlook-potpourri/?utm_campaign=Bill_Gross_Investment_Outlook&utm_medium=Email&utm_source=Salesforce&utm_content=Retail


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