Blockchain Loses Silver-Bullet Status

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After a few years of struggling proofs-of-concept and vast expenditures of venture capital, blockchain has lost much of its promise, according to the authors of a recent note published by McKinsey & Company.

“Of the many use case, a large number are still at the idea stage, while others are in development but with no output,” wrote McKinsey’s Matt Higginson, Marie-Claude Nadeau, and Kausik Rajgopal in their note “Blockchain’s Ocaam Problem.”

Blockchain is at an inflection point between the initial pioneering phase’s early adopters and PoCs and the growth phase’s product standardization and enhancements, wrote the authors. However, despite the technology’s ability to remove intermediaries, store data, and provide greater coordination between counterparties, they have seen many PoCs failing to get to their Series C funding rounds.

Steve Grob, Fidessa

The fragmentation of available architectures is one of the highest hurdles is one of the most significant obstacles to adoption, Steve Grob, a director at Fidessa told Markets Media.

“It creates the problem that companies were trying to solve,” he said. “They have multiple different standards and still need intermediaries to bridge the gap between them.”

Additionally, implementing blockchain within the buy- and sell side’s post-trade operations, a typical sweet spot for the technology, raises more issues.

“It’s the buy side that drives what the sell side does,” said Grob. “If you take out the very largest buy sides, a very large percentage of them outsource all of their post-trade processes.
They wind up with a situation where the people they are trying to disintermediate with blockchain are the ones who need to adopt it.”

Grob also noted that the buy and sell sides cannot wait for the ten to 15 years for blockchain to solve the fundamental issues regarding decades-old batch-based processes.

“The need to get more efficient and more real-time is so strong that you do not need blockchain to solve that problem,” he said.

As an example, Fidessa is working with an unnamed asset manager to use the FIX messaging protocol to send allocations and confirmations to its clearing brokers who, in turn, can return confirmations.

However, blockchain has played a significant role in identifying back-office inefficiencies.

“You cannot put the genie back into the bottle,” said Grob. “It has helped to shine a light on the problem. We see that as a useful thing.”