Every year—assuming that a pandemic isn’t raging—the Futures Industry Association hosts a conference in Boca Raton, Florida. It’s by far and away my favorite conference of the year (yes, even more than our own) for two reasons. First, as a journalist, it’s like shooting fish in a barrel—lots of great sources are gathered in one resort and since there’s fuck-all to do at night, they stay and mingle around the compound, often drinking and talking freely about their rivals. The second reason to love FIA Boca as a Northerner is because it’s held in March and gets you the hell out of New York on the company’s dime after yet another dreary winter.

If done well, the three days down there can sustain you with story ideas for the next few weeks, if not months. This year’s conference was the first in two years after a Covid hiatus. Since I’m the editor now and not a reporter, I stayed back in Brooklyn, while my colleagues Reb Natale and Nyela Graham flew down to what turned out to be not-so-sunny Florida. (If I had a dollar for each time Reb moaned about it being overcast or raining, I could’ve paid for her expense filings.)

I bring this up because I read a story from last week in the Financial Times with this headline: “Blockchain and financial markets: will computers push out brokers?” Quite frankly, I thought it was a story from 2017, written at the height of blockchain’s irrational exuberance. But no, this 2,500-word “big read” was essentially based off a keynote interview at this year’s FIA Boca conference.

Now, I’m going to proceed to shit on this story, but before I do that, I think a disclaimer is in order: The FT is outstanding, I’m a subscriber, and the reporters (editors, actually)—Gary Silverman and Philip Stafford—are outstanding. Phil, for example, has forgotten more about market structure than I’ll ever hope to learn in my entire life.

Even still, I’m going to take issue with how they portrayed blockchain in the capital markets because it’s a topic near and dear to my heart. The reason why I think this is important is because I think the conversation around blockchain needs to change—not just in the media, but also at industry conferences and inside the four walls of banks (as asset managers are not talking about DLT as Savior, they just care about the crypto). I’ll use this story as an example of what I think is wrong with DLT in the capital markets, but—to be fair—DLT was a major topic at a major conference, so in my humble opinion, the problem is more systemic than a single story.

Anyway…

The article profiled Sam Bankman-Fried. They started by describing the young buck thusly: “Sporting a gray T-shirt, khaki shorts and sneakers, his mane of curly hair untamed, the 30-year-old chief executive of FTX looked more like a student who had just rolled out of bed to grab breakfast at his college cafeteria than the boss of an international cryptocurrency exchange valued at $32bn.”

This is cosmetic, but here’s something to know: While it’s true that most bankers, exchange execs, salespeople and regulators attend conferences in formal business attire, most of the technologists and assorted other delegates come dressed in T-shirts or golf polos, sneakers and khakis. (I’m personally a T-shirt, sneakers and jeans guy, but I digress.) As tech becomes more central to the capital markets, I’m not sure why people are still so shocked to see technologists—much less the CEO of a tech company—dressed casually, but the trope continues. And so, too, the story.

“Bankman-Fried had already stolen the show at the March gathering with a groundbreaking proposal to US regulators to automate risk management in financial markets—using practices developed for digital assets. FTX says it plans to start with a small market—leveraged futures contracts for cryptocurrencies. But it raises the possibility of a brave new world in which traditional brokers would be replaced by computers, and machines would make margin calls in 24-hour-a-day, seven-day-a-week trade.”

Here it’s important to note that Bankman-Fried was speaking on the third day of the conference. Again, I wasn’t there, but Reb and Nyela were, and they noted that only a skeleton crowd materialized on Day 3 (which is consistent with my previous experiences) compared with Day 2, which features the meat of the conference. On Day 3, even the bankers and sales people are dressing casually. Beyond a nearly empty exhibition and main hall, it should be said that the ballroom in which Bankman-Fried spoke onstage drew a halfway decent crowd (though there were empty seats) that morning, the reason for which might’ve had to do with FTX, which stole the (commercials) show on Super Bowl Sunday. By my guess, it might’ve also had to do with the fact that he was being interviewed by a true titan of finance, crypto and technology—former baseball player (and notorious steroid cheat) Alex Rodriguez.

So far I’ve just been a snarky lil bitch—but I do have some actual points to make. First, this year’s conference was heavily tilted toward technology, exchanges, and crypto and DLT. While just a few years ago it was more about derivatives market structure and risk, Bankman-Fried wasn’t exactly out of place this year as a hardcore crypto/DLT evangelist.

But in talking to ARod—as opposed to a journalist, who might push back on his assertions—Bankman-Fried was a salesman. Of course he believes that FTX’s tech can replace “traditional brokers … [with] computers, and machines would make margin calls in 24-hour-a-day, seven-day-a-week trade.” Monorail!

Additionally, the idea of replacing capital markets infrastructure with blockchain is hardly “groundbreaking”. I get it…the 24/7 idea without humans is bold, but the evangelists have been saying the same things for a while. The Australian Securities Exchange is replacing its equities clearing and settlement platform with a DLT-based platform, and there’s a whole universe of same-day settlement pitches using DLT.

Which brings me to this next graf: “The warm reception given to the young man in short trousers by the folks in suits at the Florida pow-wow was something of a surprise. Bankman-Fried and his industry are controversial. An American citizen, he is a paper billionaire many times over based on his majority interest—his exact holding has not been disclosed—in an international crypto exchange that is incorporated in Antigua and Barbuda and operates with a license issued by the Bahamas. His three-person board has one outside director, a lawyer in its corporate home country.”

While I do understand that regulators are grappling with how to handle crypto trading, DLT and crypto were literally all over FIA Boca, so how controversial can they really be? Again, this isn’t 2017 (much less 2015 or 2009), so let’s stop making it seem that people like Bankman-Fried are buccaneers who surprise us by showing up to derivatives conferences with T-shirts, shorts and disheveled hair.

But it’s that last piece of the graf that should’ve raised some serious red flags: “[the’ international crypto exchange … is incorporated in Antigua and Barbuda and operates with a license issued by the Bahamas. His three-person board has one outside director, a lawyer in its corporate home country.”

This might come as a surprise to some of you, but the capital markets are heavily regulated. A hedge fund being incorporated in a tax shelter? Sure, why not. An industry-changing exchange doing the same? I have my doubts. A startup creating a world where “traditional brokers” are “replaced by computers, and machines would make margin calls in 24-hour-a-day, seven-day-a-week trade”—I mean…are you buying that? Does that pass the sniff test for you?

List of concerns

For the story, the FT spoke with Bankman-Fried; FTX’s president of the US; Don Wilson, CEO of DRW, which has a very large crypto trading arm; a consultant; and Craig Pirrong, a University of Houston finance professor—the only critical voice—who comes in about 1,700 words into the story. (Additional public comments were used from other people, including regulators.)

Pirrong says that “the mechanical FTX approach could prove ‘destabilizing’, exacerbating market moves in either direction and possibly creating opportunities for bad actors to manipulate prices in hopes of triggering liquidations.” Maybe what could’ve been explored more is…you know…the idea of destabilizing the market? Ah well.

To be fair, it’s around here (toward the very end) that the article begins to explain some of the significant regulatory roadblocks for FTX’s plan of futures domination and what the path forward looks like. It also notes that FTX’s $32 billion valuation makes it worth more than Deutsche Bank and Credit Suisse, and that Bankman-Fried had “mused about growing big enough to buy Goldman Sachs.” You know…with its three-person board and tax-haven structure.

I, myself, am more than 1,400 words into this diatribe, so maybe I should get to a point.

In the world of crypto and the broader world of decentralized finance, blockchain is truly revolutionary and foundational. In the world of traditional banking technology, it is still largely a hammer looking for a nail. There are many reasons for this, but they mainly come down to regulation and bureaucracy.

Prior to flying down, Reb and Nyela filed this 4,000-word deep-dive (5,000 if you include some of the ancillary information provided). They spent two-plus months on this project. They first looked at all the stories we wrote from 2016 through 2018 that talked about new blockchain projects/start-ups/hires—there were around 80. Then they proceeded to reach out to close to 100 people. The end result—which is informed by on-the-record, on-background, and off-the-record conversations across a range of technologists and operations managers—is that article, and it highlights just how difficult it has been to get large-scale, industry-important blockchain-led platforms off the ground and running. It’s a technology that has been revolutionary in some sectors, but that doesn’t mean it will be revolutionary in the wholesale, institutional capital markets.

And this is not to say completely that blockchain and DLT have no place in traditional finance—there are truly innovative things happening in the areas of trade finance and digital assets. But for the world of trading, the future (and its present) is cloud. Crypto is an asset class. DLT is a glorified database. Cloud is the revolution.

While FTX is exploring DLT for leveraged futures contracts, CME Group has partnered with Google Cloud and Nasdaq has done the same with Amazon Web Services to put their exchanges (in the long run…not in the next year or two) on the cloud. Other exchanges are bound to follow suit.

As one data scientist told me recently, “I’m really curious what the good use-cases [for blockchain] are. My litmus test is always, what can this do that a database can’t? I think there are very few applications that truly need trustless, distributed, decentralized record-keeping.” A tech exec who has spent more than two decades working in the post-trade space recently told me that DLT is used to “open the purse strings” for back-office projects that have, for too long, been neglected, but it’s true worth “has yet to materialize.”

Some people don’t like to speak honestly about blockchain because of the blowback. But there are plenty of people talking publicly about blockchain’s limitations, specific to the capital markets. Here’s the link to that deep-dive we recently published, just in case you skipped over it previously. And here are some other examples.

This is not an indictment of the FT or its reporters (who, again, I enjoy reading as a subscriber). This IS an indictment of how blindly people are still covering blockchain in the capital markets, despite a lack of evidence that this is an appropriate technology to solve the ills of the back office, much less to revolutionize wholesale trading.

But, if you think that I’m the wrong one here, let me know: anthony.malakian@infopro-digital.com.