Crypto Startups Don’t Need Sandboxes, They Need Greenhouses

John Collins, is an affiliate at the Berkman Klein Center at Harvard University and former head of policy for crypto exchange Coinbase.

I’ve written before about how I believe regulatory “sandboxes” for financial services innovation serve a useful function and, in absence of federal action in the U.S., states should establish them.

Since that time Arizona passed legislation to establish a sandbox, other states are trying, and there are continuing and active discussions in my home state of Delaware around how to support financial services innovation.

During my testimony at a Maryland Financial Consumer Protection Commission hearing on cryptocurrency, I took the opportunity to give a plug for regulatory “sandboxes” because I think crypto and blockchain projects are excellent candidates for such programs.



With that in mind, I read with great interest a recent speech by Maria Vullo, the Superintendent of the New York Department of Financial Services.

She touched on a number of different topics across the financial services landscape (including the state’s BitLicense regulations) and the speech is largely a rebuke of the current administration, its policies, and its overall regulatory worldview. It’s an excellent and provocative speech and I urge everyone to read it.

However, one passage, in particular, caught my attention:
“There are those who argue that the mere utilization of financial technology alone somehow grants them an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers. I have been highly vocal on myriad fronts in my opposition to this view, which would permit any company that calls itself a fintech to engage in a form of regulatory arbitrage, either with no regulator or in a so-called sandbox.”

She followed with this memorable line:
“A sandbox is where toddlers play. Adults play by rules and if you engage in banking activities, that means you are responsibly regulated in order to protect the customers. Period.”


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I don’t disagree with the overall sentiment of Vullo’s statement (and should note than Jan Owen, head of the California Department of Business Oversight made a similar remark a few weeks later): the financial services industry is highly regulated for a reason, and the responsibilities of a financial services company should be higher than that of a photo-sharing app. (I stole this line from Circle co-founder Jeremy Allaire.)
Where I disagree with Vullo is in the representation of so-called “sandboxes” as a no-man’s land of unregulated financial services offerings and the companies who want to discuss new ways of testing financial technologies as “toddlers.”
No one serious is arguing for that type of construct — and if they are, they should stop. And while many of these companies have too many people riding scooters, they aren’t toddlers.

Her description of “sandboxes” sounds more like quicksand. It’s dangerous. In my view, it doesn’t accurately reflect what market participants need or desire — and it doesn’t accurately represent what governments are implementing around the world.

I’ve come to the conclusion that the term “sandboxes” is a bad one. It reinforces the visual that Vullo portrays in her speech and it portends a lack of seriousness that is needed when discussing about financial services.
I have stolen the term “Greenhouse” from Rob Morgan and my former colleagues at the American Bankers Association. I think it more accurately represents what is being attempted. Namely, it’s a place that financial technology solutions can be safely seeded, fed, and controlled.

Those that grow to potential are moved to the real world. Those that fail are filled in with new seeds. And the weeds are cut down.
Fundamentally, these greenhouses aim to relieve the tension between innovation and technology. As technology has (for the most part) finished its disruption of unregulated industries, it has now moved on to the regulated ones.

Testing is inherently necessary for the development of good technology. Disallowing it inhibits innovation, increases the chance of poor technology, and pushes innovators into gray areas that provide little or no transparency for regulators and makes fulfilling their mandate more difficult.
Rather than a “trust but verify” model whereby the regulator accepts an application, allows the business to operate, and checks compliance after operations begin, a greenhouse allows for the solution to be examined in real time.

A few months ago, the UK Financial Conduct Authority published a report detailing its “lessons learned” from experiences over the past several years.

There are certainly problems in the implementation and execution of such programs: Jackson Mueller of the Milken Institute has opined on some of these issues, which include: picking winners and losers, maintaining fairness, finding solutions that actually need such a construct in order to do testing, etc.

Primarily, however, it appears the exercise promotes a two-way conversation between regulators and industry, forces government to make guidance easier to find and understand, and helps companies lower the cost of compliance or quickly pivot away from solutions that might not work, avoiding the waste of time and precious investment dollars.
These are all things we should be promoting. No matter what we call it.


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Author: John Collins
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VeChain Arrives: What to Know About the $1.5 Billion Blockchain for Business

Yet another top-20 cryptocurrency has officially released live software.
As of 0:00 UTC Saturday, the first block on the VeChain blockchain, whose token supply is valued at $1.46 billion at writing, has been mined, marking a milestone for a project that aims to be among the first to convince enterprise businesses to adopt code tied to a crypto asset traded on a public market.

Seeking to address obstacles with public blockchains like ethereum and bitcoin (namely alleged governance inefficiencies, economic model issues and application design difficulties), the project also hopes to eclipse solutions like Hyperledger that have so far been the go-to platforms for business.

In short, founded by former CIO of Louis Vuitton China, Sunny Lu, VeChain hopes to be the first to put “real business” applications on a public blockchain.



“Right now, if we look at all the existing public blockchains, there is a common economic model which is from bitcoin that tries to motivate more people to join the network,” Lu explained.”The cost to use public blockchains is linked to the token valuation on the blockchain directly.

For the execution of more exotic blockchain features like smart contracts and decentralized applications, Lu argues this is a problem.

“It kind of generates a typical paradox which is, the more utility, the more use cases, the higher valuation of the token. It also means a higher cost to use the blockchain, and that means no one will use it anymore if the cost is too high.”

To solve this, VeChain uses a twin token system in which its VET asset functions as a store of value, and the VeThor token represents the underlying cost of using the blockchain. (The project is not alone in using such a system. Both Neo and Ontology also support twin tokens that seek to break up user behaviors.)

Still, another means by which VeChain has sought to differentiate is by emphasizing what Lu calls “ready to wear” software that reduces development time and costs.

“All of the public blockchains running in total decentralization mode are like naked blockchains to most enterprises,” Lu said. “Because it’s just open source for the core codes, if you want to build up an application, you’ve got to do everything by yourself starting from scratch.”


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But perhaps what distinguishes VeChain from its competitors is the extent to which enterprises are already said to be involved in that process. VeChain boasts partnerships with automobile manufacturers BMW and Groupe Renault, and global quality assurance and risk management company DNV GL.
Some partners, like DNV GL, have even taken on a more technical role in the project’s execution – specifically within its governance system, a key part of VeChain’s pitch to businesses.

Notably, the project uses a system called “proof-of-authority” (PoA) to govern how its blockchain rules can be altered, which Lu says offers enterprises “a balance between decentralization and centralization.”

VeChain is not the first project to attempt to walk this line.
EOS and Tron have also experimented with new governance models in which software users are positioned as “community members” that can use their tokens to elect delegates (nodes) to validate blocks.

In this way, VeChain’s consensus system has two components. The first, what Lu refers to as the “decentralized part,’ is that token holders have the ability to vote, and that the weight of their vote corresponds to the number of VET tokens they hold and whether or not they complete a KYC process.

Some token holders, like DNV GL, also run nodes, and to do so, must meet certain requirements.
“Every node will have specifications, not only about hardware, but about the security level and process, how to manage your nodes and your contribution to the VeChain community,” Lu told CoinDesk.

All voters use their “voting authority” to have a voice in decisions about technical modifications to the blockchain and to elect VeChain’s “Steering Committee.” This is what Lu calls “the centralized part,” which is the seven seat governing body of the VeChain foundation and its blockchain.

“Those seven seats of the committee, we will execute any decisions coming from the voting process, even including who should be next in the Steering Committee,” Lu said. “By doing that, you maintain the publicity or transparency of a decentralized part and also maintain the efficiency of a centralized part.”

So, while decentralization maximalists have been critical of the DPoS and PoA systems, businesses don’t seem to share their concerns.
Renato Grottola, senior vice president of digital transformation and M&A at DNV GL, told CoinDesk that he believes VeChain’s governance model represents “an optimal balance between centralization and decentralization, reducing uncertainty related to future developments.”

Likewise, Danny van de Griend, CEO of MustangChain, a startup which intends to use VeChain’s technology to create a more transparent equine industry with better data accessibility agrees.
“If you want to have it fully decentralized, it can become a mess,” he told CoinDesk. “You need a good balance between centralized and decentralized.”

De Griend continued:
You don’t have to think about the basics anymore. Those basic protocols are ready to be used, so you can think more now about, ‘What can I develop now for the stakeholders?'”
Grottola added that this makes it easy for DNV GL to develop supply chain-specific solutions,
“VeChain has been conceived as a platform; it combines blockchain technology with IoT and AI thus offering the possibility to develop supply chain solutions both at product/asset and enterprise level.”

But the launch Saturday won’t mark the end of VeChain’s development.
While Saturday marks the creation of the genesis block and the start of the generation of VeThor tokens, the blockchain won’t be fully functional for some time. Before the technology can be truly live, VeChain must migrate its tokens from the ethereum blockchain to its mainnet, a process scheduled for July.

Likewise, Lu acknowledges that mainnet launches, in which large sums of cryptocurrency are handled and transferred by developer teams, always come with risk.
“We have some enemies for sure,” Lu said. “People will try to attack.”

For this reason, he added that VeChain has enlisted several cybersecurity firms to conduct testing on its code prior to the launch. Likewise, the project has an “emergency response team” (ERT), which will “monitor the entire mainnet launch” to respond to issues.
According to Grottola, DNV GL is confident that VeChain’s measures will be sufficient to ensure a smooth launch.

“This is a normal practice in business, [but] not so common for crypto startups. That kind of structured approach has been one of the key criteria for choosing the VeChain initiative among other concurrent platforms,” he said.
Yet, partners are optimistic. Kurt Connolly, senior vice president of business development at sports and gambling platform Decent.Bet, which plans to use VeChain’s technology, said the company thinks the odds of a successful launch are in VeChain’s favor.

“We’re realists. We know that the next ‘perfect’ product launch will be the first ever ‘perfect’ product launch. There are always bugs to fix here or there.”



Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author: Annaliese Milano
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A Big Bet: Blockchain Tech Won’t Last Five Years

CoinDesk’s Consensus 2018, blockchain world’s biggest conference, has seen some interesting things up to now, among them an unexpected bet. Joseph Lubin, the founder of the Ethereum startup studio Consensys, and Jimmy Song, a partner at Blockchain Capital, a venture capital company, struck a handshake bet in front of an audience that blockchain technology won’t be around in five years.

Lubin bet Song “any amount of Bitcoin” – details to be sorted out on Twitter, they said – that five years in the future, blockchain will have entered the mainstream through undefined applications in businesses. Song took the bet.
As Quartz reports, Song argued that blockchain use in businesses could be replaced by other technologies to be more efficient: “You’re a hammer-thrower looking for nails at this point,” he said. “Blockchain is not this magical thing that you sprinkle blockchain dust over it and it’s okay.”


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Later, Song tweeted:
”Regarding my bet with Joe, I’ll have to think about this, but the thing he said right before he said “I’ll bet you any amount of bitcoin that you’re wrong” is “Assuming we can come up with a good standard” or something like that.”

The whole situation happened due to Amber Baldet, former blockchain program lead at JPMorgan, unveiling her new project, the dapp store Clovyr. She brought Song and Lubin onstage and asked Song what he thought about Clovyr. He simply replied, “I didn’t see anything other than buzzwords,” according to CoinDesk.

In his opinion, the reason to this was the “insurmountable disconnect” between centralized enterprises and decentralized applications – thus the magical blockchain dust comment.
In the following days, let’s watch Twitter closely to see the follow-up to this bet reportedly made in front of 2,500 people – it’s bound to become an interesting topic.


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!

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Author: Sead Fadilpasic
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