The Bridge Conference
[Recap] Avalanche: Predictions for Institutional Digital Asset Adoption in 2024 – Recorded at The Bridge
On November 3rd, 2023, John Wu (President at Ava Labs) and Morgan Krupetsky (Director of Business Development: Institutions and Capital Markets at Ava Labs) at The Tie's inaugural crypto corporate access event, The Bridge, to discuss the institutional adoption of digital assets on Avalanche.
The emergence of a network of blockchains via proliferation of subnets has always been the long-term vision of the Avalanche platform. At its core, Avalanche is an EVM-compatible but also VM-agnostic. Its subnet architecture aligns with the vision of scaling horizontally through many specialized blockchains, rather than a single monolithic chain for all use cases. Subnets can be optimized for different performance, compliance, and customization needs across verticals such as finance, supply chain, and gaming.
Their fireside chat covered the following key topics:
- Product-Market Fit of Enterprise Blockchains & Growing Interest in Digital Assets
- Impact of Institutional Adoption & Blockchain Beyond Cryptocurrency
- Innovative Applications in Loyalty Programs
- Shift from Marketing-Driven to Business-Driven Blockchain Initiatives
- DeFi with TradFi: Parallel Systems with Potential for Convergence
- Global Regulatory Landscape and the Importance of Sensible Regulation
Watch the full below:
Product-Market Fit of Enterprise Blockchains & Growing Interest in Digital Assets
John Wu began the fireside chat by highlighting the considerable product market fit of stablecoins and real world assets. The president of Ava Labs referred to a study by Brevan Howard Digital, revealing that the on-chain settlement of stablecoins nearly matched the Visa network's 2022 volume at approximately 11 trillion USD.
Ava Labs experienced a surge in interest from diverse companies aiming to create their own stablecoins and tokenized financial products. The rising enthusiasm among top executives for tokenization underscores the demand of blockchain-based solutions, especially for enhancing stability and efficiency in transactions. Infrastructure improvements over recent years facilitated greater adoption and functionality by supporting higher volumes and greater transaction complexity.
Impact of Institutional Adoption & Blockchain Beyond Cryptocurrency
There is optimism about the future of Bitcoin, especially with major institutions like BlackRock and Fidelity applied for Bitcoin Spot ETFs. This interest from established financial entities signifies Bitcoin’s maturing market and increased mainstream acceptance. The potential SEC approval of these ETFs could significantly broaden Bitcoin's user base, thereby increasing demand within its ecosystem and influencing its valuation and market dynamics.
Beyond Bitcoin, there is considerable excitement about the broader applications of blockchain technology, extending to realms like business operations. An illustrative example is PayPal's venture into stablecoins, aimed at streamlining internal transactions and creating an immutable record of user balances. Despite the efficiency improvements, the Securities and Exchange Commission (SEC) issued PayPal with a subpoena. PayPal’s case study not only highlights blockchain's potential in addressing real-world financial inefficiencies but also the regulatory challenges faced by companies venturing into this space.
Concurrently, enterprises and fintech companies are increasingly looking to blockchain technology to enhance user experiences and address pain points in legacy financial systems. However, upgrading these systems is complex and time-consuming, which is a challenge that Ava Labs and Avalanche ecosystem developers are actively addressing.
Innovative Applications in Loyalty Programs
Due to regulatory challenges in the U.S., many blockchain development and business opportunities are moving to Asia and Europe where clearer regulatory frameworks are emerging. A notable example of a growing regulated blockchain project in Asia is SK Planet’s loyalty reward program OKcashbag. OKcashbag users can use a shared pool of loyalty points among multiple merchants for new user experiences. For instance, one could earn loyalty points from a coffee shop and spend the points at a partner shoe store. SK Planet’s loyalty reward system offers a transformative approach compared to traditional models - where loyalty points are typically siloed within individual companies
SK Planet’s loyalty pool encompasses about 24 million people, roughly 40% of the country's population, and includes 100,000 unique merchants. OKcashbag is built on top of an Avalanche subnet and promises to facilitate seamless and efficient transactions across various merchants, enhancing the utility and flexibility for consumers.
Shift from Marketing-Driven to Business-Driven Blockchain Initiatives
Many enterprise Web 3.0 initiatives were previously driven by marketing departments to signal innovation and differentiation. Now, John argues, there's a shift towards using blockchain to solve real business problems and achieve tangible business outcomes. For example, blockchain is being explored as a solution to the challenge of data reacquisition in advertising. Traditional advertising models often require companies to repurchase customer data repeatedly. Blockchains can provide a transparent and efficient way to retain and manage this data, reducing costs and improving advertising effectiveness. The adoption of blockchain in advertising could challenge the current dominance of major players like Google and Facebook by offering a more decentralized and transparent approach to users data management. These developments suggest that blockchain is moving beyond its initial cryptocurrency-centric focus to become a versatile tool for addressing various enterprise challenges.
DeFi with TradFi: Parallel Systems with Potential for Convergence
John Wu expects DeFi and TradFi to continue operating as parallel systems, catering to distinct user bases in the shorter term. However, as DeFi appeals to a user base that prefers a do-it-yourself, tech-savvy approach, while TradFi serves those who favor a more traditional, white-glove service, he believes that over a longer timeframe, these systems will increasingly converge and potentially integrate with one another. John expects this distinction to persist, with each system catering to its respective audience. However, traditional financial institutions are increasingly exploring the use of blockchain technology for upgrading legacy systems and workflows. Ava Labs refers to this shift of traditional financial firms using blockchain rails “On-Fi” or on-chain finance, which involves using blockchain rails, smart contract logic, and decentralized applications to facilitate more efficient traditional asset trading. The adoption of On-Fi also opens up opportunities for developers to leverage the composability of open-source technology, creating innovative financial solutions that blend the strengths of both DeFi and TradFi.
Global Regulatory Landscape & The Importance of Sensible Regulation
John argues that there is a need for sensible regulation in the crypto space. Effective regulation is necessary to remove bad actors and maintain market integrity, which benefits the entire ecosystem.
Regulatory clarity and frameworks are evolving differently across regions:
- European Union: The EU is developing frameworks like MiCA (Markets in Crypto-Assets Regulation) to provide clear guidelines for crypto asset markets.
- Singapore: The implementation of regulatory sandboxes allows for innovation while maintaining regulatory oversight, encouraging experimentation in a controlled environment.
- Hong Kong: Moves towards more open retail trading in cryptocurrencies, indicating a more liberal stance compared to other regions.
The creation of networks like the Spruce Network, involving financial giants like T. Rowe Price, WisdomTree, and Wellington, demonstrates a proactive approach to testing blockchain technology. Spruce Network is a testnet environment that allows institutions to experiment with DeFi applications using valueless tokens, avoiding regulatory issues while testing the benefits of the technology's capabilities.
John also raised concerns about the potential offshoring of U.S jobs and innovation due to stringent regulations in some regions. He stressed the need to keep innovation and development onshore to maintain global leadership, particularly in sectors like Web3 and AI.
Watch the full replay below:
This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.
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