Exploring the Future of Fintech with Latham & Watkins and ConsenSys
On 5 March 2020, KCL Blockchain had the honour of hosting two leading FinTech experts collaborating to offer complementary perspectives from their respective industries: Lex Sokolin, global fintech co-head at ConsenSys, and Sam Maxson, a fintech-focused capital markets associate at Latham & Watkins.
The event was prompted by the panellists’ firms’ collaboration on the automated convertible note, an OpenLaw-based document generator intended to provide customisable standard market terms along with tokenisation provisions in order to help start-ups raise capital. However, from this topic the discussion expanded/flowed into discussing fintech trends within venture capital, as well as the development of tokenised assets.
Kicking off was a presentation from Lex, who guided the audience through the growing presence of fintech in the venture capital (VC) sphere, pointing out that the former now represents 17% of the VC market (as opposed to just 5% in 2007). This development, he said, went from representing digital versions of verticals to full-out fintech market champions, such as Revolut, SoFi and Monzo, competing against established market players, including gargantuan financial services providers. Evidently, the tremors of disruption have been felt even by some of the biggest household names. Large banks are now starting to produce fintech offerings; take Goldman Sachs with their digital banking platform Marcus or NatWest with Mettle, a digital bank account for small and medium-sized businesses.
Lex went on to explain that the venture capital-generated investment being channelled into the industry was fuelling the customer-friendly modus operandi of most fintech start-ups. He cited Transferwise, an app that charges its users no commission, to show how the influx of venture capital funding was collapsing prices, allowing commission-free services. Business models are therefore maintained by a constant inflow of funding rather than actual value, which highlights an underlying problem in the market. The revenue-generating capacities of up-and-coming start-ups are being overvalued by the capital investing in them, whereas the dependence of those startups’ business models on that form of funding is eerily reminiscent of the state of the market prior to the dotcom bubble burst, when investor hype overshadowed caution, leading to internet-based companies being valued at a significantly higher level than they were actually worth.
Lex’s primary polemic, however, was directed at the lack of fintech solutions at the underlying level in financial services. While fintech solutions have been applied in terms of distribution and enabling software, manufacturing of financial products remains unaffected, constituting what Lex terms “the missing component”. The manufacturing level has not been unaffected in other industries, such as in music, where the manufacturing costs are almost non-existent as Lex pointed out, simultaneously proposing programmable blockchain networks for financial product manufacturing.
Taking the topic into a different stream, Sam Maxson delved into DeFi (Decentralised Finance), ICOs (Initial Coin Offerings) and token regulation. He presented a roadmap of the explosive growth of the tokenisation market since 2017 — “The year of the ICO” — linking it to the regulatory developments in the field. He spoke about the diluting of clear liability allocation in favour of lifecycle efficiency of tokenised products, as well as the taxonomy of tokenised assets and drew the audience’s attention to the Treasury Select Committee on ICOs, which has significantly informed regulatory policy on tokenisation.
The event was concluded by a Q & A segment in which the two panellists addressed questions from both the audience and the moderators. Sam, for example, was asked about Latham & Watkins’ strategic objective in working with the Global Legal Markup Language (GLML) consortium, which aims to economise the workflows of capital markets participants with automation technology (not unlike the automated convertible note). In response, Sam highlighted the firm’s growing fintech-related service offering and explained that the firm is at the forefront of the legal world in exploring the fintech space.
Representing another resounding success for KCL Blockchain, the event, owing to the two stellar speakers, left a lasting impression and presented first-hand insight into an evolving and expanding industry that is poised to claim a hegemonic role in financial markets.
