Some roads are paved with good intentions but end at underwhelming destinations. Blockchain, as a tool for capital markets, but also as a grand promise—of less dependency on intermediaries, increased reliability of information, and faster settlement; the list goes on—has traversed road that’s led it, in some cases, to a version of technology purgatory.

Neither useless nor as revolutionary as some initially thought, the once uber-hyped tech has been relegated to niche corners of the market such as smart contracts, digital assets, trade finance, and back-office recordkeeping, and even then, its implementations are mostly experimental or internal, rather than focused on industry-wide solutions. Believers maintain that its time just hasn’t come yet; skeptics think it’s had more than enough time since its 2008 inception alongside bitcoin.

It is impossible to get a full number of the blockchain startups that have attempted to get in on the action—and the funding—in the last decade, and especially of those that were geared toward wholesale capital markets, as opposed to retail banking or other industries. But with blockchain funding more broadly having reached an all-time high last year—$7 billion in the first half of 2021—it’s safe to say the number is large.

“Blockchain” first entered this publication’s lexicon in 2015. We subsequently reported on several new companies, and those stories have become increasingly interspersed with coverage on institutions’ pursuits of the technology. Over the last two months, we have been investigating to determine what has become of those startups and projects.

When I start building KYChain, I totally believed in the world narrative and the people saying it would work, but as I built it, I realized it doesn’t work. … It’s almost like tomorrow the North Korean dictator says, ‘We are going to be democratic tomorrow, I’m going to be the only one voting.’ How democratic is that?

Kunal Nandwani, UTrade

We found that some were successful—though hardly revolutionary—and many were not. Some were acquired by larger companies, and then up-to-date information about them became scarce. Others pivoted to new business lines such as crypto services, computing, or more traditional trading solutions. Others seem to have disappeared entirely.

Such is the nature of startups. Regardless of industry, most of them fail, with the storied Silicon Valley motto and directive being “fail fast.” But sources spoken to for this story describe a more arduous process than they would have liked.

In April 2019, Elliot Grossman left his family’s firm, Dinosaur Financial Group—a broker-dealer, investment banking advisory, and wealth management services provider—for TZero, a blockchain-based security token exchange founded by online retailer Overstock.com, to become the CEO of its upcoming retail brokerage affiliate, TZero Markets. Additionally, TZero sports an alternative trading system (ATS), which is run by SpeedRoute, an institutional-grade provider of liquidity services and order routing for US equities that TZero bought in 2015.

Grossman’s appointment followed a February 2019 announcement that Dinosaur and TZero had partnered on digital securities trading, and Dinosaur would be the firm to provide brokerage accounts for investors seeking to trade TZero’s digital security tokens.

Almost two years later, in March 2021, Grossman left TZero and returned to Dinosaur, where he is once again a managing director. A bold, black box on the homepage of Dinosaur’s website now reads: “DFG is no longer affiliated with TZero.”

Grossman says he made the switch back, in part, because he was more comfortable being a trader and managing a P&L, not building a fintech from the ground up during a pandemic. During his tenure, the brokerage did go live, and some retail investors traded their tokens on the platform. At the same time, TZero embarked on a journey to usher in a more institutional crowd, but felt “paralysis” when such partners and users didn’t materialize. 

“We couldn’t convince the capital markets industry to start adopting this technology. … Even though I think they saw the benefit, they thought, ‘This is great; we’d like to be the second, but not the first.’ It was a lot of frustration because we all felt like we had this really exciting and interesting product, but then we ran into miles and miles of red tape, and we ran into an industry that is built on legacy technology, that doesn’t really have much ability to unfurl into adaptive technology,” he says. “So much is still being caught up to the 20^th century, let alone the 21^st century.”

If the startups that swim are the ones that can grow their user base—and fast—then Grossman felt TZero Markets needed a different leader.

“It was a very mutual decision where I said, ‘Look you guys, we all need to grow, but I’m not going to take you to the promised land.’ That being said, I still think the technology and the company have a lot of potential, but it’s still very much ahead of its time,” he says.

Perhaps he’s right about potential. On February 2, the Intercontinental Exchange (Ice), the parent of the New York Stock Exchange, announced it would take an ownership stake in TZero. David Goone, a long-time member of Ice’s management team and currently Ice’s chief strategy officer, will join TZero as its next CEO and will serve on TZero’s board of directors.

Now with Ice’s backing, TZero’s narrative stands to be totally reset, Grossman says.

Speaking to WatersTechnology after the Ice announcement, TZero’s executive vice president and chief legal and corporate affairs officer, Alan Konevsky, says that driving institutional interest in the technology (blockchain), the asset class (crypto), and forthcoming products and services that the company is actively developing, remain key priorities going forward. 

Konevsky rejects the characterization of blockchain—or any technology for that matter—as being “ahead of its time” by referencing an old Steve Jobs-ism: “You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.”

“There’s no such thing as being with your time, particularly when you’re trying to innovate,” Konevsky says. “Innovation is a time-travel exercise. Sometimes you get it right, sometimes you misjudge. But it’s not because the fundamental premise is wrong; it’s because time and variables that come with it—known, unknown, and unknowable—are difficult.”

Roads to nowhere

In trying to trace the whereabouts of other startups WatersTechnology had previously covered, some roads led to nowhere. In November 2016, London-based technology vendor Nimbrix launched a blockchain consortium aimed at increasing buy-side participation in the development of distributed-ledger technologies (DLTs). Participants in the consortium included KPMG, Microsoft, Thomson Reuters, and industry veterans from institutions such as BlackRock, UBS and BGI. The group had plans to launch a platform leveraging cloud, open-API, software-as-a-service, and blockchain technologies running on Microsoft Azure.

Only one month later, the official Nimbrix Twitter account made its last post—a retweet of an image of Gary Vaynerchuk, an entrepreneur who is prominent in crypto circles, superimposed with a quote attributed to him: “There’s not a single winner on Earth that took it easy.” The company has no website, but does still have an Instagram account with no posts.

It’s unclear what happened to Nimbrix, and apparently so soon after its big-name announcement. Former Nimbrix CEO Simon Bullers declined to comment on the matter, citing “post-sale” non-disclosure agreements; however, there is no publicly available information on an acquisition or buyout involving Nimbrix.

“I am not sure the world still understands the power of chains and cryptlets and closed blockchains. It’s with regret that I can’t talk,” he said in a message.

Other vendors, which were not blockchain-native but attempted to get in on the hype when it was at its highest, seemed to become quickly disillusioned.

Trading and risk solutions provider Calypso Technology, now known as Adenza following its merger last year with AxiomSL, seemed to go all in on blockchain beginning in 2016. It first joined the Wall Street Blockchain Alliance, a non-profit trade association focused on promoting comprehensive adoption of distributed ledger technology in financial services.

The next year, it partnered with Synechron, a technology consulting company that remains an advocate of blockchain, among other emerging technologies. Also in 2017, Calypso CTO Tej Sidhu said the company was planning “aggressive investments in cloud microservices and blockchain solutions to streamline the IT operations.” This was also around the time it partnered with R3—then a blockchain consortium but today an enterprise technology company—for FX trade matching.

In 2018, Mayank Shah, Calypso’s managing director of strategy, transformation and alliances, sat down for an interview with Bobsguide, in which he made clear the company’s stance on blockchain: “Calypso has embarked on a journey to become a leading blockchain technology provider for capital markets, working closely together with the leading blockchain platforms such as R3 and CLS/Hyperledger. We believe that blockchain will transform the way capital markets operate and we are an active participant in this transformation.”

In the time since then, Calypso appears to have mostly stopped talking about blockchain altogether. Now in its new form, Adenza makes no mention of blockchain in the list of services it offers, which include cloud, customer delivery, and education solutions. A spokesperson for Adenza did not return requests for comment.

Meanwhile, data and workflow tools provider Ipreo looked to blockchain in 2016, partnering with Symbiont, a blockchain startup that has recently inked deals with big names such as Vanguard and State Street. Ipreo and Symbiont embarked on a venture to create a new company that would disrupt the syndicated loans market. They named it Synaps.

By the end of the year, the two had launched a proof-of-concept, meant to shorten syndicated loan settlement times, with partners R3 and Credit Suisse. In 2017, the foursome deemed the endeavor a success. Synaps had combined the Symbiont smart contract technology with Ipreo’s business process platform to speed up loan settlement times. Participants in the proof-of-concept included Barclays, Royal Bank of Scotland, Scotiabank, Societe Generale, State Street, Wells Fargo, AllianceBernstein, and 12 others.

The next year, IHS Markit made the surprising announcement that it would acquire Ipreo for $1.86 billion, while simultaneously letting go of its MarkitServ derivatives business. Today, a page on IHS Markit’s website about Ipreo provides little information on what became of Ipreo and its technology post-acquisition, simply reading: “Following the acquisition in August 2018, IHS Markit has integrated Ipreo’s services and solutions to provide greater value to our customers.” A rep for IHS Markit declined to comment, adding that the company would not be issuing any updates regarding strategic initiatives during the ongoing merger between itself and S&P Global.

Synaps, for its part, was ultimately dissolved after Symbiont sued IHS Markit and Ipreo for breach of contract following the acquisition. The lawsuit was settled in January of this year, with IHS Markit paying out $53 million in damages to Symbiont.

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Oil & water

About 10 years ago, UTrade Solutions, a trading technology provider based in India, was launched. The company primarily sells its services and solutions—which include sell-side order management, buy-side execution management, risk management, direct market access, and market data distribution—inside India, though it has some foreign presence as well.

In 2016, it, too, sought to capitalize on blockchain’s promises of immutable recordkeeping and enhanced security by launching UClear, a real-time clearing and settlement solution, and KYChain, a know-your-customer platform, both based on distributed-ledger technology.

The solutions were on the market for less than a year, says Kunal Nandwani, CEO and co-founder of UTrade, who admits he was somewhat misled by early blockchain zeal.

“When I start building KYChain, I totally believed in the world narrative and the people saying it would work, but as I built it, I realized it doesn’t work,” he says. Nandwani digs his heels in further. “You can’t have scale, speed and efficiency—you can have one of the three but not all three. With blockchain, by definition, decentralization brings slowness. Scale is not easy, and because of the speed and scale problems, blockchain will actually not solve any problem anywhere.”

After working with blockchain and observing other companies that have worked with blockchain—then dropped it—he believes that the decentralized tech is simply diametrically opposed to a centralized society, one in which most people, and especially intermediaries like banks and governments, don’t feel the need to fix something that isn’t broken. And he adds that any institutions that claim to be exploring real implementations of blockchain—open-source public, able to be viewed and validated by anyone—are merely paying lip service.

“It’s almost like tomorrow the North Korean dictator says, ‘We are going to be democratic tomorrow, I’m going to be the only one voting.’ How democratic is that?” Nandwani says.

Banking and securities are all heavily dependent on trust, but not blind trust. Trust based on established, credible entities. Fundamentally, the banking industry likes intermediaries.

Brennan Carley, Proton Advisors

The most successful blockchain projects, at least in finance, are the ones that have established intermediaries—with good reason, says Brennan Carley, managing principal at Proton Advisors.

“Banking and securities are all heavily dependent on trust, but not blind trust,” Carley says. “Trust based on established, credible entities. Fundamentally, the banking industry likes intermediaries. It likes the DTCC, and Swift, and so forth because there’s somebody standing in the middle of a transaction between me and somebody who might have conflicting interests.”

Carley’s sentiment is a familiar refrain shared by several others in this story, but it comes with a catch: Blockchains with intermediaries are something, but they’re fundamentally not blockchains.

Accenture, for one, learned that lesson early.

In 2016, the consulting firm filed a patent for a prototype it created, along with Giuseppe Ateniese, a cryptographer and professor of computer science at Stevens Institute of Technology, allowing permissioned blockchains to be edited. A permissioned blockchain differs from a true one; it cannot be accessed by anyone, but only by pre-approved nodes, usually internal to a single organization or group of organizations.

Almost immediately, it caught hundreds of tweets’ worth of flack. Detractors argued creating a workaround to edit the blockchain would essentially destroy one of its main differentiating factors.

Looking back, David Treat, senior managing director at Accenture, calls the patent “very misunderstood,” but maintains that its principles stood the test of time, saying that in a highly regulated, systemically-important environment such as capital markets, one must have the ability to fix something that goes wrong.

Neither he nor his detractors were technically wrong. Accenture did negate a central tenet of blockchain’s philosophy; but it also allowed compliance with regulations such as the EU’s General Data Protection Regulation (then called the Right to Be Forgotten rule), and offer the chance to remedy other data privacy or data segregation mistakes.

He echoes TZero’s Grossman: “It was very much ahead of its time.”

In the end, the consulting firm did not use the patent, instead relying on other enterprise permissioned, private blockchains like R3’s Corda platform, IBM’s Hyperledger Fabric, and more recently, Besu, an Ethereum-based DLT software product of the Hyperledger Foundation, which includes members such as the DTCC, JPMorgan, IBM, and more than 200 others across financial services, healthcare, telecoms, logistics, and more.

“[Our patent] was a really important lesson around key management, sharding and governance, and operating and recourse models for blockchain. But no, we knew that it wouldn’t be relevant, or potentially never be relevant, until you got to the point of using an on-chain data structure,” Treat says, referring to an idea in which data markers, rather than actual data, would be stored on a blockchain, and create linkages to actual data or business logic that’s processed off-chain—essentially a balancing act between confidentiality and tamper-proofing.

Proton’s Carley believes that it’s not that blockchain doesn’t work, it’s just that it’s not usually necessary. But with that said, there have been positive byproducts as a result of blockchain development, such as the creation of the Daml programming language by Digital Asset, which isn’t dependent on blockchain. More importantly, though, is that while blockchain might not have been necessary to solve a particular business problem, the hype around blockchain helped to free up financing that otherwise would likely not have been available.

An underfunded group in a bank, he says, “could’ve have gone to the CTO or CFO and said they needed funding to automate a particular workflow and they’re going to use SQL Server or Oracle or whatever, and it probably wouldn’t have gotten funded. But, because the bank has an innovation budget, and it’s cool, and somebody wants to check the box that they’re doing something with blockchain, they’ll go ahead and they’ll implement it. In the end that’s probably not a bad thing, because you’ve got some inefficient workflow that’s now been automated with decent technology,” Carley says.

“Did it need to use blockchain to get there? No, it could’ve been done in another way. But in a way, blockchain provided the marketing hype that allowed it to get funded.”

Trust, but verify

Trust is a big, and nuanced, element of blockchain. On one hand, it’s meant to foster (or force) trust. Due to its distributed nature, transaction records are stored in several places at once. It guarantees accuracy and reliability, and any updates added to the chain are checked and validated by the rest of the computers that participate in a network. But while these networks are difficult to hack, they’re not impossible—so long as the code underlying isn’t perfect.

A 2018 report by a joint research team in the UK and Singapore found that more than 34,000 Ethereum smart contracts containing $4.4 million in Ethereum may be vulnerable to exploitation due to poor coding and bugs.

Similarly, the new, explosive world of non-fungible tokens—digital assets that represent real-world objects like art, music, and videos—is part of the blockchain movement, but is easily manipulated through screenshotting or copying the same images that someone else “owns” on the blockchain. Recently, an NFT collector had $2.2 million worth of images stolen from him by hackers, who used a phishing link to get access to the items.

To be clear, in both instances, the blockchain itself is not what is hacked, but the applications and products built around it, NFTs and smart contracts, which don’t automatically inherit its security; it has to be subsequently built in.

I’ve always looked at it and thought I don’t know that it is a technology that we need to use for most of the things it has been trialed for. I understand its use in areas where we don’t currently have technology that works. But I don’t really get the point of introducing it to areas where we’ve already got technology that works.

Virginie O’Shea, Firebrand Research

Virginie O’Shea, founder of Firebrand Research, says blockchain logically lends itself to areas where trust, anonymity, and reputation are recurring issues—for example, NFTs, crypto, or emerging, underserved markets like Nigeria—but doesn’t make much sense in industries that are typically reliable, regulated, and well-served by more established technologies.

“I’ve always looked at it and thought I don’t know that it is a technology that we need to use for most of the things it has been trialed for. I understand its use in areas where we don’t currently have technology that works,” she says. “But I don’t really get the point of introducing it to areas where we’ve already got technology that works.”

Of course, the definition of a technology that “works” is somewhat open to interpretation.

One startup that has arguably made enterprise blockchain palatable—even embraceable—for capital markets firms is R3. Founded in 2014 as a consortium backed by major investment banks, its first product line was Corda, a private, permissioned blockchain designed for the needs of regulated enterprises.

Last year, it diversified by launching Conclave, a confidential computing service, which leverages a physical piece of hardware, known as an enclave or trusted execution environment, that isolates sensitive data within a CPU and protects it while it’s in use (as opposed to data’s two other states, “in rest” and “in motion”). At the time of Conclave’s launch, Richard Brown, R3’s CTO, said the consortium had created a confidential computing product accidentally, while working on improvements to Corda.

Today, it counts the likes of Nasdaq, Amazon Web Services, DTCC, Deutsche Börse, and IBM as partners, and its technology underpins systems at the likes of Bank of New York Mellon, Six Digital Exchange, and several digital currency initiatives at central banks. In 2019, a joint distributed ledger technology venture between R3, Barclays and Royal Bank of Scotland—both investors in the firm—was said to reduce the property transaction times to fewer than three weeks.

But to find as much as success as it has, R3 has weathered at least a few bad days.

In late 2016, a handful of R3’s major backers pulled out of the consortium, including Goldman Sachs, Santander, and Morgan Stanley. In 2017, JPMorgan followed suit. Reuters reported that the departures stemmed from disagreements over funding. A few months prior to JPMorgan’s exit, R3 drew ire from the crypto community after an internal PowerPoint slide on “pertinent” Corda features surfaced online, which read in part: “No block chain [sic] because we don’t need one.”

Todd McDonald, co-founder and chief product officer at R3, calls the ordeal a “crazy kerfuffle,” and says he was shocked by the amount of attention it garnered. As it often does, the story began with a party, specifically a developer-relations event held at the office with pizza and beer. A friend of McDonald’s, a crypto enthusiast, took a picture of the slide deck—merely one snippet of a vast number of slide decks created by any business—and posted it on Twitter. The rest is literally history.

McDonald doesn’t go as far as to call the slide deck a joke, but says it was certainly never intended to be seen as a product marketing or strategy document.

The fact of the matter, McDonald says, is that R3 is a company that aims to “provide the ability for multiple, mildly distrusting parties to get together on a network and have some level of coordination, share information, and create, trade, and manage digital assets.” It’s blockchain, but it’s not the same kind of blockchain that crypto die-hards are using.

“Going back to the hype cycle, initially people were looking to use the technology vs. potentially starting with the problem itself,” he says. “We shifted quite a bit to: what is the problem? What is the solution? And how can we apply technology to it?”

Plan B

If all else fails, pivot.

Like R3, a startup called Secretarium is a supplier of confidential computing technology. Founded by two former SocGen technologists and grown in SocGen’s incubator, the vendor is supplying the technology for a new consortium, called Danie, a loose association of nine banks including SocGen, that seeks to enable financial institutions to compare notes on encrypted data, and perform computations and reconciliations without breaching client confidentiality or allowing their peers to peek into their secrets.

While not a blockchain company today, Secretarium planted its roots in blockchain in 2013, beginning as SocGen’s blockchain lab. In 2016—at the peak of blockchain-mania—founder Bertrand Foing was already second-guessing the tech’s usefulness in the context of banking. Having built several prototypes, each one had hit a wall when the bank wanted to go live with it due to privacy issues. He subsequently left SocGen and founded Secretarium to experiment with secure-enclave DLTs.

“It’s absolutely true—working as a blockchain company in the financial services sector is complicated. There is a lot of red tape,” Foing says. “The innovation departments at banks are always very excited about blockchain projects, but these are not the right people. They’re not the right people you want to talk to because they’ve got a limited budget, and they don’t have decision-making powers.”

That isn’t blockchain’s biggest problem, though. According to Foing, its biggest problem was referenced by TZero’s Grossman and repeated by what R3’s McDonald called “the cold start” problem: Convincing just one bank of its merit is essentially the same as convincing none. Because blockchain functions as a network, one needs a network of support from a group of organizations—in this case, organizations that don’t typically relish the thought of giving up their intellectual property for free.

Tech stalwart IBM was also once big on blockchain. While its own private blockchain, Hyperledger Fabric, is a trusted and popular choice among businesses in and outside of financial services, the company itself has decidedly tamped down its enthusiasm for it.

Anthony Lipp, IBM’s global head of strategy for banking and financial markets, says he’s never personally been much a fan of the tech, and that its concept—how multiple parties can work together best—has been around for decades. However, he believes that a blockchain-enabled world will soon be a given; it just won’t be blockchain-reliant.

“As we build out all these platform business models, they are all going to have blockchain embedded as part of that. But the thing is, you don’t start off by saying, ‘Hey, blockchain is going to do all of this.’ It’s not. Blockchain is just one of the many enablers used to build out those platform business models, so I’d say we aren’t going to hype it as much as we have in the past, blockchain itself,” Lipp says.

Something will stick

There are plenty of examples of defeats and pivots, lessons learned and oversights. However, it would be remiss to imply that blockchain shows no promise in financial technology.

On December 30, 2021, Nasdaq, the second largest exchange in the US—which makes it the second largest exchange in the world—published a blog post titled “How Blockchain Will Become a Driving Force on Wall Street.” Though CEO Adena Friedman stated in 2020 that she viewed blockchain’s potential to disrupt as “a bit of an overstatement,” it’s clear the exchange hasn’t dismissed it completely.

Johan Toll, vice president head of digital assets at Nasdaq, says the exchange first ventured to use blockchain in 2013, after finding it to be incredibly interesting in the way it powered bitcoin. Two years later, Nasdaq issued the first share of its kind on Nasdaq Linq, a blockchain-powered trading platform for private securities. In 2016, it collaborated with Citi on an integrated payments solution to understand how to move cash over a distributed ledger.

“How can we build up new types of ecosystems in the digital asset world? That’s what it’s all about,” Toll says. “How can we launch existing assets into a smart contract-based infrastructure? How can we settle them in a good way? Can we move potentially from T+2, T+3 into immediate settlement?”

Nasdaq is not limiting its use of blockchain to securities and transactions, either. As part of a recent ESG bid, the exchange made an investment in Puro.earth, a marketplace that offers industrial carbon removal instruments that are verifiable and tradable through an open, online platform. It counts names like Microsoft and Swedish financial group SEB as clients.

If blockchain does not easily lend itself to bank collaboration, then perhaps it does for ESG.

“The carbon industry is now super interesting for these types of networks because that’s where you have multiple different stakeholders participating in a shared network,” Toll says. The investment is meant to ensure Nasdaq will be able to serve incoming investors looking to offset their carbon footprints.

The real goal, Toll says, is much bigger and—somewhat paradoxically—much simpler, than blockchain and all its nuances. Nasdaq wants to be able to serve anyone who wants to trade any type of asset at any time.

Of course, that isn’t a bet on blockchain per se. Sometimes, the game is won by throwing everything at the wall and seeing what sticks.

With additional reporting by Anthony Malakian