While there has long been much discussion about the benefits of crypto and blockchain, too frequently, these comments ignore regulation and a need for a compliant environment that instills confidence from all sides of the equation. This has undermined the public perception of blockchain technology as a solution in search of a problem. But Apollo (NYSE: APO), a global asset manager with over $520 billion in AUM, recently revealed it is going to utilize blockchain technology for a new fund, and they are not the first company to go down this path.
The blockchain Apollo is using is Provenance which is now used to accomplish a growing number of financial tasks. Provenance is a public decentralized blockchain that is utilized by 60 financial firms -including Figure, which was the first company to start using the Provenance Blockchain for loan originations on its lending platform but has since expanded its services. Figure was started by perpetual entrepreneur Mike Cagney (think SoFi), who is focusing on more practical applications of letting blockchain reduce intrinsic friction that exists in big markets.
Cagney recently told Bloomberg:
“It’s the beginning of what we think will be a systemic trend of funds migrating onto the blockchain. It’s not crypto. It’s using blockchain as it was intended as a way to disintermediate marketplaces.”
If you read the Provenance website, the vision is clear. Tackling back office obstacles and removing cumbersome intermediaries by automating processes that take time – and a lot of money.
“Previously, private markers were associated with high costs and burdensome procedures, due to a paper-heavy process and the challenges of coordinating the multiple players and intermediaries involved in a trade transaction.
Additionally, smart contracts remove the need for expensive intermediaries throughout the life of the asset, intermediaries that would otherwise limit the lifetime affordability of the asset for many investor classes. Smart contracts automatically trigger based on rules established prior to the transfer of the asset.”
Instead of starting in the wild west world of retail crypto, Cagney is being smart and going after scale first in regulated markets. He is working with established financial services firms that understand basis points add up.
According to Provenance, private markets are also on the list, and releasing value from illiquid asset classes (like art, real estate, private equity etc.) is an enormous opportunity. Private markets are significant – and getting larger as public markets have earned a reputation as becoming more of an exit opportunity instead of an entry point.
So while much of the world is fixated on volatile crypto markets that incentivize trading, Provenance and Figure are tackling investing opportunities – both traditional and esoteric asset classes, all in a compliant manner – “radically transforming financial services.”