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Blythe Masters Looks Beyond Finance for Next Wave of Blockchain Growth

To hear Blythe Masters tell it, the time has come for Digital Asset (DA) to spread its wings and fly.

The distributed ledger technology (DLT) company she founded in 2014 is entering a new phase, heralded by, among other things, a partnership with Google Cloud to simplify and proliferate the tech.

To date, DA’s strategy has stood out among the big enterprise blockchain players for its laser-like focus. Instead of spending a lot of time on consortiums, proofs-of-concept and the like, the New York-based company concentrated on landing the one big fish.

It achieved that goal late last year when the Australian Securities Exchange (ASX) officially hired DA to replace its creaky Clearing House Electronic Subregister System (CHESS), a multi-year project that’s currently underway.

Now, having earned the rare distinction of a bona fide production customer, Masters’ startup wants to foster an ecosystem around its Digital Asset Modeling Language (DAML), which is about to become available with a software development kit (SDK) via Google Cloud.

“Having spent three and a half years in the design-and-build phase, this is the ‘open up and educate’ phase and [the time to] build a community of channel partners and developers,” Masters told CoinDesk.

This, in turn, will open a vast range of opportunities for DA, she said – both within the financial services industry where Masters spent most of her career and outside it.

“The application of this technology is by no means limited to the world’s biggest market infrastructures,” the former JPMorgan Chase executive said, adding:

“It goes well throughout financial services, well beyond capital markets and beyond financial services into all the other industries that have a vested interest in improving the efficiency of their workflow orchestration.”

According to Masters, there is “a lot of pent-up demand” for DA’s technology which the cloud-based DAML SDK can start to meet and a “potential addressable market that is almost unmeasurable.”

To give a sense of the breadth of this market, Masters rattled off a litany of new pastures for DA, including: healthcare and insurance claims; digital media rights; royalty streams; real estate; lending and collateral management within capital markets, derivatives post-trade, securities post-trade, reference data, supply chain, crypto wallet custody of assets and more.

However, Masters was careful to qualify this, acknowledging the fatigue felt in many corners following the blockchain hype of a few years ago.

“I think there was some fair criticism that blockchain was a technology solution looking for a problem to solve,” she said. “But our approach has very much been to work with customers to identify the problem first and sometimes not to recommend a DLT solution.”

‘Web-paced innovation’

The DA team recently returned from San Francisco, where Masters and Shaul Kfir, DA’s CTO, gave a talk on DLT partnerships at the Google Cloud Next conference.

The primary aim of the Google Cloud partnership is to make it easier for developers to deploy DA’s tech, which Masters describes as “a mission to unleash web-paced innovation across multiple industries.”

This means abstracting away the underlying complexity of the cryptography, the data architecture, the blockchain or DLT state engine, said Masters.

The Google Cloud-DA partnership appears to run deep as well as wide. To help drive the DAML platform-as-a-service (PaaS) program, DA has also welcomed former Google engineering executive AG Gangadhar to its board.

And adding to the symbiosis, Google Cloud has joined DA’s developer program private beta, giving Google Cloud developers access to DAML.

The DLT space has garnered extraordinary enthusiasm and Google’s developers and its customers are no less curious and motivated in this space than any others,” said Masters.

It’s now clear Google is getting serious about blockchain following candid comments last month from co-founder Sergey Brin that the search giant was playing catch up with the blockchain trend.

Google would not comment on the partnership or DLT generally, but an insider close to the DA-Google Cloud partnership confirmed to CoinDesk, “All of Google has access to the DAML SDK, and this includes Alphabet,” Google’s holding company, which has portfolio companies in a wide range of industries.

But not every influential figure in Mountain View is a blockchain convert. CoinDesk asked Google’s chief internet evangelist, Vint Cerf, if he thought tokens could perhaps be used to incentivize users and align them with the goals of tech platforms.

Cerf, who was not commenting on the DA partnership but on cryptocurrency generally, replied in a curt email: “Not clear yet. It could just turn into a speculation like tulip bulbs and bitcoin.”

Still, Masters said DA and Google share a common approach to solving engineering problems and “a focus on empowerment of enterprise customers, particularly in the workflow orchestration space that we have in common. So that is where the enthusiasm is coming from.”

Maverick Masters

To be sure, DA is far from alone among enterprise blockchain vendors in trying to expanding its ecosystem.

For instance, IBM and Hyperledger are hard at work exploring what they can do with partnerships. Meanwhile, a recent announcement from banking blockchain consortium R3 talked up the potential for its Corda platform to be interoperable across a wide range of industries.

There has also been an increase in blockchain-as-a-service announcements of late. BlockApps Strato has also been welcomed onto Google Cloud, while Amazon Cloud Services (AWS) recently cemented a partnership with ethereum design studio Consensys in the form of the Kaleido project.

But Masters pointed out that DA has always charted its own course, adding that the company’s strategy remains unchanged.

“It’s where we always intended to focus,” she said, referring to the new priority on building a developer ecosystem. “We just didn’t approach it via the same avenue necessarily as everyone else.”

Aside from ASX, other customers DA has publicly disclosed it is working with are the U.S. clearing and settlement giant DTCC and Dutch megabank ABN Amro.

Another thing enterprise blockchain watchers seem to be interested in is a possible amalgamation between private or permissioned DLTs and public chains, with their fluidity of tokenized assets.  

Asked for her opinion on the nascent token economy and where it might bleed into the enterprise world, Masters said she is “not ruling out tokens by any means.”

She agreed there is lots of good research and development work being done on this, but said the institutional use of enterprise tokens requires enterprise-grade command-and-control infrastructure.

“It won’t be until the kind of controls you routinely expect around transactions and post-trade processing of a stock or bond today can also be produced for the transaction of a tokenized instrument – whether it’s a stock or a bond or a cryptocurrency – that we will see widespread enterprise adoption of tokenized instruments that rely on public chain technologies.”

Ever the hard-headed businessperson, Masters would not be drawn on the merits or otherwise of one DLT architecture versus another, but answered categorically all the same when she said:

What I believe in is our technology. I don’t mix philosophy or religion with technology. I believe in solving business problems using tech in a cost-effective and safe manner.”

Blythe Masters mage via CoinDesk archives 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Banks Building Blockchain Confront Tech Limitations

Blockchain isn’t going anywhere, but centralized authorities aren’t either.

That realization was the general takeaway at the Depository Trust and Clearing Corporation’s annual fintech symposium in New York City on Thursday where executives behind some of the most mature blockchain platforms currently in the works took the stage to discuss the benefits and limitations of the nascent technology.

While in some cases, enterprises, including the DTCC, which conducts $1.5 quadrillion dollars in securities transactions per year, have found that blockchains are more powerful than first expected, it’s clear that there are still significant hurdles to overcome.

“We’ve learned a lot about what works and what doesn’t,” said Michael Bodson, the CEO of the DTCC, adding:

“We’ve wrestled with the technology’s limitations, but we’re also uncovering new possibilities to help lead the digital transformation of the post-trade environment.”

During Bodson’s opening remarks, he set the groundwork for the rest of the day’s talks by recounting some of the lessons learned by the DTCC’s ongoing implementation of blockchain in its $11 trillion Trade Information Warehouse (TIW).

Designed to reduce the time it takes to clear over-the-counter derivatives, unexpected obstacles in the process have resulted in a delay of a commercial launch from this quarter to next year. Given the TIW’s relatively low volume compared to the rest of the DTCC business, he doesn’t expect any broader rollout of the technology any time soon.

“At the DTCC, we seamlessly process 60 million trades each day, and during peak times like we saw last month, we handled as many as 90 million transactions,” he said. “It would be impossible to do this today using a distributed ledger.”

He continued, citing a Deloitte report that showed out 26,000 blockchain projects that were started since 2016, as evidence of the narrowing scope of blockchain’s potential utility. Of those blockchain projects he said only eight percent are currently still active.

“As the industry has come to the realization that blockchain’s potential isn’t limitless, companies are focusing their resources on initiatives that can deliver real client value,” he said.

The limits of open source

In a panel following Bodson’s opening remarks, DTCC chief technology architect Rob Palatnick further elaborated on the limits of blockchain, namely those arising from the technology’s open-source roots.

Even as he acknowledged that “pretty much everyone in this room is looking to the open-source community for validation,” he cautioned that the old idealism that public, open-source blockchains can solve everything is starting to fade.

“The DTCC has been approached with some in the industry who say we’re involved in open source, which is good, but you need to think about a hardened proprietary set of ledgers for the things you do,” he said.

As such, businesses like the DTCC are exploring permissioned distributed ledgers that are connected via more open blockchains, what Palatnick called a “network of networks.” Several speakers at the event described the idea in various ways, including Accenture managing director Wynn Davies, who called it a “multi-stranded” blockchain.

At the core of this concept is the idea that public blockchains will never fully be able to give enterprise counterparties the trust they need to run their regulated businesses.

“We need to have neutral parties who are acting in everyone’s best interest,” Davies said, citing the DTCC and the Monetary Authority of Singapore as leaders in this push.

The trick, according to Davies, is going to be reimagining the incentive models so major players like the DTCC are willing to give up the “short-term gains” that result from holding onto innovative technologies, in order to let the benefits of blockchain accrue to the broader economy.

Expanding on that concept, Palatnick described a blockchain ecosystem where the DTCC and other infrastructure providers might manage “governance nodes,” where they provide some services to their customers but also allow them to connect directly, in a peer-to-peer way, for other services.

Intentional guardrails 

As part of the DTCC’s work to explore this network of blockchain networks, Palatnick revealed new details about a program with Blythe Masters’ Digital Asset Holdings (DAH), in which the DTCC is an investor.

Contrary to the DTCC’s work on its TIW, which started by identifying a problem that could be solved with the abilities of current blockchain technology, its interest in DAH’s work is aimed at learning a language – Digital Asset Modelling Language (DAML) – which could let them create any number of solutions in the future.

Masters, who spoke during the event as well, detailed how public blockchain’s structure – at least ethereum and certain others – as a disadvantage to global financial institutions, and as such, spurred the creation of the DAML language.

In December 2016, DAH was selected by Australia’s ASX to re-platform its entire CHESS clearinghouse with blockchain technology. In looking into a solution there, Masters explained how the flexibility of so-called “Turing complete” languages that public blockchains use resulted in uncertainty about the order in which transactions would be cleared.

Not only was DAML built with this in mind, but the language was also designed with built-in “guardrails to reduce the likelihood of errors in programming that lead to the sort of events that you saw happening in the DAO exploit,” in which millions of dollars were funnelled into one person’s account because of faulty code.

Masters said:

“It is an inherent feature of the language that it is not possible to put an entity in a contract into a position where they are obliged to act or to elect something without their specifically having the ability to acknowledge, confirm, and concur with that.”

Regulations still uncertain

Another limitation most every speaker discussed was regulatory uncertainty.

Indeed, the industry has been reeling from rumors that the U.S. Securities and Exchange Commission (SEC) has sent out dozens of subpoenas and requests for information to all kinds of stakeholders surrounding the fundraising mechanism, initial coin offerings (ICOs).

While the head of the SEC’s trading and markets division Brett Redfearn did not confirm or deny any such subpoenas during his fireside chat at the event, he expressed frustration with companies that came to the regulator claiming they wanted to be compliant, but who hadn’t even gone through the process of registering their companies.

While he seemed open to potential improvements from the space, he emphasized how industry participants could actually learn a lot about protecting their users and implementing certain generally-accepted principles of fair markets, such as searching for spoofing efforts falsely inflate transaction volumes, by reaching out to the SEC.

In spite of this, though, Todd McDonald, co-founder of enterprise blockchain consortium R3, said that unless those responsible for creating an innovative environment took a more progressive stance, U.S. companies would get left behind.

“I live in New York and I love America, but we have to get our act together,” he said.

Though, McDonald continued on a more positive note, saying that standardizing the way crypto assets are created and regulated across jurisdictions could help push the hybrid blockchain systems that many enterprises are looking to develop.

Speaking to what he called “net new” assets which could be created if all the industry’s hurdles are overcome, McDonald said:

“All sort of new models and new business opportunities are going to come from this kind of ecosystem. The important part is to make sure we get the foundational pieces in place and make sure the risk-governance model is part of that initial foundation.”

DTCC fintech symposium logos image via CoinDesk 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Blythe Masters: ASX Blockchain Embrace 'Precedent Setting'

Would ASX upgrade?

After months of waiting, the markets finally have an answer, as the Australian Securities Exchange (ASX), the nation’s largest domestic stock exchange, has officially revealed it will upgrade its post-trade settlement system, CHESS, using a blockchain platform designed by startup Digital Asset.

Long considered one of the front-runners in the race to prove blockchain tech’s benefits for global financial infrastructures, the startup headed by former head of global commodities at JPMorgan Blythe Masters had already raised $110 million from a diverse set of industry leaders to prove out the use case.

But despite months and years of trials, what remained to be seen was whether the promise of moving a major global securities exchange to a shared, distributed ledger was worth the cost. And if ASX is to be believed, that’s precisely the case, with the company calling the costs “marginal.”

That hurdle now behind, what happens next could be the large-scale migration of financial infrastructures to a distributed ledger, according to Masters.

In interview with CoinDesk, Masters said the decision not only proves the technology but proves it’s ready for the most daunting enterprise challenges.

“It’s absolutely a precedent-setting event,” she said, adding:

“It’s the first time that distributed ledger technology has been given a validation by a major systemically important market infrastructure whose standards from an enterprise point of view are as exacting as they can be.”

Background and future

Yet it’s perhaps all the more impressive as the effort to replace ASX’s Clearing House Electronic Subregister System, or CHESS for short, began long before blockchain was even on the company’s radar.

In fact, ASX had already set out to upgrade its aging system by the time it first met with Digital Asset in 2015, according to ASX CEO Dominic Stevens, speaking at the press event last night. But with the advent of distributed ledger technology, the potential to not only upgrade the system but create entirely new services became a serious point of interest to the exchange.

By using a similar payment messaging system as is currently in place, but anonymized and accounted for on a distributed ledger, a wide range financial products that rely on automated settling can now be created, Stevens said.

To enable that functionality, ASX partnered with Digital Asset and even become one of its early investors, and in remarks yesterday, Stevens indicated the company is increasing its commitment to the startup.

In a move that stands to help offset some of ASX’s own expenses if the technology is widely adopted, the exchange is opting to take up its pro-rata right to participate in Digital Asset’s recent Series B financing.

According to a statement provided to CoinDesk, the total amount raised by Digital Asset to date after that investment is now over $115 million, making the additional fund worth about $5 million based on the previously reported numbers.

Toward implementation

Going forward, the CHESS platform will be upgraded to serve what Stevens called ASX’s $1.5 trillion-$2 trillion securities business, with a possible implementation on the exchange’s $2 trillion cash debt market at some point in the future (though he added that was not currently being discussed).

Still, any move is likely to create a shake-up elsewhere in finance, as other stock exchanges haven’t exactly been lying in wait with their own blockchain research.

Nasdaq, for example, has taken a leading role in moving private stocks to a blockchain, TMX Group has launched a beta for trading natural gas and many other exchanges have experimented to a lesser degree innovating on the edges of their operations.

However, before any of that can happen, ASX needs to further prepare the Digital Asset platform for live trades. To do that, the exchange plans to engage in what Stevens described as “deep consultation” with its stakeholders over the next four months in an effort to built a toolkit of “potential advancements” in settlement services enabled by distributed ledger technology.

By March 2018, the exchange intends to present the full scope of the project as a result of this discussion, a more exact timeline and final launch plans to the public.

Speaking at the press event, Steven said:

“Updating a system like this is a big undertaking, it only happens once every 15 or 20 years so we need to make sure it’s future-proofed.”

Image via Michael del Castillo for CoinDesk

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Is Blockchain Worth the Trouble? Blythe Masters (and More) Say Yes at Sibos

Building with blockchain is tough – for every problem the tech promises to solve, it seems another pops up.

But if you take the advice of former JPMorgan Chase executive and Digital Asset CEO Blythe Masters, it’s worth all the fuss. Speaking on a panel yesterday at Swift’s annual Sibos conference in Toronto, Masters emerged from a relatively silent period with a defense of the technology.

Fresh off raising $40 million in funding, Masters told the audience:

“I don’t think blockchain solutions inherently introduce risk, and in some cases they may inherently mitigate them.”

But integrating blockchain for its myriad of benefits – including faster settlement times and greater data transparency – is an expensive endeavor. DAH, in particular, has raised $107 million in funding so far to expand the startup’s blockchain solution, which it is working to integrate into the Australian Securities Exchange (ASX), the country’s largest stock exchange.

As such, Masters’ comments set the stage for what would be a nuanced discussion about how real blockchain applications deal with the two key pain points: security and compliance.

“It’s not as simple as just introducing new tech,” said Ikuma Ueno, head of blockchain and DLT at Japan’s Mizuho Financial Group.

Handling the keys

As put forward by the panel, the questions that typically arise when building blockchain solutions tend to focus on the management of cryptographic keys that give users access to the ledger.

But Masters, instead of viewing this as an obstacle for distributed ledger implementations, positioned it as part of a larger threat against the way cryptographic keys are handled in today’s centralized infrastructures.

“The propagation of higher standards of key management for enterprise is something everyone knows they have to do anyway, and it has absolutely nothing to do with blockchain,” said Master, adding:

“In some ways, the blockchain evolution or revolution is helping advance that. It’s brought R&D to this area that’s been constructive.”

Echoing Masters’ statements, Tom Jessop, the president of blockchain startup Chain, argued blockchain technology is proving helpful in eliminating the “honeypots” of data that lure attackers to centralized systems. And that in itself makes the cost of blockchain worth the future savings.

Large financial institutions seem to agree. Jessop’s startup Chain has built live blockchain solutions for both Citi and Nasdaq, and has secured $43.7 million in funding.

He continued, saying blockchain’s append-only data structure minimizes the chances of fraud as well.

Compliance as security

But, Jessop went on to argue that security isn’t as big of a cost obstacle for blockchain projects as compliance costs are. “Security is very important,” he said, “but it’s not of first-order importance.”

The global bank representatives on the panel – Mizuho Financial Group’s Ueno and Alicia Pertusa, the head of corporate and investment banking at BBVA, which is working on its own blockchain foreign exchange pilot – agreed saying that working with regulators and standards bodies should be a focus for those implementing blockchain.

But even that hurdle can, and should be, overcome. For instance, Ueno has already had success with this, working with Japan’s financial regulators to change the country’s requirement that bills of lading must be paper.

While regulators might not typically be thought of as a security feature, the sentiment was struck unanimously among the panelists. Because regulators craft rules to protect consumers and the financial system against fraud and malfeasance, working within their guidelines can protect companies from vulnerabilities they might have otherwise missed.

In summary, the chief information officer of foreign exchange technology provider CLS, Thomas Zschach, affirmed the importance of working with regulators to ensure that the potential risks of working with blockchain do not outweigh the benefits.

Zschach concluded:

“They want assurances because that’s their job. They want to make sure the global financial infrastructure remains stable.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Chain. 

Panel image via Michael Del Castillo

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.