Clean waters of Tgrade
The old expression “Nobody gets fired for buying IBM” is well known in enterprise culture and refers to buying from the big companies and not taking a risk on the newer, perhaps more innovative companies. What has this got to do with blockchain? Blockchain is decentralised and not some fusty old corporate.
There has been a gradual move into the blockchain space by the institutions, first buying Bitcoin and then into institutional DeFi, and are now either researching or building on the public networks.
There are hundreds of level one blockchains out there; which ones do the enterprises look at? How are the public chains evaluated?
Everyone knows about Ethereum, and there is even an enterprise version for those organisations who are yet to be convinced about public blockchains. Given the limitations and throughput of Ethereum, there are credible EVM level two chains that address the issues of speed and finality seen in Ethereum. In addition, the ambitious roadmap for Ethereum is for big improvements to speed through sharding and a new smart contract engine build, which began with the move to Proof of Stake from Proof of Work.
The other smart contract-enabled chains which are of interest to institutions include Polkadot, NEAR, Solana, and Avalanche, with the latter two pitching at speed to compare with the traditional markets. All of these blockchains are in the top 20 by market capitalisation.
Market capitalisation is important to ensure a blockchain’s security and an indication of interest in a project.
How does a chain reach a big market capitalisation? There needs to be a clear demand for the token, and in the crypto space this can be generated by building hype in the channels where the crypto retail investors are active, and the hype can be further heightened by airdrops or some juicy APYs for delegating in Proof of Stake chains. The smart contract-enabled chains facilitate the creation of tokens for use in DeFi or marketplaces around the issuance and trading of NFTs. Some of the DeFi projects allow huge leverage of positions and often lead to retail investors losing their shirts and limping away, and in the period from 2020 to the spring of 2021, these investors were quickly replaced by others who had heard about the stellar returns in crypto. There are also big grant programs from the foundations behind the bigger chains that can use their treasury to attract the dApp/Web3 builders to build and thus increase the activity on the chain.
What are the foundations of these chains? When you take a step back and take a look at a wall of money that has gone in, with some very minimal onboarding checks in some cases. There are some very unsavoury centralised exchanges that allow people to buy tokens listed in obscure jurisdictions. The image of a stagnant body of water springs to mind; it is water, probably not toxic but just a little unsavoury and slightly smelly.
It is into this that institutions and enterprises keen to embrace the innovation of DeFi, NFTs, and the metaverse jump. There is some retrofitting of the structures needed to make them compliant such as whitelisted protocols for institutions, but there is a lingering smell.
We know regulations are coming, and more scrutiny will be directed at the infrastructure that underpins the chain. There has been public commentary in the USA on whether the native tokens are securities under the Howey Test and whether they fall under Common enterprise. What is the legal foundation behind the blockchain, and importantly under what jurisdiction? How centralised is a blockchain, who has voting rights, and are there big blocks of tokens held by the founders?
Are the major chains “too big to fail” and will not be as heavily scrutinised by the regulators, or will the regulators act on these to set an example to others like the ongoing Ripple vs. SEC dispute?
Is the strategy build fast and ask forgiveness later the route to build a large chain?
Tgrade has been built with a lot of thought around the needs of an enterprise, an eye on pending legislation, and anticipating what questions may be asked by regulators in the future.
Stichting Ocean Blue, incorporated in Amsterdam, Netherlands, is the legal entity behind Tgrade. There is a written constitution for Tgrade which sets out the rules, who has authority, and how it is derived. A lot of work was done at the consensus layer to address the issues we found in Proof of Stake, which we implemented as Proof of Engagement. We opted not to include delegators, thus making validators principals and not agents. The layers make a very robust chain and make us confident that the value of the assets issued on Tgrade can far exceed the market capitalisation.
What if an enterprise were to issue a €500m corporate bond with an ESG element and the primary issuance was in a Trusted Circle with the purchasers being onboarded through the normal compliance checks? What does the chain liquidity or market capital matter? Say the institution issued further products to the same institutions that are members of the Trusted Circles; then the liquidity is determined by the members and not the general token holders.
There could be a case where a less ethical Trusted Circle is set up on Tgrade and perhaps has a very light onboarding process. Using the water analogy, the waters of Tgrade remain crystal clear, even if there are some containers floating in the waters that are dirty and have no impact on the others in the water as they are self-contained.
The structure, setup, and regulatory compliance should be of more importance than the market capitalisation or liquidity of the native token.