Speakers at Singapore’s annual fintech festival have expressed a consensus view that, following the blowout in digital asset markets this year, the blockchain industry is not so much in a state of shock as a period of intense development that will make and break businesses as it emerges from the turmoil. 

“The end of the beginning” was the Churchillian phrase that Dante Disparte, stablecoin issuer Circle’s chief strategy officer and head of global policy, used to describe not only his company’s business trajectory, but implicitly the state of the broader blockchain sector.

In an interview with Forkast, Disparte characterized the much-bemoaned Crypto Winter as a blend of the aftermath of the dotcom bubble and the Troubled Asset Relief Program, a scheme set up by the U.S. government to stabilize the financial system during the financial crisis of 2008, predicting that the blockchain industry would emerge better for having weathered its current difficulties.

Referring to the dotcom implosion that later led to the phenomenal growth of Web 2.0, he said: “In some ways, you needed the correction represented by the dotcom bubble to hand over the first wave of the internet to long-range builders and companies with do-able business models, developers and investors who were well suited to keep their eyes on the prize – the long-range price, as opposed to speculation.”

“To quote Jon Cunliffe from the Bank of England, the companies that survive this Crypto Winter will be the Amazons of the future,” he said of the current bear market and the ongoing industry shakeout.

Disparte’s comments captured the prevailing mood among the speakers at this year’s event, who one after another expressed relief that the frenzied speculation that characterized blockchain in general – and the crypto space in particular – had given way to a sense of sobriety and purpose in the industry.

Building to last

“I see a bifurcation, said James Gordon, Asia-Pacific digital assets lead at management consultancy Oliver Wyman, who hosted the fintech event’s panel discussions on Wednesday. “There were those who were reliant on speculative value, that launched NFT (non-fungible token) projects with pixelated faces. There were those that were reliant on asset valuations or trade volumes … These start-ups are struggling. 

“But there are those that are building infrastructure. Those that have got projects focused on utility, those who have managed to diversify their revenue streams, to follow value pools as they evolve across the ecosystem, and they’re benefiting from the fact that there’s reduced competition. They’re not focused on their next airdrop, or what their Discord followers are saying. And they’re building – and they’re building something with a longer time span, a longer vision than they were before.”

Jonathan Levin, co-founder and chief strategy officer at Chainalysis, said the current bear market was fundamentally different from previous market downturns.

“There are new entrants coming into the market still, today, and … large enterprises that couldn’t, couldn’t actually ride the cycle as it was growing exponentially, but which are now sort of realizing there are these market opportunities, and traditional financial institutions, are getting in, as well as bigger consumer brands,” he said.

“We’ve actually seen the establishment of a lot of verticals that are being impacted by crypto technology. And I don’t think about those as necessarily crypto verticals – I think about crypto as a technology actually seeping into those verticals, and it’s touching a lot more markets today … reimagining existing business models.”

Tokenize Exchange founder and Chief Executive Hong Qi Yu also said he saw a great deal more institutional interest in crypto and blockchain, and, alongside Gordon and other speakers, noted that one of the positives to emerge from the market shakeout was a sizeable talent pool that banks and other institutional finance businesses could tap to build new products and services.

In acknowledging the increased level of activity in the blockchain space, Levin said the notion of building during a bear market was more than “just a meme,” and that the increased institutional attention being paid to the sector had in turn drawn additional attention to the commercial focus of activity in it, such as the identification of key markets and an overall sharpened focus on other such fundamental considerations.

Blockchain links

Darius Sit, founder and chief investment officer at QCP Capital, took the opportunity to criticize an article written by Vitalik Buterin, in which he said the Ethereum co-founder had expressed a wish that institutional players would stay out of the crypto space.

“I vehemently disagree, because to create a scalable market that’s very liquid, that [has] scalable participation, and for prices to be more efficient, I think you need institutional adoption,” he said. “It’s quite important in building a mature market.”

Sit argued that the evidence was clear that institutional adoption was already baked into the evolution of the digital asset industry, saying: “In August, a traditional hedge fund name was responsible for about a third of the Ether options volume being traded in the market, and that’s very impressive, extremely significant. These are the same people that you face trading FX options, and now they’re trading crypto options and, to them it’s the same market structure.”

BNY Mellon CEO of Securities Services and Digital Roman Regelman went a step further, saying that not only was the space already populated by institutional financial players, but that platforms themselves would also be integrated with traditional finance.

“We really believe that what institutional clients need is convergence of traditional assets and dealers,” he said. “Who wants to have one set of infrastructure for traditional assets and, in a completely different way, infrastructure for digital assets? Imagine if you had your stocks and bonds on a different platform. That would be really strange.” 

Rules of the road

Integration of a different sort was the focus of the speakers in a panel discussion on the role of securities regulation in the digital asset space, with several expressing concerns over vertical integration within digital asset businesses that would not be permitted in traditional finance.

Lim Tuang Lee, assistant managing director of capital markets at the Monetary Authority of Singapore, said regulators had seen instances of market manipulation, wash trading and insider trading, among other types of wrongdoing, in the digital asset space. 

“Conflicts of interest are particularly problematic in the context of crypto asset markets,” he said. “Some platforms may perform multiple roles, which we do not see in traditional markets. For example, a platform may operate a market and at the same time conduct proprietary trading on its own account. It’s possible that some customers may have their trades being front-run by the service provider and they don’t realize it.”

Valerie Szczepanik, director of the U.S. Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology, said regulators needed to look at the functions of products and services in the digital asset space rather than treating the industry as inherently distinct from the broader finance sector.

“Decentralization, metaverse, Web3 – these things are, to some extent, branding,” she said. “You may choose to call yourself decentralized or you may choose to call yourself Web3, but from a regulatory point of view, we’re going to get behind what this label is – we’re going to see what’s the activity being performed. What are the services being performed, and do we regulate them?”

Gordon said that the silver lining of the cloud that has engulfed digital asset markets for much of the year had come not only in the form of increased institutional involvement in the space and the availability of a huge talent pool with which to build the infrastructure to propel it into its next phase of development, but also in the shape of regulation around such areas as Lim and Szczepanik suggested.

“There’s been a huge amount of progress on the regulatory side,” he said. “I’ll be the first to say there’s more to do. But there’s nothing like consumer losses to get this topic front of mind for policymakers and clear the way for regulators to set perimeters and structure for what we should and shouldn’t be building.”