The State of Blockchains Q1 2018

The State of Blockchains
Q1 2018
Lead Analyst: Joel John
Contributors: Shaquile Noor, Geoff LeFevre, Ana-Maria Yanakieva
Head of Research: Lawrence Lundy-Bryan

Outlier Ventures proprietary information
This research is private and confidential and has been provided to you to help build knowledge and understanding in the emerging
blockchain and DLT space. This information is provided ‘off the record’ and we would appreciate it if this content is not quoted directly.
We would be glad to prepare comment for publication, please contact Lawrence Lundy or Charlotte Baker using the details below.
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About Outlier Ventures
Outlier Ventures was launched in 2014 as the first European VC focused on blockchain technologies. Now, with a team of
30, they help pre-seed and seed stage startups navigate the emerging token space. Their venture platform which includes
academic and corporate partners, offers strategic guidance on token design, their underlying economics, compliance, as
well as marketing and technical development.
Their investment philosophy is based on the convergence of decentralised technologies like blockchains and distributed
ledgers with ‘deep tech’ such as artificial intelligence, robotics, the Internet of Things, and 3D printing primarily within the
Industry 4.0, Smart Cities and Mobility markets.
Portfolio companies include IOTA, Botanic Technologies / Seed Token, Fetch.ai, Evernym / Sovrin Foundation as well as a
number of further planned ambitious investments as well as strategic partnerships with their corporate and academic
network.

Disclaimer
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company registration number 10722638. Outlier Ventures Operations Ltd is an appointed representative of Sapia Partners LLP (“Sapia”) which is authorised and regulated by the
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Contents
Executive Summary 6-9
1.1 Startup Numbers 10-14
1.2 Startup Trends 15-20
1.3 Startup Insights 21-24
2.1 Corporate Numbers 26-29
2.2 Corporate Trends 30-33
2.3 Corporate Insights 34-38
3.1 Government & Regulation Numbers 39-41
3.2 Government & Regulation Trends 42-44
3.3 Government & Regulation Insights 45-47

Executive Summary
The first quarter in 2018 started on a market “dip” for the token economy as prices began falling after three quarters of constant upticks.
However, there has been no slump in activity around the ecosystem more broadly. Prices appear to be a weak indicator of the health of
the blockchain industry.
1. Token Prices Do Not Reflect Market Interest
Although token prices plummeted during Q1 2017, there has been more enterprise announcements and regulatory notices
issued than ever before. While token prices are often a reflection of the market’s sentiments, they do not make good indicators
of traction obtained by blockchain based projects.
2. Regulators Are Watching
Regulators around the world are stepping efforts to understand, engage and in some cases police crypto markets with vastly
different approaches market to market. While the US began a process of data collection by subpoena (primarily of exchanges) its
leading VCs began lobbying for safe harbours in response to the growing competitive threat of an increasingly proactive EU. This
includes the UK setting up a Crypto Assets Task Force, France proposing opt-in oversight in concert with positive moves from
smaller members like Estonia, Gibraltar, Malta & Switzerland. While this is inline with regions like Japan and South Korea, India
follows China in a more competitive stance with exchanges.The challenge every regulator is grabbling with is how to prevent
consumer and investor harm without stifling innovation too much. It is a fine line indeed.
3. Token Sales Reach New Highs
Token sales have collectively raised over $3.2 billion in Q1 2018 alone. This is over 150 times the amount raised during the same
period in 2017. As markets recover from the ongoing slump in token prices, one could argue that capital might not dry for token
sales in the near future. However, there is a clear trend of investors backing projects that raise larger amounts ($10-$50 million)
and have reached a certain level of project maturity. If trends continue, capital allocation within the industry would become far
more efficient in the near future.

Startup Ecosystem
Startups and small enterprises have been the key reason for the growth of the blockchain ecosystem long before enterprises and
governments took note. As the space continues to evolve, changing trends in their funding have become largely evident.
1. Larger Fundraises Have Begun
The past quarter witnessed multiple Series B raises in the $40 million+ range. Basecoin’s latest raise of $133 million from private
investors signal the competition and interest the sector has begun attracting. Large raises are no longer lead by token sales
alone. Venture capitalists have increased their risk appetite and cheque sizes for the space.
2. Mergers and Acquisition Season Is Here
As firms with a clear leadership positions in different sectors raise larger rounds, we will see them acquiring smaller competitors
or strategic partners en mass. This provides exit routes for investors and start-ups that began their raise and operations between
2012 and 2015. Larger exits for earlier investors would also mean fresh capital to be re-invested into a new batch of companies in
the ecosystem. Earn and Poloniex being acquired for $120 million and $400 million respectively mark the largest exits in the
ecosystem to date.
3. Venture Capital Is Here To Stay
As market evolves claims tokenisation would kill off VCs seem unfounded. As projects look to raise funding prior to a working
product which can demonstrate utility they raise SAFTs from accredited investors who assume execution risk. In addition, venture
capitalists have now become the earliest backers for token based projects. This would mean, while there is competition from
token oriented syndicates that provide capital, there is no alternative yet for the expertise and networks venture capitals provide
startups. IDG Ventures, Andreessen Horowitz and Union Square ventures have been leading investments in the space. Often,
directly through tokens.

Corporate Ecosystem
Corporate interest in the space has evolved from purely creating proofs of concepts to tinkering with tokens and deploying full fledged
products. For the moment, Blockchains as a service - also known as BaaS after software-as-a-service (SaaS), platform-as-a-service (PaaS),
and infrastructure-as-a-service (IaaS) - leads the crowd though.
1. Tokenizing Is On The Rise
Enterprises have begun embracing tokens and actively investing or collaborating with token based projects. A handful of
enterprises have also announced the intention of issuing their own tokens in the near future. Enterprise interest in tokens issued
by smaller organizations would help larger players avoid being completely disrupted by a decentralised competitor while
enabling faster growth and network access for token based projects. For instance, Bosch invested in IOTA. We are aware of
similar moves occurring across different stages of a token’s issuance including pre-sales.
2. Proof Of Concepts Have Evolved And Are Now Deploying
Blockchains are no longer a fancy term being used by enterprises. They are actively being leveraged by enterprises to obtain
operational efficiency. Ranging from Salon Media to IBM, the applications of blockchain have become far and wide. Australian
stock exchange made headlines in being the first exchange to replace its legacy system with trade settlements made on a
private, permissioned blockchain.
3. BaaS Wars Continue
With Baidu, Google and Mastercard entering the space, it may not be long before cloud services providers compete in terms of
pricing and grants for developers with the intent of acquiring a user base. While bulk of the cloud oriented blockchain as a
service providers focus on enterprise and government clients, a handful of them (eg: Mastercard) would have to rely upon niche
crowds building application specific blockchains for the purpose of obtaining scale and traction.

Government & Regulatory Ecosystem
Regulatory bodies around the globe have been proactively involved with the token markets since the run up of 2017. Tokens have
become both an economic boon and a key cause for concern in regions around the globe.
1. Governments Have Embraced Blockchains But Not Tokens
A large number of nations around the world have become proactive proponents of private, permissioned blockchains used in
controlled environments. However, their approach to tokens have been largely the opposite. This stems from wanting the
technological advantages blockchains provide to their constituency while avoiding concerns of capital flight from their region.
2. Regulatory Sandbox Environments are On The Rise
In response to the fast moving nature of the token economy, governments have begun setting up regulatory sandboxes in which
projects can raise funds, issue tokens and test early implementations of their projects. These ecosystems provide entrepreneurs a
safe environment to build a project while allowing regulators to closely monitor the growth and risk involved in the business.
3. Tokens May Soon Become A Part Of Monetary Policy
Q1 2018 witnessed Russia and Venezuela announcing the issuance of crypto-tokens as a mechanism to circumvent UN sanctions
on the regions. In response to the same, the white-house issued a notice forbidding any American citizens from partaking in
Venezuela’s token sales. Going forward, we might see an increasing number of tokenized, government backed projects. The
Singapore government has already been testing the issuance of a digital fiat on a blockchain ledger.
4. IMF And G20 Sense No Risk
The G20’s FSB issued a statement suggesting that the token economy accounts for less than 1 percent of global GDP and hold
no systemic risk for the stability of the global economy. The IMF’s Christine Lagarde recently stated that financial institutions
should seek to leverage blockchains for faster settlements and transparency between organizations going forward. There have
been no outright concerns issued by either organizations for the moment.

VC funding has not dramatically reduced
● Venture capital deals in the
ecosystem have not drastically
reduced with the rise of token
sales.
● It has become common for
venture capital money to be the
first in for startups that
eventually do a token sale.
Traditional startups with equity
investors have begun “pivoting”
to a token model. Tokenization
is here to stay.
● Blockchain projects from
2013-2015 have begun raising
larger series A and Series B
rounds more recently.
● While 2018 (YTD) may have
been a bad year for token
markets, equity deals have not
taken a slump. The year might
see more in dollar terms raised
for blockchain projects than
2017.

● Token sales raised over 150 times
in Q1 2018 vs what they did for
the same period in 2017
● Although the total dollar amount
raised across all token sales in Q1
2018 has seen a surge when
compared to Q4 2017, from a Q to
Q perspective, growth has begun
slumping in token sales
● Reasons include increased
regulatory scrutiny, sustained
slump in token prices and reduced
number of “flip trades” where
investors buy a token at its token
generation event (TGE) and exit at
a multiple on exchange listing.
● The amount of funds raised in
token sales for blockchain startups
was 6 times the amount of money
raised through VC. 2018 might see
a larger disparity with 3.2 billion
dollars already raised in token
sales.
But over $3.2 billion has already been raised
through token sales
Note : Data does not include Telegram’s raise

● The year is set to be one of
mergers as larger firms acquire
smaller ones to maintain
market share and expand their
access to markets. Increased
regulations in the space may
have a role to play
● 2018 witnessed the largest
acquisition of a token oriented
firm with Circle acquiring
Poloniex for over $400 million.
● Large ticket exits for investors
that put money in 2013-2015
would mean fresh capital for
reinvesting into new projects.
● Coincheck’s acquisition by
Monex Group - A firm
engaged in online securities
trading indicates the
beginning of firms specialising
in legacy markets entering the
token ecosystem.
2018 looks to be the year of M&A

● There has been a slump in the
average raise made through tokens
over the course of the past 6
months. Partly stemming from
regulatory scrutiny and the
reduction in token prices since ATH
in December.
● The frequency of startups that fail
to hit their targets has increased.
This is due to spikes in the legal
and marketing costs involved in
token sales. Social media platforms
banning advertisements related to
token sales have had a direct
impact on the average raise.
● Frequency of startups doing raises
between $25-$50 million has
surged. The total amount raised
per quarter has been increasing
due to a number of token sales
raising over $100 million in the past
few months
The average size of token raises is falling

● The number of token sales raising upto 10 million has
decreased from a high of 144 in October 2017 to a low of 18
in February. Token sales are no longer a “cheap” mechanism
of fundraising.
● Between $10-$50 million has emerged as the “sweet spot”
where most token sales have been occurring. At this range,
the effort ande expenses incurred in a token sale are
recovered from funds raised.
● As enterprises enter the space and ‘security tokens” come
into the foray with regulatory clarity, we might see more token
sales occuring in the $100 million+ range
But fewer projects are raising more

Q1 saw a dip in token prices and heightened
volatility

January
● Coinmarketcap excluded
some Korean exchanges
from its data
● Rumours of ban on
exchanges in Korea and
China (intentions reported
by Bloomberg)
● Chinese New Year
Celebrations
March
● SEC and exchanges: all exchanges
listing security tokens must register
as national stock exchanges
● Hack of a trading bot (using an API)
affected Viacoin’s price on Binance
● Trustee of Mt. Gox announced a
sale of Bitcoin and Bitcoin Cash
● Google and Twitter banned all
advertising related to crypto and
token sales
● Anticipation of G20
A series of rumours and events dictated the bearish market of Q1 resulting in new year-to-date lows and the usual
volatility. Some coins like Ripple, Cardano and NEM were more affected than others like NEO and EOS.
There were lots of possible reasons for the dip
February
● Correlated movement of
DJIA and Bitcoin price
● China blocked access to all
foreign exchanges

Token sales are no longer considered “effective” for the sole purpose of crowdfunding from
individuals that believe in a product. The amount of effort and sophistication that token
sales require have inched closer to those required by an IPO. There are a number of
contributors to the same.
● Limited Talent Pool Would Mean Higher Payments And Lower Retention
There is a dearth of developer talent for projects focused on decentralised systems.
The amount of time taken in re-skilling traditionally employed engineers might be
affecting the time taken for products to go to market. Projects have begun
compensating developers in tokens of the project with vesting periods to ensure
longer retention of team members
● Increased Marketing Costs Due to Limitations On Social Media Ads
Tokenized projects can no longer rely upon traditional channels such as Instagram,
Facebook or Twitter to reach out to potential investors due to bans issued by the
social media platforms. The reduced access to social media based marketing outlets
has converted to a bidding war on exposure from influencers. “Advisors” are
routinely rewarded heavily in tokens for speaking about projects through their social
media channels.
Token sales are no longer a ‘cheap’ way to raise
money

● Airdrops And Bounty Systems Lead Alternatives
Teams have begun looking at alternative mechanisms for community building. Cost
effective methods of using network effects to build a community are enabled
through the aligned incentives tokens offer. 2 key themes in this regard are:
■ Air Drops: Individuals or enterprises that meet a certain parameter
(proven users, PoC participants, etc) are rewarded tokens in exchange
for proactively taking part in the network’s growth. Generally
information is required from the potential receiver to comply with
AML/KYC standards. Some regulators are grappling with information
being provided by the receiver with respect to securities laws.
■ Bounties: Much like bounties are granted in the developer community
for finding bugs, teams and local communities are rewarded in tokens
for organizing meetups and generating awareness amongst remotely
distributed communities. Platforms like Bounty0x enable tokens to set
up bounties and track them with relative ease
● The total cost for an average token sale can be over $500,000 spent on marketing,
legal counsel, company set-up and smart contract audits alone.
Airdrops and bounties are being explored as an
alternative to selling tokens to the public

How Do TCRs Function
● An actor seeking to join the vetted “list” would provide details
regarding themselves to a proposal on a blockchain. There would be a
fee involved in making the proposal in the native token used within
the ecosystem. The purpose of the fee would be to dissuade
spammers and incentivise those vetting the details provided by the
entity seeking to join the list.
● Individuals with vested interests in the network (eg: Token holders
with high stakes) provide “human” intelligence to the list through
doing due diligence on the proposal and voting upon the acceptance
of those added to the list. They receive tokens that were paid as fees
in the proposal as an incentive for doing so.
● In the case that the proposal is rejected, tokens are not refunded to
the entity making an application to the network. They may however
choose to re-apply as many times as they wish to.
Image: Workflow of a TCR in Adchain
The rise of Token Curated Registries (TCRs) as a
first token-based business model
Definition: A token curated registry is a manually curated list of “good” actors in a network that is created with the help of proof of stake based
verification
Why : A TCR ensures those vetting new additions to a network have the right incentives in accepting or denying access to new players.
When: A TCR is used in cases where large scale implementation of human intelligence is needed to curate and prune entities engaging with a
network.

Why: The token system is seeking for censorship resistant alternatives for the trading and exchange of token as the cost and delays in listing on
token exchanges have surged substantially. In addition, regulatory uncertainty around the nature of tokens (utility vs security) and legalities around
them has pushed the ecosystem to seek a distributed alternative that is not within government scrutiny. In addition, decentralised exchanges offer
additional accessibility independent of geography, security (as tokens are not usually centrally stored) and reduced occurances of market
manipulation.
How: Barring P2P exchanges involving fiat (eg: Local Bitcoins), most decentralised exchanges do not have central custody of the tokens used for an
exchange. Individuals identify themselves with a private key and transfer coins as and when needed. Orderbooks are currently managed off-chain
in most cases to avoid bloating blockchains.
Where: Decentralised exchanges (DEX) are currently in the earliest stages of their inception. They handle less than 1 percent of daily volumes of
global token exchanges currently. There are concerns regarding scalability, settlement times and liquidity in these exchanges. Flash crashes and fat
finger orders are common in these exchanges currently. 0x and Kyber’s prominence in the next 2 quarters might change the situation.
Decentralised Exchanges are slowly being
integrated into the ecosystem

Alternative Consensus Mechanisms are emerging to support ledger and market layer incentive structures for tokenised communities. As new
consensus mechanisms continue to emerge, understanding how consensus is reached, the trade-offs, and the underlying architecture of the
mechanism is critical for evaluation and future development.
● Proof-of-X protocols: Is a new class for consensus mechanisms that helps frame how the mechanism replaces wasteful work with more
useful work specific to the protocol. These protocols are being organised around the two broad patterns.
○ Curation: Token Curated Registries (TCR’s) and Stake Machines (Proof of Stake (PoS), Leased Proof of Stake and Delegated Proof
of Stake)
○ Proof of Compute Work: includes general Proof of Work ( PoW), Proof of Space Time, Proof of Replication, Subjective Proof of
Work.
● Architecture: New chain architectures are emerging that build off the original single chain structure. Single chain structures allow for only
one block and one chain to be mined concurrently. Although this is the most secure, performance is limited. New architectures seek to
improve performance while retaining key safety qualities of single chain architectures. Some new recent architectures include:
○ DAG (Directed Acyclical Graphs) : IOTA operates a DAG
○ DAG Block-lattice: NANO operates a DAG block lattice
● Trade-offs: Emerging protocols are offering different baskets of utility, and experimenting with the tradeoffs between safety, performance
and energy use. The most notable trade-offs are between performance and safety of the chain. Generally the more energy consumed the
more secure the network is and/or the higher the performance. Analysing energy efficiency will be critical moving forward.
○ Safety: How resilient is the system to censorship? DoS attacks? What is the adversary model or byzantine fault tolerance of the
network?
○ Performance: What is the throughput and latency of the consensus mechanism?
○ Return on Energy: How efficient is the energy consumption of the protocol? The key here is determining the utility derived from a
kW of energy consumption.
Alternative consensus mechanisms to PoW are
becoming mainstream

● A total of 1.8 billion dollars has
been raised by firms with
corporate venture capital (CVC)
investors on their cap tables to
date.
● The 3 largest investments in the
space have gone to on-ramps for
tokens. Coinbase, Circle and
Robinhood have cumulatively
raised $886 million amongst
themselves.
● Japanese firm SBI Holdings has
been the most aggressive
corporate investor in the space
with over 10 investment mades
to date. Google Venture’s
follows a close second with 7
investment made to date
● 2018 will witness the deployment
of enterprise backed trading
platforms such as t0 from
Overstock and a mutual fund
marketplace built by Nasdaq in
collaboration with SEB, a Nordic
financial services group.
$1.8 billion has been raised through CVC
Notes - 1. The $1.8 billion figure includes investments into Robinhood App ($525 million) 2. Logos to the right indicate key corporate investors backing prominent blockchain oriented projects.
3. Data sourced from CB Insights

● Financial services, wallets and token
on-ramps have lead in terms of
financial backing from corporate
backers
● Niche sectors such as hardware
providers have raised funds from
sector specific players. Qualcomm
for instance backed 21.co’s mining
hardware (recently acquired by
Coinbase) whilst Ledger was backed
by French ultra-sound hardware
marketing firm GD TRE
● Companies have also become
increasingly comfortable taking lead
positions as investors in a number of
projects. Notable amongst these
include:
1. Circle - Goldman Sachs
2. Bitmain - IDG Capital Partners
3. Ripple - Santander Innoventures
● As adoption increases, we may see
more investments into consumer
facing apps. Kik, Telegram and
Atari’s token issuances are early
indicators.
Image : Percentage Distribution Of Frequency Of Investments In Blockchain Based projects
Corporates are still most interested in financial
applications

● There has been a surge in acquisition of
patents related to blockchains by
enterprises since 2017.
● IBM is in the ‘lead’ on registered patents
catering to DLTs. Bank of America is the
leading financial organization focused on
registering blockchain related patents.
● While most of the “leaders” with regards
to patents focus on financial markets,
there is rising interest in patents focused
on associated industries such as
telecommunication (Verizon) and data
transfers (Amazon).
● According to the World Intellectual
property Organization over 200 patents
pertaining to blockchains or
cryptocurrency were filed from China in
2017 alone.
● The People’s Bank of China also claims
to hold the most patents in the space
spread across its member bank branches.
Whilst IBM (or The People’s Bank of China) are
leading on blockchain patents
Note : Data Sourced from Google’s Patent Search Engine.

● Provenance
Walmart has partnered with IBM and JD.com in China for the creation of a
Food Safety Alliance. The retail giant has begun using blockchains to keep
track of the source and conditions within which food items are sourced and
sold. A similar initiative in the US has attracted 10 major FMCG manufacturers
including the likes of Nesle and Unilever
● Insurance
Indian IT conglomerate Cognizant has partnered with major insurance
providers in the region including HSBC for the reduction of fraud and time
expenditures in cleaning insurance claims. Their solution claims to allow real
time auditing, transfer, traceability and consistency of records across
organizations in a fraction of the time traditional solutions take. Accenture has
filed a patent for a similar solution.
● Trade Settlements
Australian Stock Exchange retired its previous 20 year old, trade settlement
system for a blockchain based system that runs on a private, permissioned
blockchains at the beginning of the year. The move came after 2 years of
testing and made ASX the first major exchange to move completely to a
blockchain based system.
2018 is already beginning to see a move from
corporate PoCs to real world products

● Lufthansa Airlines - Winding Tree
Lufthansa Airlines invested in travel startup Winding Tree and offered
integrations of their API to the startup at the beginning of the year. The move
is intended to help with airline bookings and data transfer through the token
issued by the startup (LIF). The collaboration would enable winding tree to
access Lufthansa’s network while enabling Lufthansa to acquire domain
expertise in the field.
● IBM - Sovrin
IBM joined the Sovrin Foundation recently as a founding steward for the
organization. IBM will be engaged in creating, operating and maintaining the
foundation’s decentralised identity solutions. The enterprise will also be
allocating resources from IBM’s cloud based services towards Sovrin’s
operations.
● Bosch - IOTA
Robert Bosch Venture Capital Group (RBVC) has made a direct investment into
IOTA with the intention of leveraging the DAG based token for the purpose of
trading data generated from automotives. IOTAs focus on IoT based networks
gives Bosch access to expertise in DLT while ensuring the startup receives the
network and hardware manufacturing capabilities Bosch holds.
*Note : IOTA And Evernym are Outlier Ventures Portfolio Companies
Corporates activity is now extending to holding
tokens and partnering with blockchain projects

● Telecommunications
Blockchains are being tested for the purpose of consumer onboarding
(identification), billing and wifi-rental in the field of communication. In late 2017
carriers including Sprint and Far EasTone launched a consortium for cross carrier
payments.
● Supply Chain
An increasing number of enterprises have been focused on ensuring faster
payment settlements to their supply chain partners with the help of blockchains.
Notable players include Australian Car manufacturer TomCar and Indian
automotives giant Bajaj. Blockchains are also being used to track the source of
diamonds and rare minerals by DeBeers and BHP Billiton.
● Media & Advertising
Media houses have begun using blockchains to verify and validate the source
and quality of ad purchases. AT&T has partnered in this regard with Bayer. IBM
and Salon Media have collaborated with Adledger - a blockchain based solution
for faster compilation of ad campaign data to increase profitability.
And interest is moving away from just the financial
industry

226 hedge funds with strategies for trading crypto assets and crypto currencies have been created
in the past year. The number is up from just 37 in the beginning of 2017 (CNBC, 2018). Hedge
funds are required by law to use licensed custodial services. An estimated $10 billion worth of
institutional money is expected to enter the ecosystem in the near future.
● Xapo Vault
Xapo offers multiple wallets and vaults with unlimited accounts to organize and partition
funds for different user groups at different permission levels. They started their tailored
institutional services in early 2015. Xapo is FINMA compliant since early 20171. They also
hold a Gibraltar e-money license. So far they have received $40M investment from
investors including Greylock Partners Index Ventures and Digital Currency Group.
● Gemini (US-only)
Gemini offers a custom solution focused on hedge funds, mutual funds and exchange
traded funds, which may be required by law to store their digital assets with a licensed
custodian. Gemini requires a minimum of annual fees of $100,000 (at 0.946%) and the
funds require 2 business days before being available for trading as they are segregated.
Gemini is regulated by the NYSDFS and the New York Banking Law. The service has
begun in 2016.
Institutional custody enablers are still very limited

Here comes the cloud incumbents into BaaS
Although IBM and Microsoft’s Azure platform have been leaders in the blockchain as a service
space, there has been rising interest from other competitors in the industry.
● Amazon Web Services Offers Single Click Deployment
Amazon’s foray into blockchain services began with involvement in Blockchain consortiums
such as R3 and quorum. AWS is currently partnered with Deloitte, PWC, T Mobile and Intel to
work on blockchain initiatives. The cloud services provider currently provides click and deploy
solutions for setting up private Ethereum and Hyperledger chains.
● Google Cloud Is Testing Waters
There has only been reports of Google experimenting with DLT in order to offer as a cloud
service. As per reports, the platform may soon offer Hyperledger and Sawtooth as a click to
deploy service on the cloud in the near future. Google has been acquiring startups focused
on DLT in order to focus on the same.
● Baidu Has Begun Penetrating Chinese Markets
Chinese search engine giant Baidu has begun offering blockchains for auditing, tracking and
financial management. Given China’s emphasis on networks that are under the “control”of
the state, Baidu’s and Alibaba’s blockchain offerings stand to capture bulk of the markets in
the region.
Niche providers such as Mastercard and Samsung (Nexledger) have also emerged to provided
customised services in specific use cases.

In addition to Telegram and Kik, consumer facing retail companies have begun issuing tokens
pertaining to the use cases of their products. Demand and tility of these tokens are yet to be
validated at scale.
● Kodak Has Attempted Issuing Tokens
Kodak launched an image licensing platform for photographers under the name of KodakOne.
The project has been in its pre-sale since February. The platform is aimed to enabling
individuals to claim ownership of their photographs and receive payments through tokens for
licensed usages. The token is set to be launched on Ethereum.
● Atari Might Issue Atari Tokens In the Near Future
Atari has partnered with a Gibraltar based company named Infinity networks for the creation
of a tokenized gaming platform. The enterprise will be issuing Atari tokens in the near future.
There has been no cash investments or fundraise from Atari’s side yet. According to reports,
the firm intends to launch a number of tokens focused on different gaming vectors including
casinos through its partner networks in the near future.
As the regulatory environment surrounding tokens become more clear, we may see more enterprises
issuing consumer facing tokens with the intent of “gamifying’ their products. However for now it does
look more like a PR move than a clear strategy for creating utility for their customers.
Token issuance is not just for startups

Part 3: Government & Regulation

3.1 Government & Regulation Numbers

Favorable
Under Discussion
Unfavorable
Unknown
Regulatory Index
In order to better understand
the nature of regulations
around the world, we rated
nations on a scale of 1 to 5 for
their approach to tokens and
ICOs for 50 nations. The map
represents the average of the
scores allocated across the 3
parameters.
Note :Data is qualitative and measured on
a relative basis
Global Regulatory Map

● In order to understand the distribution of focus of nations
around the globe within the token economy, we gathered
information related to cryptocurrency (Bitcoin in most formal
notices), ICOs and Blockchain oriented innovation and rated
them on basis of hostility.
● On a scale of 1 to 5, 1 would represent hostility, 3 would
represent considerations / warnings and 5 would mean
national endorsement of the project. A score of 4 being the
maximum in the case of Bitcoin and ICOs indicate that only
a handful of nations have accepted token based payments
as legal tender or provided frameworks for token issuance.
A score of 4 on Blockchain innovation on the other hand
would represent government backed blockchain based
projects (eg: Land records)
● Most regions stand on the sidelines when it comes to
regulating Bitcoins. Regions that considered Bitcoins as a
legal form of payment often required high AML and KYC
requirements. A handful of nations have placed complete
bans on tokens as a payment method. The Reserve Bank of
India has requested banking infrastructure in the region to
avoid working with token exchanges.
Bitcoin regulation is on the rise
*Note : Data highly qualitative in nature. Graphs indicate histograms for scores allocated across 50 nations

But token-based funding yet to receive a green
signal
● While token exchange related frameworks are on the rise
and increasingly becoming lenient, token based
fundraising mechanisms are yet to receive a thumbs up
from regulators.
● Of the nations we explored regulations for, 33 had either
no framework in place for entrepreneurs seeking to issue
a token or a lack of clarity with regards to how they
categorised tokens.
● A handful of nations have created sandbox environments
(eg: Russia, Singapore) for entrepreneurs to issue tokens
while being increasingly transparent with regulators
seeking to protect their investors.
● Regions like China have placed an outright ban on the
issuance of tokens within the region. The policy may
change in the near future.

Governments love blockchains but not tokens
● While token exchange regulations are yet to fall in place and
raising funds through tokens are not encouraged globally,
governments see the potential blockchains offer and have
begun setting up task forces to assess integrating them into
national functions.
● Ranging from land records (Russia, India) to issuing fiat
currency on a blockchain (Singapore), governments are
currently in the process of testing the viability of using a
blockchain to improve functions. It may be a matter of years
before their proofs of concepts attain scale.
● Nations have also begun using blockchains to process
petitions and put decisions pertaining to smaller regions to
vote with the help of a blockchain. Eg : Brazil
● While nations fear capital flight with tokens, they fear losing
on potential economic growth due to a lack of focus on
blockchains. Therefore, while they may be strict with tokens
as an alternative mechanism to transfer value between
citizens, they have embraced blockchains as a solution to
track and store value

3.2 Government & Regulation Trends

Although a number of nations have taken complete U-turns in the recent past with respect to their regulatory structures for tokens,
there is a high level of uncertainty in the space. Broadly, they can be categorised on basis of their stance about the token economy.
● Unfavorable View
These are primarily nations that worry about money laundering, terrorism and capital flight within their regional boundaries.
They have issued outright bans on the use of tokens as a payment mechanism within their regions. In addition, banking
entities in such regions are often advised to not work with exchanges in the region Eg : Indonesia, Vietnam
● Under Discussion
Few nations have been on the sidelines with respect to regulating the space. Regulators in these regions are torn between
concerns about the risks and opportunities that are enabled by blockchains. These nations have slowly started more strictly
enforcing rules for exchanges in regards to local residents dealing with international token exchanges. While an outright ban is
not in place, they monitor the sector strongly. Eg : Japan.
● Favorable
Several countries have been competing to be the global hub for the token economy amongst others. Malta made headlines
when token exchange platform Binance moved to the region from Japan recently. Nations have also been testing fiat
currencies on their blockchain. Singapore leads in this regard. Sweden and Russia have begun experimenting with blockchains
for land records and provide sandbox environments for token based projects to operate from. Similarly, Swiss financial
authority Finma published a framework for the categorising of tokens in the region.
The G20’s Financial Stability Board (FSB) is set to issue a statement regarding the token ecosystem in late June. The same may
influence regulations across the globe.
Uneven global regulatory response

Nations in fear of capital flight have been increasingly discussing issuing private, permissioned blockchains that will work under the
regulatory purview of the government. Given how the Chinese markets have been walled when it came to internet startups, this is
likely to be the case for the blockchain era too.
● China
The nation has begun drafting policy frameworks for DLT in the region in collaboration with Internet Securities Commission of
the Securities Association of China (SAC). In addition, ChinaLedger was launched in early 2016 as an alliance lead by
Wanxiang Blockchain Labs. The goal of the alliance was to focus on creating China specific solutions with DLT. Traction on the
same is limited. Regional governments have collectively invested over $1.7 billion into blockchain based funds as per reports.
● India
India launched its IndiaChain project with the intention of enabling land records, debt settlements and educational records
being stored on a central blockchain. The project will be directed to the farming sector for the purpose of storing information
ranging from soil quality to provenance of produce. The project is still in its proof of concept stages and much has not been
revealed since its announcement.
● Venezuela
Venezuela has claimed to have raised over $700 million for their oil-backed token “petro-dollar” aimed to circumventing
sanctions. The token was believed to help the inflation-hit country acquire foreign currency while being able to mobilize local
resources. The US government has since issued a sanction forbidding any citizen from acquiring the token. The opposition of
the government viewed the issue of the token as borrowing and deemed it unconstitutional. In addition, the token may never
be redeemed if Nicolas Maduro is not re-elected and the opposition chooses to not honor the sale of the token.
“Decentralized” blockchains can’t escape nation
states and politics

3.3 Government & Regulation Insights

A handful of nations have regulated Bitcoin as an accepted form of payment. They enforce stricter Anti-money laundering and know
your customer requirements at the exchanges. In some cases, a national “registry”of token users are maintained to track capital flow.
● Australia
Australia is currently investigating an appropriate regulatory approach. Currently, there are no specific regulations on the
space. The Australian Transaction and Analysis Centre (AUSTRAC) has however updated AML laws to require greater
transparency and recording of cryptocurrencies. This will be done by implementing a new Digital Currency Exchange registry,
where exchanges dealing with cryptocurrencies will be required to disclose the details of transactions made on their platforms.
● Japan
Japan has been proactive with the regulation of Bitcoins since the MtGox event of 2014. Japan’s Financial Services Agency
has been requiring exchanges to be registered with them. The region currently has 15 registered exchanges and 16
unregistered ones. Regulators in the region conducted on-site inspection for security practices in the wake of a recent hack
worth $530 million on coincheck. Japan had also pushed for discussing the token economy at the G20’s latest meet.
● South Korea
South Korea accounted for up to 15% of Bitcoin trading volumes in January. The region was caught in fear as rumours of a ban
on tokens spread at the beginning of the year. Due to major interest from their citizens, the government was compelled to act.
Anonymous trading is now banned but they are opening up regulations for KYC based trading and are considering
reintroducing ICOs under new, regulated conditions. The region remains one of the largest markets for token sales.
There has been proactive involvement of
Governments

The increasing interest in tokenization of securities and surges observed in stocks that associate themselves with blockchains have
caught the interest of regulators around the globe. A few of them have taken proactive measures to tame investor interest and
market movements.
● Israel
Regulators in Tel Aviv, Israel may soon ban stocks involved in close association with cryptocurrencies and Bitcoin. The
regulators solely wish to contain small-cap companies that might exploit the recent hike in investor interest to see massive
gains. The ban will not affect companies with equity of more than $29 million. The move may have been triggered by the
sharp rise of the stocks of a local company that declared it would move from mining gold to mining Bitcoin.
● France
France has paved the way for the trade and settlement of unlisted securities on blockchain-based ledgers in the near future.
France’s unregulated security market is anticipated to be worth over $3.5 trillion. Beginning in July 2018, banks and fintech
companies will be able to allow trading unlisted securities on distributed ledgers without the requirement of brokers or
custodian banks
● United States Of America
Venture capitalists in America have been in active discussion with regulators in the region about providing a “safe harbor” for
tokens. The SEC and CFTC are in the process of finding a middle ground with regards to regulations for the ecosystem. The
SEC argues that most tokens are securities while the CFTC believes that tokens like Bitcoin are commodities. The latest
proposal submitted to the SEC by industry veterans argues that a token is no longer a speculatory investment but rather a
utility token once the network it is to be used upon is live.
And policy creation for securities has just begun

Although governments world over have been trying to “regulate” the space, there are difficulties involved in doing so.
The sheer nature of the industry is such that it leaves centralised authorities with little control on the ecosystem.
● OTC Deals On The Rise
Even though exchanges can be controlled and actively share information with regulators in real time, there are difficulties
involved in keeping an eye on OTC, P2P deals that occur away from the eyes of regulators. The size of these deals run well
into the hundreds of millions of dollars on a daily basis. With anonymous currencies coming on the rise, it may be hard to track
this flow of wealth.
● Web Based Communities Surging
Although governments may try to reduce the impact of tokens within their economy through legislations that may not
necessarily be favorable, the distributed nature of communities around these tokens make it difficult to censor and reduce
interactions between members. Platforms like Telegram and event formats like meetups have been a crucial tool for the
spread of awareness and rising adoption of these projects.
● Nations Will Compete
We are seeing an increasing number of nations willing to take risk to ensure their ecosystems lead as blockchains come to
prominence. Startups have begun doing regulatory arbitrage as the regions they are currently based in swing from being
favorable to non favorable. As nations understand the economic opportunities poised by the token economy, they will swing
in regulatory stances.
Can’t Escape Decentralisation

Keep up with latest analysis:
Web: http://outlierventures.io
Twitter: @OVioHQ
Linkedin: Outlier Ventures

The State of Blockchains Q1 2018

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