Blockchain’s non-crypto applications take center stage at Davos Day 2
DAVOS, Switzerland — Blockchain, not crypto..
From supporting climate solutions and delivering humanitarian aid to Ukraine to moving on from the stunning collapse of FTX, on the second day of the World Economic Forum’s 2023 annual conference, discussions were very much focused on the promise of the technology underlying cryptocurrencies, rather than the often speculative financial assets themselves.
The day began with a panel of traditional financial players trying to draw a line under the FTX scandal – noting that while it is a crisis for the cryptocurrency industry, it is not a crisis for other tools built on distributed ledger technology.
“It’s important not to confuse cryptocurrencies and CBDCs, stablecoins and DLT… they are very different,” said PayPal President and CEO Dan Schulman.
Despite the crypto crash, “the underlying technology has performed perfectly,” Schulman said. “The promise of a distributed ledger is that it can be faster and cheaper to settle transactions simultaneously without intermediaries. That’s an important thing.”
Importantly, unlike previous waves of “blockchain, not bitcoin,” which mostly referred to permissioned blockchains, Tuesday’s talks were OK with public ledgers like Ethereum and the Stellar network.
Lynn Martin, president of the New York Stock Exchange, appeared to take a similar line — citing the potential benefits blockchain could provide in making stock issuance more efficient, or allowing settlement of financial trades to take place immediately instead of days later .
“There’s a way now that some of the technologies have been adopted and used to really make the processes much more efficient,” Martin said.
This promise of broader blockchain applications was later reiterated by former Indian central bank governor Raghuram Rajan. But ultimately, TradFi’s commitment to the sector may have its limits: When asked, Schulman, Martin and State Street’s Ronald O’Hanley all said the technology they were most excited about was artificial intelligence, not blockchain.
Across the street from the forum’s main convention center, in a historic church transformed into a neon center to host discussions about the future, Carmen Hutt, treasurer of the United Nations High Commissioner for Refugees, detailed one such application—a recently launched blockchain payment solution for distributing humanitarian aid in Ukraine.
The pilot project, which was rolled out in December with the blockchain platform Stellar network, is at a much more advanced stage than expected, Hutt explained during a panel discussion moderated by CoinDesk’s chief content officer Michael Casey. Putting donations on the blockchain promises “transparency and visibility,” and the commission has a platform ready to distribute aid immediately, Hutt said.
“It’s a fantastic proposal … If we were to get 500 million (dollars) to distribute, we can actually do it today. So this is not a process that will take weeks and months,” Hutt said. (Later that day Ukraine’s deputy prime minister hailed the virtual currency’s contribution to the war effort.)
Further down the line, the famous “promenade” big industry names from Solana and Ripple to the Global Blockchain Business Council teamed up to launch a climate initiative that channels blockchain’s transparent record-keeping to help improve carbon emissions and credit tracking.
Consumer protection
Although regulators have so far largely focused on the threat of crypto contagion to financial stability, the trail of bankruptcies last year that wiped out billions of dollars in retail investments — notably that of Sam Bankman-Fried’s FTX — may have highlighted a need for a shift in focus their.
For the traditional finance panel’s lone banker, the events of 2022 must prompt regulators to stop obsessing over lenders ruining the entire financial system, and more towards the risk of individual consumers being duped by crypto scams.
“It is not that the regulators have ignored [financial innovations]they’ve said if it’s not going to create systemic risk, then I’m not going to focus on it,” said Ronald O’Hanley, chairman and CEO of State Street.
“FTX happened, somewhere between 2 and 3 trillion [dollars] of value was destroyed … a million investors or participants who were harmed,” he said. “There has to be a change in regulatory mindset.”
That idea that regulators could shift focus was picked up at a separate panel hosted by stablecoin company Circle – including in the UK, which is currently considering how to regulate crypto under its Financial Services and Markets Bill.
“There is a real emphasis on consumer protection this year,” said Isabella Chase, Senior Policy Advisor at TRM Labs. “Unfortunately, the UK is a real hub for scams and fraud and authorities are really aware of this because there is a real human cost to them.”
Ministers at the Treasury in London are soon to issue a consultation on crypto laws. The UK regulator has already said that investors need clear, prominent warnings when buying crypto. Legislators, concerned about the impact on customers who may include their constituents, may now be swayed by the collapse of FTX to become even stronger.
Other panelists were concerned that regulators may begin to take too broad an approach to regulating the sector – unlike that taken by the EU, which differentiates between financial instruments, stablecoins, non-fungible tokens and others that use similar technology.
“Honestly, the Europeans are doing the best for somebody right now,” said Lee Schneider, general counsel for Ava Labs, saying that unlike jurisdictions like Singapore, Japan or Hong Kong were “just kind of saying that all cryptoassets are a homogeneous asset class.”
“Everybody knows it’s not true, but everybody ignores it at their peril,” Schneider said.
Read more: Davos 2023: Crypto is down, but not out
