State of Digital Asset Management Platforms
Last week Melonport had one of the fastest crowd sales to date. In an Ethereum based crowd sale, they raised 227,000 eth in 2 minutes and 50 seconds. Together with ICONOMI’s ICO, also one of the most successful crowdfunds ever I think it’s safe to say the interest and expectations in this space are very high.
Now, ICONOMI and Melonport are both active in the same category — digital assets management. Besides these two projects, there are several other projects that are working on future products and platforms in this space. The other known projects in the space are summarized in the following table:
At this stage, none of these projects are direct competitors. None of the platforms are released yet, and for a foreseeable future our common goal will be to increase overall awareness and expand the market that we operate in. Our combined efforts in growing the possible market will by far outweigh the negative effects of being in competition for customers.
With the main three projects now funded (or ongoing ICO as is the case for Equibit), I’ll try to summarize some of the design choices, similarities and differences between the projects in order to get an overview of the current state of this space.
ICONOMI uses a traditional web application approach to build its digital assets management platform. Since similar web services have been built before (in traditional markets), this approach is much more predictable in terms of development work, technology and architectural design choices, costs etc.
Advantages: security, performance, upgradeability, control of the platform and time to market
Disadvantages: central point of failure, dependency on third-party services (exchanges etc)
A distributed system has no single point of failure. In Melonports case, all services run in an expandable system of different smart contracts on the Ethereum blockchain. This means that the capability and performance of the system will always be dependent on the blockchain the system runs on, in this case Ethereum. Since a system like this has never been developed before, the whole development process is filled with much more uncertainty. If successfully developed, this is a very interesting technology innovation and it will be very interesting to see what value it can bring to the space.
Advantages: No single point of failure, open ecosystem
Disadvantages: Performance, security, upgradeability, time to market, single blockchain (for now), dependency on third-party services (exchanges etc), platform costs (gas price)
Blockchain + distributed + centralized
Equibit is aiming to do something very interesting. They have identified the core needs to tokenize traditional equity and solves it by replacing the current single-trust system with a peer-to-peer network (see this article why that is needed). This network is built on an entirely new blockchain, with planned interoperability with Bitcoin. Trades on the network will be settled in a decentralized manner (no central node).
On top of this they plan to build a trading platform, and with the information available I understand this to be a centralized solution.
Advantages: Lower barrier of entry for traditional equity issuers
Disadvantages: Network effect, security, performance
By using traditional and proven technologies, the centralized approach of ICONOMI should yield much higher performance when clearing trades or interacting with exchanges, only limited by the underlying systems or APIs transaction limits.
By being reliant on a blockchain, Melonport and Equibit will have much slower systems that are capped by the block time and the global number of transactions included in each block on that blockchain. It’s possible there will be ways around this (perhaps using state channels), or that the performance of the blockchains will increase, but that is unclear at the moment.
The security benefit of a centralized platform is that the number of unknowns is vastly reduced. With a traditional service under tight control, well-proven development and testing strategies can be employed and the risks can be better predicted based on similar services in other markets.
The main downside of a centralized platform is the centralization itself, there is a single or a few points of failure and these will be dependent on off-blockchain services.
It’s hard to write secure smart contracts. In fact, it is extremely hard and because this is an entirely new area of software development there are few best practices in place and experienced developers and project leads are extremely rare. What is even worse from a security point of view is that once a smart contract is released it can be impossible to upgrade it, leading to potentially locked or lost funds/tokens if the contract is in control of these. Therefore, the development cycle of smart contract based systems is in the best case very unpredictable and prone to a lot of traps already solved in traditional development.
On the other hand, a well developed, secure and fully functional smart contract will be extremely powerful as it will work and exist for as long as the blockchain it resides on is functional.
Time to market
The design choices outlined above leads to two very different time frames from a development point of view. The more traditionally developed ICONOMI platform will make its first limited public release in about a month, and then gradually add on additional features over the coming months until the full platform is ready.
The decentralized solutions will have a much longer time to market. When the platforms are eventually released, they both require substantial efforts from other actors as well. Melonport will need others to create modules for the system and Equibit is dependent on companies issuing shares on their platform.
As outlined above, there are some pros and cons for each of the major design choices. What is even more interesting is the level of interoperability of the different platforms. As an example, Melonport is a free standing platform in itself but when operational and if it provides any benefits over the competing solutions it could also be used by ICONOMI as a backend service provider for several of the core services. Coindash works on an even higher level, by aggregating information from all of these platforms.
This level of interoperability means that as these platforms are released and can be tested, each one of them will be evaluated for competitive advantage for cost, security and/or performance.
Going forward, it is important that different concepts are developed and tested. We will have faster-developed platforms — more centralized but using the current state of blockchain stability and capabilities and those fully exploiting the potential of smart contracts. The first ones will develop the market while the others will bring new paradigms to the world of asset management that will be beneficial for everyone. The new economy needs them all.