ConsenSys, the leading Ethereum software company that last year acquired Quorum from JPMorgan, announced on April 13 the close of a $65 million funding round.
The deal didn’t attract quite as much attention as the direct listing the next day of Coinbase. That established a market capitalization of $86 billion for the leading cryptocurrency exchange, founded just nine years ago.
But the investments of three quite different groups of backers in ConsenSys offer an intriguing hint of the potential convergence between decentralized finance (DeFi), run through applications created by crypto-natives on the world’s biggest programmable public blockchain, with the kind of enterprise-scale permissioned-blockchain infrastructure that the biggest firms of the established financial order require to shift their activity onto new rails.
JPMorgan, Mastercard and UBS invested alongside leading blockchain companies such as Protocol Labs, the Maker Foundation, Fenbushi, The LAO and Alameda Research.
Several funds invested with Ethereum-based stablecoins, DAI and USDC.
Additional financial investors, with no dog in the fight between the crypto revolutionaries and the established royalty of global finance, include CMT Digital, Greater Bay Area Homeland Development Fund, Quotidian Ventures and Liberty City Ventures.
They, presumably, believe there is big money to be made however that battle ends.
Crypto-native
Lex Sokolin, global fintech co-head at ConsenSys, tells Euromoney: “We are a very crypto-native company publicly, and focused on the adoption of the asset class to which we have enabled access for 3.5 million consumers through our MetaMask wallet, as well as for 150,000 developers to create apps through our Infura platform, and for the millions of developers who use Truffle to write smart contracts.
“But we also work on enabling software with leading participants in the established financial industry.”
As well as working with banks, ConsenSys has been retained to design protocols for central bank digital currency (CBDC) by six central banks from Europe to Asia in tests for both domestic and cross-border retail and wholesale CBDC.
Sokolin says: “There is still a big question on how CBDCs might interact with public blockchains. Public chains create safe and trusted transaction settlement, assuming adversarial relationships between users, which is not quite the same as the wholesale payments systems today used by central banks and big commercial and clearing banks, which require KYC/AML [know your customer and anti-money laundering regulations] and approval before use.”
He adds: “There are also geopolitical considerations here in defining reserve currency status, and it remains to be seen what currency that might be on programmable blockchains.”
The future
Summing up the variety of investors in the latest funding round as a signal of its openness both to the crypto-native and established financial worlds, Sokolin says: “We put this together with the simple idea that blockchain infrastructure is the future of financial services.”
Recent investments by corporate treasurers in bitcoin may be a watershed moment in which large receivers of payments and their individual customers show a determination to have payment in crypto accepted.
One reason why JPMorgan sold Quorum, the permissioned variant of the Ethereum blockchain on which it developed the Interbank Information Network (IIN), to ConsenSys last year was the realization that other large banks might adopt transformative payments technology from an independent third-party provider but not from a rival bank.
This investment underscores our commitment to working with fintechs and the broader tech ecosystem to shape the future of banking
Mike Dargan, UBS
Mike Dargan, head of group technology at UBS, says of its participation in the funding round: “Our investment in ConsenSys adds proven expertise in distributed-ledger technology to our UBS Next portfolio. This investment underscores our commitment to working with fintechs and the broader tech ecosystem to shape the future of banking for the benefits of our clients.”
Raj Dhamodharan, executive vice-president of digital asset and blockchain products and partnerships at Mastercard, says: “Enterprise Ethereum is a key infrastructure on which we and our partners are building payment and non-payment applications to power the future of commerce. We are delivering on our multi-rail strategy focusing on digital currencies, including our work supporting central banks as they explore CBDCs.”
All discussions on blockchain technology in banking and payments before long circle back to CBDC.
Darling
Are the world’s central banks, who were so hostile when Facebook unveiled its Libra stablecoin, now endorsing the technology of the revolutionaries?
Central banks from France to Thailand and from Hong Kong to Australia are turning to ConsenSys to help them adapt it. And ConsenSys is a darling of the crypto crowd.
Juan Benet, founder of Protocol Labs, says: “ConsenSys was one of the earliest organizations to make a huge bet on the future of the decentralized web. They supported hundreds of brilliant early visionaries to build entirely new classes of software and infrastructure that are now redefining some of our most important institutions. The ConsenSys team is going to play a huge role bringing web3 to its next billion users.”
When you put all that new payments and wealth management and lending software into an open-source ecosystem on a programmable blockchain, that’s like building a completely new economy
Lex Sokolin, ConsenSys
Sokolin doesn’t quite see ConsenSys’s work with central banks as an endorsement though.
He says: “If the SEC or the FCA regulate a business, they are not endorsing it. They just want to make sure it follows the law, which is hardly in itself a virtue. However, all the debates about the appropriate infrastructure for CBDCs are creating an air of inevitability about the digital future of finance.”
New payments technology has been core to many innovative and growing new businesses. When we all start riding around in Ubers again – instead of having them deliver our takeaway food – no one will be paying in cash; rather it will be PayPal and Stripe.
Sokolin says: “Part of the growth in decentralized finance has been driven by reward incentives, for example in additional accrued interest paid in tokens of certain trading platforms to market makers. But beyond that, software grows in one direction. There’s more and more of it.
“And when you put all that new payments and wealth management and lending software into an open-source ecosystem on a programmable blockchain, that’s like building a completely new economy.”
