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The Power of Private Blockchains Is Beginning to Show

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.


Cryptocurrency purists often dismiss private blockchains as overly expensive undertakings for projects that are better served with a traditional database.

Yet these distributed ledger solutions keep being rolled out by enterprises in various settings – mostly still in experimental phases, but, increasingly, with real money at stake. And while they fall short of the public blockchain ideals of censorship resistance and permissionlessness, these contained, private experiments are extremely useful to the development of the overall blockchain industry.

While crypto investors lick their wounds in a bear market and developers plug away at scalability fixes for public blockchains, we can learn a great deal from how economic actors behave in these controlled situations where transactions involving multiple non-trusting parties are collectively recorded in a shared ledger.

One example came last month, with a first-of-its-kind blockchain bond issuance by the World Bank. In partnership with the Commonwealth Bank of Australia, the international development institution used a private Ethereum blockchain to sell a two-year bond worth 110 million Australian dollars ($79 million) to seven investors.

This was hardly the disintermediated, peer-to-peer securities sale that crypto finance disrupters dream of – the Commonwealth Bank played the role of dealer, essentially that of an underwriter. And the two institutions were the only ones running nodes, of which there were just four in total.

But the fact that they could both witness and confirm the investors’ purchases in real time removed the need for time-consuming reconciliation and offered real efficiency gains, says Paul Snaith, Head of Operations for Capital Markets, Banking and Payments at the World Bank Treasury.

“The experience we’ve had so far is already demonstrating that we may be able to rethink some of the functions that current markets require,” Snaith said in an interview.

Cutting the cost of issuance

For full, seamless, real-time settlement, operations like these will need to integrate some form of digital currency. And while progress is being made on that front, a digital fiat currency or stablecoin that’s acceptable to major financial institutions is still some way off.

Nonetheless, in enabling “atomic settlement” of the security transfer side of these transactions, the World Bank’s experiment showed that a blockchain bond could “potentially reduce the settlement problem to seconds rather than days,” Snaith said.

The cost savings could be significant. The World Bank issues $50-$60 billion in bonds every year. The potential reduction in underwriting costs and, just as important, in settlement and counterparty risk could be a significant funding advantage to the institution, which leaves it with more money to pursue its mandate of supporting development in low-income countries.

Moreover, the concept’s relevance goes beyond the World Bank’s bottom line. The model could be of benefit to the governments of those same countries, too.

“It could result in a much lower cost for developing countries to issue, or to borrow for a project, and that might be interesting,” Snaith said. “I think there is potential for this type of platform to be used by issuers who might otherwise be pushed aside for cost reasons.”

Multilateral agencies: unlikely blockchain experimenters

The fact that the World Bank, which last year launched a blockchain lab to explore a variety of development-focused use cases for the technology, is taking a leading role in experimentation with it is significant – if perhaps a surprise, given its reputation for heavy bureaucracy.

As I’ve argued elsewhere, I also see its engagement – along with the International Monetary Fund and the United Nations – as an opportunity for everyone, including even libertarian crypto developers intent on bypassing such centralized entities, to learn about the real world impact of blockchain technology on our global financial system.

Some form of distributed ledger architecture will eventually become the norm for all forms of capital raising – bonds, stocks and commodity futures, not to mention the new “asset class:” crypto utility tokens – with trillions of dollars in potential payoffs. International development agencies are in as good a place as any institution right now to drive progress toward that end.

Unlike government officials, who face constant political demands, and company executives, who worry about shareholder reactions to quarterly earnings, the people who run these international development institutions have fewer such conflicts. They can’t take radical steps – Snaith’s team has been unable to carry out once-planned experiments in cross-border payments with cryptocurrencies, for example – but they have greater freedom to test out new approaches in the pure pursuit of efficiency.

And while this model used a narrowly defined distributed ledger and a “proof of authority” consensus mechanism, people at the World Bank, the IMF and

UN frequently tell me they see the longer-term advantages of fully permissionless systems once they can handle large-scale capacity with much less price volatility. In the meantime, during this lull period for crypto assets, in which developers are being encouraged to “BUIDL,” much progress could be made in working with these institutions in these controlled settings.

More to come

The good news is that there is more to learn from the life cycle of the newly issued World Bank bond. Though only a two-year issuance – unlike the Bank’s usual five- and ten-year bonds – there are still four more “events” to study: three six-monthly payments of interest coupons and the final maturity of the instrument when the principal repayment and final interest disbursement will be made.

Moreover, Snaith and his staff expect to see secondary market trading emerge in the bonds, which means more investors will be on-boarded, and it plans to bring on TD Securities as a market maker running a full node on the system. They have also had discussions with the Reserve Bank of Australia, the country’s central bank, about it potentially running an observer node.

All of this will provide valuable learning – not only for the World Bank, its government partners and direct financial counterparties – but for any entity involved in capital markets.

There’s still much to be done before these distributed solutions become the norm.   But with hundreds of trillions of dollars locked up in a global securities market that’s rife with trust problems, burdened with massive middlemen costs and prone to wealth-destroying crises, developments such as this one are welcome.

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Pantera Capital Raises $71 Million for Third Crypto Venture Fund

Blockchain investment company Pantera Capital has launched its third new crypto fund with over $71 million already committed, according to public documents.

A filing submitted by the company to the U.S. Securities and Exchange Commission (SEC) on Wednesday indicates that the new investment scheme, called Venture Fund III, started its first offering on July 31 and has raised $71.44 million from 90 investors.

It’s still unclear at this stage how much more, if any, Pantera is seeking to raise for the fund, although a report from TechCrunch said on Thursday that the firm is targeting as much as $175 million in total.

Prior filings with the SEC show that the firm at least raised $13 million for its Venture Fund II in 2016 and $25 million for its ICO Fund in 2017.

Pantera also wrote in a blog post on Wednesday that Venture Fund III has already made its first blockchain bet, investing in Bakkt – a cryptocurrency trading platform launched early this month by ICE, the parent company of the New York Stock Exchange.

As reported, the investment firm recorded a 10,000 percent return over the last five years from its stakes in various cryptocurrency projects. Pantera has invested in crypto exchanges such as Bitstamp, Korbit and Shapeshift, as well as payments startups like Circle and Ripple.

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$1 Billion Chinese Blockchain Fund Denies Report of Government Pull-Out

A $1 billion Chinese blockchain fund launched in April has denied a report that local government will pull out its originally planned funding support following a recently leaked recording involving a former partner of the fund.

A news report from China Business Journal on Thursday said the Hangzhou city government has required Xiong’An (or Grandshores) Blockchain Fund to stop promoting itself by using the name as a government-backed fund.

The report said the local government has also decided it will not pour in new capital anymore, making a notable withdrawal from the original plan made in April where the government agreed to back 30 percent of the fund. So far the government has allocated 30 million yuan (or around $4 million) for the project, the report said.

Citing an anonymous source close to Li Xiaolai, a well-known Chinese crypto investor and a former managing partner of the fund, the report indicated the government’s decision came after a recording of Li’s private meeting was leaked early this month which brought negative impact on the company and the government.

Yet, in the report, Li responded that the fund “is not suspended.” And he further clarified to CoinDesk that by saying that he means the government has neither suspended Grandshores’ operations nor pulled out its future funding support.

Hours later on Thursday night, Grandshores Blockchain Fund also issued a statement to deny the report, saying they have not yet received any kind of suspension notice from the government.

As previously reported by CoinDesk, Li resigned from his role as the fund’s managing partner on July 9 following the leak of a recording where he took aim at various individuals and companies in the industry with vulgar languages.

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A Crypto Exchange Is Buying Back $24 Million-Worth of Its Own Tokens

FCoin, a new cryptocurrency exchange that saw spiking trading volume recently due to its controversial revenue model, has revealed a plan to buy back millions of its own tokens to provide capital for a new fund of funds.

The exchange announced last Friday that the new fund will be backing a group of selected token funds to further invest in blockchain and cryptocurrency projects. The funds invested in will all be accredited sponsors, it added.

During an initial phase, it will allocate 100 million of its own FT tokens – worth around $24 million at press time – to fund the project. However, instead of providing the amount from its own reserves, FCoin said the the capital will come from a buyback of tokens on the secondary market.

The move accompanies FCoin’s addition of a new “FT trading zone,” also announced on Friday, which includes trading pairs between FT and other tokens.

The exchange stated that only projects that have raised over 3 million FT through the fund of funds and have been recommended by at least two sponsors will be eligible for listing in the new trading section.

As previously reported by CoinDesk, FCoin saw soaring trading volumes after launch due to the adoption of a new business model called “trans-fee mining,” which reimburses users’ transaction fees with the exchange’s FT tokens.

While the model has drawn industry criticism over its long-term sustainability, data from CoinMarketCap shows that the platform recorded some $3.8 billion in trading volume over the last 24 hours.

That said, FCoin’s plan to buy back its tokens from the secondary market also follows a continuous decline in the price of the FT token, which has plunged by around 80 percent over a month, from $1.25 on June 13 to around $0.24 at press time.

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Huobi Partners on $93 Million China-South Korea Blockchain Fund

Hot on the heels of its recently announced cryptocurrency ETF offering, Huobi has revealed a new partnership that will see it launch an investment fund dedicated to blockchain startups in China and South Korea.

According to a report by the China Money Network on Friday, the cryptocurrency exchange has teamed up with Chinese investment firm NewMargin Capital and South Korean securities firm Kiwoom Securities on the joint effort. Banks from South Korea, including Korea Development Bank and Industrial Bank Of Korea, are to invest in the fund as limited partners, the report adds.

The companies are hoping to raise the local equivalent of $93 million to be invested in blockchain startups in China and South Korea, as well as to encourage cooperation between blockchain projects in the two nations.

The news comes on the same day that Huobi launched an exchange-traded fund (ETF) based on cryptocurrencies – aimed to allow retail investors to gain exposure to a basket of assets instead of just one at a time. The investment instrument, called HB10, is now open for subscriptions, though the firm will only accept funding using cryptocurrencies.

Also announced today, was a fund set up by rival crypto exchange Binance, which said it was launching a $1 billion “Social Impact Fund” to boost the growth of blockchain and cryptocurrency startups.

Binance aims to use $1 billion of its own capital to create a combination of a fund of funds and a direct fund that invests in blockchain projects.

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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.