Blockchain innovation is here to stay as the technology is transformational. However, the ICO is in a transition as a means of capital raising. Tokenization, on the other hand, as a means for enticing users in a blockchain system, remains as valid as ever. What is missing is the transition from the ICO euphoria -as a capital raising mechanism without regulation – to the traditional world of regulatory compliance, substantive business plans, delivery of product (at least in alpha) and a concrete path of reasonable execution to enable non-BC/Whales/Crypto investors to invest in the future.
While the “Satoshi” model brings many desirable elements to a system that broke down in 2008, some parameters of traditional business remain steadfast. In order for the blockchain/crypto ecosystem to move into its next phase, the leadership of blockchain projects needs to move towards understanding and implementing elements of the ‘traditional’ business world that are required for investors and the ‘traditional’ investors need further education to understand and feel comfortable with a tokenized system. Both require a fundamental convergence of understanding and realism that will be beneficial to all because blockchain and the innovation it brings, are here to stay.
For tokenized blockchain projects, what is required beyond the genius at work developing a new path to the future, is a business plan sound enough to go beyond ‘white paper’ enthusiasm to satisfy early investors. This is not required only as a due diligence path for investors, but more importantly for the management of the start-up to have an articulated plan for their business model, source for customers to deliver revenue projections and a path towards legal and regulatory compliance within their jurisdiction as well as the jurisdiction in which the recipients of their token resides. Writing the corporate strategy enables the entire team to understand the model as it evolves. It also provides the ability to ‘connect-the-dots’ on the start-ups process to see if they do connect and critically whether it makes business sense and thus, can become a successful innovative business that addresses a need.
For the traditional investors (HNW Family offices, non-crypto VCs, Angels, and even the niche boutique investment banks who advise in the tech space) who do not live and breathe the tokenized ecosystem 24/7, this requires a new set of vocabulary and investment thinking including an understanding of the definitions (permissioned versus permissionless blockchain, jurisdictional arbitrage, legal and regulatory requirements as blurry as they may be particularly regarding users, payments, and capital raising) and the ability to invest in a ‘non-equity’ approach. They want to know where their return will come from and may not accept an appreciated token in a non-proven system as a valid return. They need to know how the project will actually deliver on customers and revenues through traditional fundamentals.
Unfortunately, the gaps between the new blockchain innovator start-ups and the more traditional investors are significant at the moment. While some start-ups began in a garage with 2 guys and a computer, that is not a guaranteed successful model. In order to move towards success for this new technology and the benefits it can bring to the world economy – whether, in social impact, payments or back-end efficiency solutions – start-ups must understand that cryptocurrencies/tokens fall within a highly regulated (for good or for bad) financial services system. In order to ensure the benefits of this new technology are realized, the transition must connect the new thinking with the old order. Both sides need to be educated and work in both worlds for the process to move forward as quickly as the ‘start-ups’ envisage.
Bridging this gap of understanding and operation requires a recognition that operating in the current financial and regulatory environment (in spite of lack of clarity) is essential for start-ups, and recognizing that the future lies in this innovation is essential for traditional investors. This transition is imperative for ensuring the future of a blockchain/tokenized economy that knows no boundaries to become a fundamental of the next business order.
Written by Emily Walker
Emily Landis Walker, CEO of Landis & Co, is a Senior Advisor on financial services, capital raising, blockchain, cryptocurrency and initial coin offerings (ICOs). Emily combines her 30-year network and experience in financial services, international institutions, and public sector to offer C-suite clients expert consulting services on the global regulatory and marketplace ecosystem for blockchain and cryptocurrencies.
Emily travels globally to landscape the regulatory space for cryptocurrency start-ups, ICOs, and exchanges in the U.S., U.K, Singapore, Hong Kong, Vietnam, Philippines and Japan. Emily has participated in Women on the Block, Consensus 2018, numerous meet-ups globally. She has spoken on blockchain panels and holds regular discussions with legal counsel, regulators, trade associations, think tanks, and start-ups globally. Emily is closely engaged with international organizations in their discussions on cryptocurrencies and regulation, including the IMF/ World Bank, OECD, WEF, EBRD, AfDB, ADB and has attended meetings and conferences with these groups. She has developed a robust contact database of investors and participants in the blockchain space.