Blockchains
The COVID-19 Effect
At this point, there are nearly no industries and individuals remaining that have not been affected by COVID-19 in some shape or form. Between self-isolation measures, lost income due to business closures, and overall fear, many have a sense of unease due to these radical changes to everyday ways of life.
Today, we will take a brief look at a few ways digital securities, currency, and blockchain as a whole have been affected by the ongoing global pandemic.
DTC Suspends Paper Certificates
This first disruption relates directly to the trading of securities. The Depository Trust Company (DTC), has instructed all transfer agents, within the Unites States, that they are ceasing their efforts to process paper based securities.
The following is a list provided by the DTC in their notice, breaking down their suspension of services.
- All physical deposits
- Withdrawal & certificates on demand (COD)
- New York window (NYW)
- Envelop Settlement Services (ESS)
- Custody Reorg
- SBA Pooling
While moves such as this are necessary for keeping COVID at bay, they also shed light on a burgeoning technology being used to supplant traditional paper based securities – Security Tokens.
In order to gain a better understanding of the situation, we reach out to Dave Hendricks, CEO of Vertalo. He elaborated on the situation, by commenting,
“The suspension of paper-based certificate handling by the DTCC has left the status of many trades in limbo. With rule exceptions for Transfer Agents now in place under SEC guidance, some paper-based transactions may not be processed for weeks if not months. Where does this leave the affected broker-dealers or investors? We do not know. However, we do know that digital or tokenized shares would not be affected, as they are not subject to a single point of failure mechanism like centralized office-based paper processing. This systemic failure at a time of great need for liquidity surely calls for new methods of ownership and trading for all sorts of assets.”
Hendricks continued, highlighting the need for implementing digital change, by stating,
“It’s time for issuers and investors, especially with respect to private assets, to effect digital transformation and improve the resiliency and response time of securities transactions. Only fully digital transfer agents like Vertalo are capable of this sort of step-function improvement.”
As a company serving the digital securities sector in a variety of ways, including that of a transfer agent, Vertalo has a unique, and direct, insight into the effects of COVID on related operations.
Homeland Security Denotes Blockchain Managers as a ‘Critical Service’
We’ll begin this section with an excerpt from a recently released statement by the U.S. Department of Homeland Security.
“If you work in a critical infrastructure industry, as defined by the Department of Homeland Security, such as healthcare services and pharmaceutical and food supply, you have a special responsibility to maintain your normal work schedule.”
One of the most promising applications of blockchain technology is within supply chains. Whether tracking the origin of diamonds, authenticity of designer goods, or agricultural products, these processes seem tailor built to benefit from blockchain.
This point is underscored by the recent inclusion of Blockchain Managers as a ‘Critical Service’, by Homeland Security. While use of blockchain may still be in its early stages, it is clear that it has already established itself as a pivotal tool for those involved, specifically in Food and Agricultural sectors. Beyond the efficiencies made possible through its use, blockchain based supply chains have the ability to accurately relay information on products, ranging from place of origin, manufacturing dates, travel routes, and more.
Recording, and gaining quick access to, this information can go a long way when screening products, and ensuring trade channels continue operating as intended.
Folding@Home
Through use computational power garnered via a global distributed network, Folding@Home is doing their part to help expedite our understanding of COVID-19. While not explicitly using blockchain, the idea of utilizing a distributed network to achieve a goa, with new levels of speed and efficiency is a common theme. The distributed network utilized by Folding@Home is comprised of anyone that has a surplus in computational power.
- Idle laptops
- High-end desktops
- Crypto-currency ASIC devices
- Cellphones
The list goes on. Cumulatively, it is believed that the Folding@Home network, built on these devices, has grown to control more computational power than most of the world’s supercomputers.
With regards to COVID-19, in particular, Folding@Home is directing much of their cumulative processing power to understand the structuring of the proteins found within the virus. By gaining this understanding, it is hoped that new treatments will be discovered.
As promised, here is our first glimpse of the #COVID19 spike protein (aka the demogorgon) in action, courtesy of @foldingathome . More to come! pic.twitter.com/iD2crCMHcX
— Greg Bowman (@drGregBowman) March 16, 2020
Recently, what the company has seen is a massive influx of contributors – specifically, from those already well-versed with blockchain and mining. This has resulted in the network attaining over 450 Petaflops of computational power. An example of this comes from crypto-mining specialists, CoreWeave. The company has taken a serious, and proactive, stance against COVID-19 by reallocating 6,000 high-end GPUs, typically utilized for mining, towards the Folding@Home network.
Needless to say, it is uplifting to see individuals and companies from around the world come together in an attempt to halt the spread of COVID-19.
Central Bank Digital Currency
While various nations around the world have announced their intent to develop, and issue, a central bank digital currency (CBDC), the United States have taken a more trepid approach. This, however, may change, as the advent of COVID-19 has forced many to rethink the merits of such an endeavour.
Beyond the oft-touted benefits behind a CBDC, a new benefit to recently come into view is the ability to limit the transmission of contagions. Physical money passes through countless hands, and environments, on a frequent basis. This very nature makes money a prime candidate for spreading illnesses.
China was the first to recognize this, and act on the fact by removing cash from circulation and either disinfecting or destroying it. Close on their heels was the United States, having implemented similar precautions. These precautions surround money specifically entering the country from high risk areas, such as Asia. Money that ‘fits the bill’, will undergo an extended holding period, allowing for the disinfecting of potentially contaminated bills.
In a world gripped by the effects of COVID-19, this is one time where the laundering of money is actually a good thing (in a literal sense of the word).
On a smaller scale, many have seen a sharp disruption in an ability to even use the cash that they do have. With money being one of the items most commonly transferred between people, countless businesses have ceased accepting it as a form of payment. Instead, many are relying soley on debit and credit networks – further underscoring a potential need for CBDCs.
Attention towards a U.S. CBDC has grown to the point that it is now being discussed in potential stimulus packages. While nothing concrete has managed to make it into any final drafts, there is clearly an intrigue surrounding the topic, with significant legwork being put into the potential structuring of such an asset.
A Path Forward
These are only a few ways in which COVID-19 has managed to disrupt the way we view blockchain, digital securities, and currencies. With the pandemic still on the upswing, we will surely come across new implementations as the weeks go on.
Necessity is the mother of invention, and we might just see blockchain based endeavours provide a path forward, in search of inventive solutions.
The Factom protocol is seeing one of its first adopters, Factom Inc., potentially taking its final steps, as the company enters receivership.
While the Factom protocol, itself, was developed and nurtured through its infancy by The Factom Foundation, this board has long since dissolved. This dissolution occurred after years of developing the protocol, to a point where it was able to operate on its own, in a decentralized fashion.
Unfortunately, Factom Inc., which utilizes the Factom Protocol, has not fared well with the current economic climate, resulting in the current situation.
Factom Inc.
Factom Inc. while intimately related to the Factom protocol, does not represent the Factom Ecosystem as a whole. They are simply one company, which builds solutions utilizing the open-source and decentralized protocol.
Some of the solutions Factom Inc. has built include,
Intellectual property surrounding these solutions, as well as company assets, will now find themselves in the hands of primary creditor, FastForward. As such, FastForward will facilitate the upcoming receivership process.
Will FastForward rebrand Factom Inc.? Will they liquidate assets? Will they simply restructure? Time will tell what this process entails.
Authority Node Operator (ANO)
As an open-source and decentralized protocol, the Factom blockchain is managed through a series of Authority Node Operators (ANOs). These companies, all of which must meet eligibility requirements and undergo trialling, are described as block validators.
Currently, there are 27 different companies which hold this position, with Factom Inc. being one of them.
The Writing was On the Wall
News of Factom Inc. entering into receivership should not come as a complete surprise. On March 19, 2020, Factom Inc. creditor ‘FastForward’ indicated that this may happen.
In their update at the time, the company had the following to say,
“…at the end of March 2020, without any additional support or funding, Factom Inc. will be forced to enter discussions with creditors about the distribution of its assets.”
Needless to say, additional funding did not materialize, resulting in the development discussed here today. On April 2, 2020, FastForward announced the decision by Factom Inc.
Ed McDermott, Director of FastForward stated,
“We are extremely disappointed with this news from Factom. In light of this Dissolution Event under the SAFE we are taking swift action to protect our position as best we can in the circumstances albeit the ability to generate any meaningful return is uncertain. As we go through the Receivership process and understand more of the events that led to this position our position as investors in Factom is expressly reserved.”
Receivership
Receivership is a process built to allow for creditors to gain control of a company. This occurs in an effort for them to either impart restructuring efforts, or liquidate assets.
The purpose of which is to allow for an opportunity to bring the company back to profitability, and/or reimburse creditors their funds.
On-Going Applications
While these may be dark times, there do remain a few promising applications/implementations of the Factom Protocol, which are expected to be unaffected by the receivership proceedings of Factom Inc. The following are a couple examples of this.
PegNet
Launched in October of 2019, PegNet is an example of one of the more promising, and successful, applications which utilize the Factom Protocol. It is also an example of one of the applications not associated with Factom Inc., which will continue to operate unaffected.
To date, PegNet is said to have already facilitated over $1 billion in transactions.
Factom Asset Token (FAT)
The FAT protocol is another example of a project built atop the Factom blockchain. This one, in particular, holds the promise and flexibility to support digital securities.
We previously took a brief look at how FAT operates, including its ability to support non-fungible tokens.
Security Token Standards – Factom Asset Token (FAT)
Past Successes
There is an unfortunate trend in the world of cryptocurrencies and blockchain – an attraction to hollow, ‘get rich quick’ schemes. Visit the top companies listed on coinmarketcap.com, and you’ll see it populated with many companies which have, to put it bluntly, accomplished next to nil.
Unable to crack the top-100 coins by marketcap for months now, Factom, is not one of these. Overall, the Factom blockchain, and the various solutions built on top of if, have experienced quite a few successes and legitimate adoption over the years. Arguably the most prominent, and well known, example of this is their proclivity for attaining subsequent government grants and pilot programs. While the protocol lives on, unfortunately, these examples were not enough to save Factom Inc. from its current situation.
If a company and the protocol it is built upon, which has received this amount of attention from reputable organisations can suffer, so can any.
In Other News
Beyond what has been discussed here today, the following articles touch on multiple recently announced utilizations of the Factom protocol.
Knabu to Utilize IdentityMind and Factom in Pilot Program
Sphereon Chosen to Integrate DAML with Factom Protocol
Settlement
After standing their ground for multiple years, attempting to thwart of various lawsuits, the Tezos Foundation has just announced their decision to settle with all parties.
The suit, which represents a joint effort on behalf of various parties, sees Tezos potentially on the hook for up to $25 million.
While this decision has been made by the Tezos Foundation, it does not necessarily mark the end of this drawn out saga. At this point in time, the decision is pending approval from the courts, in order to become official.
Denial
It should be noted that, while the Tezos Foundation has decided that settling the various suits against them is in their best interest, they have remained steadfast in their innocence.
Upon announcing their decision, the foundation took the opportunity to underscore this belief, stating,
“The Tezos Foundation chose to settle all claims because the Tezos Foundation believes it is in the best interest of the Tezos project and community as a whole. The Foundation continues to believe the lawsuits were meritless and continues to deny any wrongdoing. However, lawsuits are expensive and time-consuming, and it was decided that the one-time financial cost of a settlement was preferable to the distractions and legal costs associated with continuing to fight in the courts.”
Avoiding Prosecution
The ramifications resulting from their decision to settle the active lawsuits go beyond simply saving time and money. The Tezos Foundation has now avoided a situation in which they might have potentially seen the courts label their tokens as securities.
If a situation like this were to occur, it would set a precedent for the future, and potentially be catastrophic to the project at large.
Rife with Controversy
For fans of Tezos, and what it is the Tezos Foundation is trying to achieve, this decision to settle will, no doubt, be greeted with open arms.
Regardless the potential behind the tech, Tezos has, unfortunately, been rife with controversy from day one. Whether referring to a delayed distribution of tokens post-ICO, due to in-fighting surrounding usage of funds, roles played by high-profile investors, or the lawsuit discussed here today, Tezos has done an admirable job finding a way to not just survive, but thrive.
Use Cases
Despite issues lingering over the Tezos Foundation since day 1, usage and adoption rates of the project have continued to rise. In recent months, this is most evident through the burgeoning digital securities sector.
With the Tezos blockchain providing its users with high levels of functionality, we have found ourselves reporting on its usage on various occasions, including the following examples:
Tezos to be Used for Tokenization of 22 Projects
Vertalo Chooses Tezos for Security Token
Elevated Returns and Securitize to Utilize Tezos for Digital Securities
Investing in Kentucky Bourbon with Wave Financial
Tezos Chosen by BTG Pactual and Dalma Capital for Token Issuance
No Harm Done
The Tezos Foundation is comprised of a council, which oversees the usage of funds and product development. To date, the foundation manages roughly $635 million in assets, and has done their part to support development of their platform through millions in grants.
For a project that raised roughly $232 million, and has spent multiple years overcoming legal hurdles, their ability to grow points to sound decisions being made by the Tezos Foundation over this time.
Tezos
Stemming from an ICO held in 2017, Tezos is a proof-of-stake blockchain, designed to provide developers the needed flexibility for building next-gen services.
The Tezos blockchain was originally created by cofounders Arthur and Cathleen Breitman.
In Other News
When the Tezos ICO was completed, it represented one of the largest events of its kind, bringing in over $232 million. Naturally, due to the size of this raise, all eyes were on them. They are not the only ones to undergo such high levels of scrutiny, however. One such company dealing with similar issues is known as KIK. On various occasions we have documented the on-going battle between them and the SEC, as the two ‘duke it out’ over their past ICO.
SEC Files for Early Judgement in Kik Trial
Kik Hunkers Down for Fight with SEC – Shuts Down Messaging App
Popular Messaging App Kik to Fight SEC in Court Over Kin ICO
Twenty-two projects representing a cumulative $200M in digital securities. Those are the numbers of a new tokenization endeavour being undertaken by a pair of companies via Tezos.
DealBox and Vertalo have announced that they will be working together, with each contributing varying capabilities to the undertaking.
Vertalo is expected to handle tasks surrounding the issuance and management of the digital securities. DealBox will then utilize these as a means for providing access to capital for SMEs.
Tezos
The digital securities, to be issued throughout this process, are expected to be based upon the Tezos blockchain. While the use of Tezos over the popular Ethereum may seem surprising at first, it becomes clear after looking closer at the benefits offered by the former. For example, Tezos utilizes POS, supports multiple programming languages, fast transaction rates, and more.
To learn more about why, exactly, Vertalo has chosen to rely upon Tezos, make sure to read the following article.
Vertalo Chooses Tezos for Security Tokens
Capitalizing
Interestingly, in their press release, Vertalo and DealBox take the time to highlight the timing of their announcement.
The SEC has recently proposed loosening restrictions surrounding various fund raising methods. If enacted, projects such as the ones discussed here today will benefit greatly.
It is import to remember, however, that these changes are simply a proposal, at this time. While Vertalo and DealBox may, indeed, have announced their partnership at an opportune time, it may also be subject to the status quo.
HODL Your Hoopla Over SEC Changes for Exempt Offerings
Commentary
Upon announcing this new development, representatives from each, Vertalo and DealBox, took the time to comment.
John Nance, President and CIO at Deal Box, stated,
“At Deal Box, our mission is to help liberate entrepreneurs from the inefficiencies of traditional investment banking and capital formation and enable them with today’s best-in-class technologies to drive more efficient and effective results to help their companies grow. With the completion of our licensing agreement with Vertalo, we are doing just that, as we begin to issue digital securities across our platform using Vertalo’s systems and the Tezos blockchain. The Deal Box x Vertalo relationship furthers our ability to identify opportunities that advance our collective ecosystem as we all work to simplify and advance this industry.”
Dave Hendricks, CEO of Vertalo, stated,
“Vertalo is excited to provide Deal Box and its dozens of issuer clients with the most comprehensive and compliant platform for the issuance and management of digital asset offerings. The Deal Box team represents the future of the digital asset ecosystem: smart capital advisors that are assisting their portfolio companies with fundraising and investor relations functions at lower cost and with greater simplicity. Vertalo is eager to empower and support Deal Box with the platform tools, technologies, and techniques that enable them to go to market with their own white-labeled security token issuance solution, backed by the support of a team with extensive capital markets experience that has been involved in regulated digital assets since 2017.”
Building Blocks
Some partnerships come and go, as good intent doesn’t necessarily result in a fruitful relationship. It would appear as though DealBox and Vertalo have managed to avoid this, however, and successfully found a way to work together.
This has been made evident through various dealings between the two companies in recent months. For instance, the 22 new securities to be tokenized, discussed here today, simply represent another round. As such, this would indicate that each company was pleased with the first round of companies tokenized, enticing them to work together again.
One such example of past dealings is that of Zapaygo and their STO.
DealBox
Founded in 2016, DealBox operates out of California. Above all, DealBox facilitates capital formation for promising start-ups. DealBox also offers ancillary services, which include consulting, investment packaging, and more.
President, John Nance, currently oversees company operations.
Vertalo
Founded in 2017, Vertalo operates out of Austin, Texas. Above all, the company works as a service provider for the digital securities sector. Highlighting these services are the companies cap-table management capabilities.
CEO, Dave Hendricks, currently oversees company operations.
In Other News
Various blockchains have seen minor levels of adoption in the nascent digital securities sector. It would appear, however, as though Tezos have managed to establish themselves as a front runner in adoption levels. The following articles are examples of news surrounding Tezos in recent months, shedding light on why companies are turning to the popular blockchain.
Binance Adds Tezos Trading Pairs
TokenSoft Brings Security Tokens to Tezos