[Podcast player below]
In part 1 of this wide ranging interview Anton Golub discusses why the world needs Lykke, the truth about financial regulators and why only 1% Initial Coin Offerings (ICO’s) they assess make it onto the exchange.
Anton Golub: The core vision of Lykke is the vision of Richard Wilson, the founder of Lykke. I am a cofounder. I met him seven years ago when I joined him for an internship.
I sat down to eat my croissant and he sat down next to me and said: “Anton, we have to completely change the financial system. It totally doesn’t work. Everything is broken inside.”
I was listening to him and I was 23. I thought to myself, “what is this guy talking about?” He was running this big hedge fund and he was saying, “We need to change the financial system and how it works. It is broken, there are are lots of inefficiencies, it doesn’t work and it actually brings a lot of unfairness to the whole population.”
Later on I joined Richard to work for Richard as a high-frequency trader and he always said we would have to go to then banks and change the system. Then in 2013 I was living in Geneva and he calls me and says: “Anton, all this stuff I have been terrorising you with for the last couple of years… we can fix everything. And the magic is that the technology already exists!”
Then he told me, “There is this thing called the blockchain and on top of it you have bitcoin. You ever heard of bitcoin?” I said yeah, I heard of this stuff.
Then he told me, “Anton, blockchain is just a settlement system. You know, how you actually swap the assets among people. Then he explained how you actually map all the assets to the blockchain…. you know you can put all the assets in the word on the blockchain.
The next step was to start Lykke but the problem was that it was too early. Banks had no idea what the significance of the blockchain could be. Instead Wilson and Golub approached friends and family for start-up capital.
Anton Golub: Then we said, lets build a global market place on top of the blockchain where you can put any asset and exchange it against any asset, and where I say asset, I literally mean anything.
This could be music rights, shares, tokens, anything you can imagine, lets do it. The whole goal was to create an application that everyone can access on the smartphone. Then blockchain technology, used by Lykke, will give you the same power as a bank on your cellphone.
So you have the power of a bank in your Lykke wallet and we will take care of it in the background using this ultra efficient technology called the blockchain. This is our goal. This is what we want to do.
Pioneering ICO’s
Anton Golub: We were the first company that put shares on the blockchain and raised capital. So we were the first company that did an ICO selling actual shares. A couple of years ago I did not believe that this was possible. Then a Swiss law professor from Bern showed me a paragraph in the Swiss law that actually showed that we can put shares on the blockchain.
Regulators and the regulatory framework
Anton Golub: From day 1 we said if we want this company to be a success you cannot go against the regulator and the government, it just doesn’t work. I have personally been with Richard to the Swiss National Bank, the Bank of England, the Federal Reserve, UNSCC, you name it, we have been there.
We have always said that we want o be regulated everywhere and that we have to take care of that part for the community. Lykke will get very soon a first ever broker license for a trading venue on the blockchain.
When we went o the Bank of England Richard presented what is the blockchain and how it works. There was a slide in the presentation with the text that says: “Blockchain is the greatest discovery since the introduction of double entry bookkeeping” Then 3 months later the bank of England issues a report and what he told them, that is what they wrote in the report!
The regulators get it! They are really smart and they get it. They seat, they understand it, it is just that nobody wants to…. well, some body said yes to credit default swaps, somebody said yes to collateralised debt obligations and then when it went bad everyone said, “Okay, who was the genius who said they see no diversified risk?”
When you go to talk to them [regulators] the wounds from 2008 are still fresh. They are scared… either way, something bad will happen because it is normal. They just want to be, slow and document everything. But, they completely get it.
If anyone ever tells you the regulators don't want to work, that means they have never been to the regulator.
Regulators in China?
Anton Golub: They are trying to protect the end user. If you go the regulator they will tell you: “If a hedge fund loses money, I do not care but if a retail investor loses 1 franc then we are trouble. So they are now actually trying to protect the end users who are throwing money at these ICO’s which, unfortunately, a big chunk are almost a scam. You look at them and you say, “this is like a joke!”.
The hype is there, the mania… the tulip mania is there. They say, I don’t get it but I want the 50x multiple return. I tell them that is not the way but they reply that they don’t care. They see everyone else making money and they want to make money too.
So they are trying to protect the end user because the end user is going to lose money when it pops and will pop anyway. Its is like the dot com bubble, the tulip mania, it will pop like that.
I am surprised that China took the lead because when you go to the UNSCC they issue directives and then everyone else says “we will follow these directives”. They will not let anyone see a loss. In the end they will call an exchange an exchange and everyone will have to get a license.
Switzerland was smart about that because they always took new technology with regards to bitcoin and blockchain and then they put it in an existing framework. That is what everybody is going to do.
So, ICO’s are going to be declared IPO’s, or the equivalent of a private placement. Tokens will be declared financial securities. When I spoke to my friends they said that Bitcoin will get a pass, that it is not a financial security. Ethereum will maybe get a pass because Ethereum because it is a nonprofit foundation here in Switzerland. Everything else will be declared a security.
Then they will say, “This is not a token, this is not a coin, this is a financial security. Who are your investors?” The if you say “Ah, it is an address on the blockchain.” You are done!
Then they will come to the exchange and say “Who are your customers? They will say “it is an address on the blockchain!” No, you have to do KYC [Know Your Customer] and they will shut them down.
In the US Bitcoin is already considered e-money or digital money because in the US you already have a money transmittal license and Bitcoin already falls under that.
Does Lykke list ICO tokens?
Anton Golub: Yes. On our site, because we are so strict with regulation we tell people we will not list network participation tokens.
Nick Breeze: I want to ask you about your criteria. How do you evaluate a token?
Anton Golub: We have a so-called ICO platform, so it is really streamlined, like when you book a flat on AirBNB, we want to do the same thing for ICO’s. They have to do due diligence. Then our legal team has to evaluate them to check the legal structure is correct. This cuts 99% of the companies or ideas. The we look at the white paper or the business plan. All the things have to be in order.
From a regulative point of view you have to have the financials which 99% of them don’t have. There has to be an explanation. There has to be a prototype or a product. There has to be a super strong team, not some random guys falling out of nowhere. If that happens then we say okay, this is a good project for us. I can tell you on one hand how many companies pass that.
Then it is marketing. Today, you don't do roadshows, you do digital marketing because you are accessing the whole globe. Blockchain is a global platform. So they have to do digital marketing and on our side we run KYC on all our clients and if new investors come in, we vet them. If they come up with more than twenty thousand then it is called a “source of balance”, they have to prove how they got the money.
Unfortunately when you speak to half the people, you just have to cut 99% because there are so many holes. They are not serious. If I show up in front of a regulator and they say “what was this funny thing that you put [on your exchange]?” It would destroy me.
That is why a lot of these exchanges will either have to kick out all the tokens which means the price will go to zero, because they will not be anywhere. There will be no market. We don’t want to take that path.
Nick Breeze: You don’t think that as time goes on and things become more organised that some of the ICO’s will be successful?
Anton Golub: Oh now, with a couple of ICO’s that we have in the pipeline, these are amazing. With products, with signed contracts, with amazing reputation. I don’t run the ICO’s.
There is 100 people working for Lykke. We are unofficially the largest blockchain company if you exclude R3 which is a consultancy. So there is a team who does that and we have a couple of ICO’s in the pipeline where you look at it and you say “this is amazing!”
But ICO done the right way is not easy. It is hard and it takes a couple of months to get it done.
Stop in edit at 14:40
Nick Breeze: How do you expect Lykke or other aspects of the blockchain to evolve? Do you see it clearly or are you constantly surprised by developments?
Anton Golub: Lets take a step back and say that blockchain is by far the greatest innovation you will see in your lifetime. I am dead serious about this.
It just takes time to get it done. It is like the internet you know, it took a long time to make it work like it works today. This is the same thing with the blockchain. Just like the internet completely transformed how we exchange information, blockchain will completely change how we exchange assets.
The business models and ideas that will come out of this now are not even obvious. Just like Instagram was not obvious in ’96.
Lykke wants to be the global marketplace for all assets.The internet is the global publishing platform. Lykke will be the global asset platform.
[End of part 1]
In part 2 we discuss the likelihood of a cryptocurrency and token crash, as well as what could come next? Could the blockchain revolutionise human civilisation beyond any technological revolution we have seen before?