unstoppable capital… (on a blockchain)
first came unstoppable cash in 2008, then unstoppable computing in 2014, and now the promise of unstoppable capital in 2017..
So I had an epiphany, and as most epiphanies do it came without warning! It had been hiding in plain sight all along, while I looked and looked for the rabbit hole that would take me to Alice in Wonderland! Beguiled no less about the whole process of how I arrived there, I looked for the origins and could trace it to the winter of 2014 when a chance encounter set me off on an unusual course. It would force me to unlearn all I had ever learnt about financial markets, and would alter my beliefs on efficient frontiers and other economic theories for moments, days and months to come…
I recall that when the incident happened, I was inhabiting the mental spheres of an evolved monk, having mastered bliss. I was elated and ecstatic, imperturbably so, about nothing in particular. This fact further compounded my joy, in a circular logic, as mastering the art of happiness had been my life-long quest. Now I was in that state, elusive to most! In that state of utter satiation, I met this unusual person at a social do in London. I knew he was very influential, though I did not know much about him. I had taken a friend along. Being my usual restless self I went out to the lobby with my friend and literally walked into this person as he entered. Caught offguard and surprised by his jovial expression, I offered a handshake and a “Welcome to London”. Later when I sat through his talk, I could gather he was a visionary. He looked to be out to do something remarkable, on a grand scale. I remarked to my friend during the talk, rather smugly, that there was not a single person in the audience who was relevant to this man’s mission, other than me! That was presumptuous of me, but it was also true.
So I asked this man why he was spending time reaching out to those who don’t matter. I suggested to directly reach out to institutional investors who were fishing hard for returns. Now that may look too obvious to anyone who has ever worked in financial markets, but not to the person who needed this information the most! To make my point, I let it slip that investors in Japan for example are happy to make even a 0.5% p.a. return. He immediately took me up and invited me to educate his team on the process. Now, a woman is used to such responses all the time, so later during the reception I dug deeper into specifics like the kind of rate he wanted, just to ascertain his seriousness about the deal. He said he needed several billions of dollars for his vision and that I would be helping him a great deal if I could get better terms. He said, to realise his vision he needed to cut down the borrowing rate by several hundred basis points.
This was big deal. It is the kind of a deal that a Goldman Sachs would go to great lengths for.
I checked with some friends. Some with more gray hair told me if Goldman, who would be at the disposal of such clients, couldn’t do something how could I, and what role did I have to play in such a grand scheme of things? I would be wasting my time! Now my friend was missing one thing. Whatever I may be lacking otherwise, my worst critics would not complain that I lack confidence. Being a corporate leader with several global accolades to his credit, he had also grossly underestimated the foolishness of an entrepreneur. I decided to ignore that advice and go with my gut. I thought to myself — just because Goldman Sachs is unable to achieve something, does not mean I cannot. Certainly, Goldman’s ability or the lack thereof is no reason for me not to pursue a risky opportunity. As I saw it, my opportunity cost was just expended effort and energy which I have in abundance. My worst outcome would be a few months of wasted effort. My best outcome would be — I would have shown a better way to my country, and saved the exchequer a bounty, and proved Goldman wrong. I decided to go for it regardless of the outcome as I would atleast learn a lot.
I quietly proceeded to do some research with banks and representatives of institutional investors in London and was quoted around 3.5% p.a interest rate for the particular credit. Not satisfying myself that this is the best I can get, I flew to Tokyo. It was my first trip to Japan. It was the summer of 2015. If you have never done any business with the Japanese, you’d be prone to underestimating the difficulty it entails to get a single meeting in Japan. Not to be disheartened by my dismal strike rate, I fixed informal meetings with some of my alumni from Wharton now working in Tokyo. I thought I would go figure the rest. I did.
I spent a fortnight in Japan on the project. While I was not knocking on the doors of banks, I sped away on bullet trains to Hiroshima. I marvelled at how such a green and agrarian nation was also a leader in engineering. Japan was a study in contrasts. I was enthralled by how they had made a monument of a memorial for the world’s worst disaster. I unraveled the mysteries of bewitching Kyoto. It had always intrigued me why Kyoto was Steve Jobs’ favourite holiday spot! I saw the first free city wifi in Kyoto that summer, offered by Apple. It took me less than a day to see why Kyoto’s beauty had captivated Steve. I played with some deer on a remote island I had to reach by ferry. Back in Tokyo, someone in our embassy was glad to receive this quaint visitor and threw me a grand reception. I loved the street markets. I bought my famous Tokyo ear rings and some Geisha accessories! The street markets were delightful. I had not set foot in more splendid surroundings, except for Istanbul and India. It was a culturally rich sensual feast — with robotic precision and clinical sterility super-imposed, an unlikely pairing. But I was used to contrasts, being a painter, an engineer and a banker rolled into one.
On my mission, I was literally in tears most days. Tokyo Metro qualifies for a cryptographic challenge in itself! I was up for that, but not for how to find my building once I stepped out of the Metro. The polite Japanese passersby often took pity on me and simply walked me to my destination, even when it was out of their way! To heighten the drama, I learnt a team from Goldman was in Tokyo too, working on a similar mandate paralelly. So I had my share of adrenaline! After two weeks of an uneventful chase, the rainbow appeared out of nowhere. A bank surprised me with an offer for 500 million$ Yen bond at 1.6% p.a. interest rate on the last day of my trip. That would be an initial bond issue, with recurring issues for billions more! Call it a wonderul stroke of luck, or the reward for my sheer persistence, I had something concrete to report back. I also had the pleasure of working on some exotic options to mitigate the foreign exchange risk of a liability in Japanese Yen, for coupons as well as repayment of principal. It was the very best deal in the circumstances. No one could do better, Goldman included. Months later, I would learn that we still could not make it happen. The reasons had nothing to do with the deal’s merits, or who was doing it, but the way markets and big institutions work in real life. By that point, I had proved that a superior solution exists and that I had found it. I had no more incentive then to persist in the face of perverse and misaligned incentives and conflicts of interest of multiple parties working with tangential goals.
In the winter of 2015, I delivered a talk on “The Promise of Blockchain” in New Delhi. Winter of 2016, I met Vitalik Buterin, the inventor of Ethereum and hosted India’s first ever Blockchain Summit where he was Chief Guest. Soon after, in Jan 2017, at the World Economic Forum in Davos I saw the global leaders get very excited about blockchain. Now blockchain was going to go mainstream! I immediately pitched to the Chief Minister of Andhra Pradesh Chandra Babu Naidu, a Tech visionary and social reformer, on how we can make Andhra Pradesh a global hub of blockchain excellence. In parallel, I proposed to Vitalik that India is strategically important for Ethereum and that any ambitious technology needs India to reach its inflection point. Though I had been researching blockchain for long, learning from Vitalik first-hand put me on a perceptibly steeper technological trajectory. My eagerness to discuss with Vitalik his favourite subject motivated me to tackle the insurmountable barriers. I got deeper into alternative distributed ledger protocols and future-proofing Ethereum. I presented the Ethereum Technical Roadmap at Ethereum India Summit May 2017 in Mumbai, alongside Vitalik. Here’s Vitalik fielding questions from the audience after my talk on Casper, sharding and Proof of Stake. :P
Being the master strategist that he is, Vitalik later asked me a simple question that would mark my career!
It takes a leader to accelerate progress on a path, it takes a genius to alter the path itself!
Then came my AHA moment!
I was armed with a unique capital markets perspective of having attempted to make a real deal happen between a willing buyer and a seller. I was armed with an elegant technological solution that would wipe away the challenges I had encountered. I was aware that several banks were working on blockchain solutions, but nothing that would put the benefits of decentralisation into the hands of public, or a 2-sided market place. Then I realised that the probability of banks doing it would be zero, atleast in the current state of the market! It was the same reason why Goldman would not offer a better deal than I could find! It occured to me that the presence of above market imperfections, opacities and gross inefficiencies presents a huge opportunity to streamline global capital flows and bring in market efficiencies and network effects. When juxtaposed with technological leaps we have made in data sciences, cryptography and distributed ledgers, the realisation became as real as my Kyoto trip — that the global capital markets are ripe for disintermediation and disruption.
Having studied world leaders with great fascination, I also discovered why Vitalik is hailed the world over as the hope of technology. He had dared to go where no one would (other than Satoshi perhaps). His vision is overarching.
I propose a technology solution by way of a Decentralised Global Capital Markets Platform ( DGCAMP ) — a two-sided platform and a marketplace where investors of capital and seekers of capital can interact freely, trustlessly and with minimum friction. The platform can operate with and without intermediaries, though the ultimate social good would be to eliminate intermediaries.
DGCAMP is a blockchain and smart-contract driven platform where issuers (public and private firms, governments, non-profit foundations) can access a broad class of primary market investors (both institutional and retail), complete a variety of automated transactions and processes (such as book building, auctions, syndications, dividend distributions through an array of smart contract suites) and can issue a broad array of digital assets to investors. Investors of every type, jurisdiction and financial status can use the platform to learn about investment opportunities across the globe, their regulatory aspects, risks and expected returns, to access due diligence reports, and to invest directly without having to go through intermediaries. A secondary market layer with buyers, sellers, arbitrageurs can easily complement this system. The system can first be envisaged as a single-country system and then extended to a multi-country global marketplace.
Himalaya Labs , a blockchain venture I founded, is currently laying the base architecture (Proof of Concept) for this idea. Also on the cards is building a pilot for Bond issuance of Andhra Pradesh Government, our Strategic Partner. I have long been an adviser on international financing to the government, so this would kill several birds at one shot. Offer a global decentralised platform, and solve my home-state’s most gnawing problem of accessing capital at the best terms. Here’s me presenting to Mr Chandra Babu Naidu, The Honourable Chief Minister of Andhra Pradesh, a 10-point Blockchain Roadmap for the state.
See a draft summary of my idea for Decentralised Global Capital markets Platform (DGCAMP) here.
I am grateful to Dr Emin Gun Sirer, Associate Professor, Computer Science, Cornell University and Co-Director of the Initiative for Cryptocurrencies and Contracts (IC3), for reviewing my first draft and providing useful analysis and comments.
Read the paper on github.
I welcome comments from readers at email@example.com.