Dave Hodgson, CIO for NEM Group & Managing Director of NEM Ventures – Interview Series
Dave serves as Chief Investment Officer of NEM Group and Managing Director of NEM Ventures, where his role encompasses group investment management, jurisdictional analysis, partnership building and corporate structure design.
Dave has 15 years experience consulting to various sizes of organisations, government agencies and NGOs on technology projects, and was an early adopter and programme lead for public cloud projects, having led multiple large organisations through their adoption programmes.
When did you first become involved with cryptocurrency and/or digital securities?
I first became interested in blockchain and crypto a few years ago, but professionally became involved back in 2016 as I was part of a project that was looking to create a parallel settlement system for energy consumption. That project was also looking at a security token raise, and we went through the process of beginning to launch an STO when the company was acquired. As a result, my involvement with blockchain, crypto and digital securities were largely in parallel.
Could you begin by explaining what the NEM blockchain is and how it differentiates itself from other public blockchains?
NEM is a modified Proof-of-Stake (PoS) blockchain that is written from scratch and version 1, which we refer to as NIS1, has been running on the public chain since 2015. At the time, NIS1 was one of the earlier PoS chains, as well as one of the first to support on-chain multi-signature. NEM NIS1 has been leveraged for use cases ranging from tracing luxury goods, supply chain tracking, social media, stem cell research and most recently for a Central Bank Digital Currency (CBDC) in Lithuania. We differentiate ourselves by being one of the older chains, having had no down time, no lost assets, no protocol level hacks and by fostering a friendly developer experience and community. The chain has easy to use Software Development Kits (SDKs) that provide enterprise developers with a familiar development experience. At a practical level, this means that the time to go to market for most companies is quicker because there is very little proprietary content to absorb.
Can you describe NEM Ventures and the type of investments that are generally made?
As the venture capital arm, NEM Ventures invests in companies that build on NEM technology or expand the NEM ecosystem and/or platforms in some way. These investments are made on behalf of the NEM ecosystem and community. We tend to focus on investments in very early stage projects through to series A rounds, with a mixture of companies building directly on the technology, using it in innovative ways or as a partner to the ecosystem generally. We do require the companies to have a genuine commercial plan and a likelihood to reach financial self reliance, however it is not our only measure of a proposal.
One of NEM’s newest products is Symbol, a hybrid blockchain, built specifically with enterprises in mind. Can you elaborate on what Symbol is and why enterprises should pay attention?
The developers built our current public chain (NIS1) from scratch and it has been running for 5.5 years with a cutting-edge feature set. The team took the learnings from that process, advancements in the industry and feature set ideas, and combined them all to develop our second chain, Symbol. Symbol is a new chain, built from scratch to be secure, scalable, decentralized and usable for a variety of purposes.
The technology can be deployed as a private or public chain, and allows protocol level cross chain swaps between both public and private, but also to Ethereum (ETH) and Bitcoin (BTC) via a specific transaction type. The chain supports on chain multi sig (multi level), templatized smart contracts such as aggregate and bonded transactions, it has built in namespace capabilities to allow aliasing of tokens and accounts with user friendly names. It also has protocol level support for security tokens via a combination of account and token based restriction, delegatable roles for token management and account based metadata.
Symbol is attractive from an enterprise point of view because it is possible to simultaneously maintain private and some public uses of the technology, while using a solution that is designed to support that model. It was also created by a team that wrote the chain from scratch and has experience doing so from a battle tested product which is over 5 years old. The fact that NEM is established in the space makes it easier to move the conversation with enterprises from whether Symbol is robust and reliable to how they can leverage the open source technology for their own commercial purposes. At the same time, our open source product and community also benefit in a symbiotic manner. This is a unique value proposition and there are relatively few competitors in the enterprise blockchain space that tick all these boxes.
The first security tokens to launch on the Symbol blockchain is for the Bourbon Fund. Could you quickly walk us through what this fund is?
The Kentucky Whiskey Digital Fund is essentially ownership of a production run of fine Kentucky Bourbon whisky which has tended to appreciate in value over time. The fund democratizes the ownership to multiple parties via a digital asset (security token), which will be built on Symbol. The fund will buy a number of barrels of production, store, maintain and trade those barrels until the point of bottling and sale, which can be expected to be higher than the cost to purchase the production, then bottle and sell the product and return the gains.
This niche market is typically only open to large investors due to the production run size and value, as well as the storage cost and time. It is also a very illiquid market, ironically given the subject matter. It is not possible to hold a fractional ownership of less than a barrel generally, and also not possible to trade that until maturation time. As a result, this fund offers a big opportunity for investors and whiskey enthusiasts alike.
One newly launched product is the LBCOIN which is hailed as the world’s first blockchain-based digital collector coin. Could you elaborate on this project?
The LBCoin project is from the Lithuanian Central Bank and was developed by SuperHow? and built on NEM NIS1. It is a commemoration of the independence of Lithuania and represents a significant first step towards a Central Bank Digital Currency (CBDC).
The basic concept is that the bank is issuing a collectable coin which will be issued and tradeable on chain. The first phase is the issuance of a set of collectable tokens on our current public chain. Interested parties will have some time to collect a full set by trading them and when they have the full set, they can claim a collectible coin.
One of the new services which will be offered is NEM Ignite which is an incubator-type program. Could you discuss what we should be expecting from this?
Our team has found that there are a lot of great ideas in the blockchain space, but sometimes they are not quite developed to the point of being investable. Certain projects have the potential to become commercially viable, but they need a bit of support and coaching to get there, similar to incubators in other industries. NEM Ignite is our answer to that – we make a small financial investment and commit time from various people and partners in the ecosystem to coach these projects through the early startup stages, helping them to prepare for their initial investment rounds.
NEM Ignite was announced back in March 2020, and at the time we had expected to be opening a cohort around now. However, with Covid and the related economic and investment environment, we have not launched as quickly as expected. A lot of our focus is on the successful launch of Symbol and commitments surrounding its development. We are currently incubating a beta cohort of one project, which we are very excited about and expect to announce in the coming weeks. We expect to re-open NEM Ignite more widely as the economy gets back on an even keel.
What do you see as the biggest impediment to the growth of digital securities?
I see this as two fold:
- Regulation – Regulations are at different stages across jurisdictions, and in some cases are unclear. While broadly speaking it is moving in the right direction, it moves slowly as is always the case. Regulations were written originally for different technological approaches, and need updating over time to allow for things like cross border listings and trade, or access by retail investors who can be custodians of digital assets. Overall, regulation is a major player in the growth of the digital assets space, and will prove to be instrumental in the months and years to come.
- Infrastructure – The knock on effect of the regulatory hurdles mean that we are in the nascent stages of digital securities infrastructure. We don’t have common international standards between regulated exchanges and custodians, for example, we don’t have standardised AML/KYC approaches. This lack of common infrastructure will be solved and we are already seeing the start of some progress, but this currently remains an impediment to growth.
Is there anything else that you would like to share about NEM or NEM Ventures?
I’d recommend following us on Twitter and LinkedIn to stay up to date on all our announcements coming down the pipeline. The lead up to the launch of Symbol represents an exciting time for the NEM ecosystem, and now more than ever we welcome anyone to reach out and get involved!