APAC Institutional Demand for Blockchain With Hex Trust and Algorand
Paul Gordon talked to Alessio Quaglini, CEO of Hex Trust, and Sean Lee, CEO of the Algorand Foundation, to explore their views on opportunities in Asia Pacific as well as their perspectives on regulation, community participation and the Hex Trust-Algorand collaboration. Hex Trust was created…
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Paul Gordon talked to Alessio Quaglini, CEO of Hex Trust, and Sean Lee, CEO of the Algorand Foundation, to explore their views on opportunities in Asia Pacific as well as their perspectives on regulation, community participation and the Hex Trust-Algorand collaboration.
Hex Trust was created in 2018 with co-founders Alessio and Rafal Czerniawski, sharing the idea that blockchain would play a significant role in future financial market infrastructure. They foresaw its move from retail to financial institutions, with the need for those institutions to have reliable platforms in these new blockchain markets. Hex Trust provides the services and platforms necessary for financial institutions to enable digital assets and offer digital asset services to their clients. They have over 70 clients across Asia and Europe with offices in Hong Kong and Singapore.
Algorand was founded by Silvio Micali with the aim of solving real world problems using blockchain tech. From an adoption perspective, there are over a million transactions a day on the Algorand platform, which are real economic events supported by stablecoins USDC and USDT. Algorand has been very aware of the speed of finalizing and producing the block as it relates to their ability to execute trade — that speed of execution remains one of their main focal points.
APAC Demand
(2:24) In the past 12 months, Hex Trust has seen an enormous increase in demand from its institutional clients, with demand spread across APAC. In Hong Kong and Singapore, banks are interested in entering the space in different ways. Demand in the past six months has increased tenfold.
(3:18) “I would say that…the main reasons behind the increase in the demand in the Asian continent is partially the improved regulatory framework in some key regions, [for example Hong Kong, Singapore, Japan and Korea]. At the same time, we’ve seen the move of China with the Blockchain Services Network (BSN), more from the West… and large corporations are starting to buy digital currencies,” said Alessio.
(4:40) Interest in blockchain tech and digital assets in general has skyrocketed around the world. This is especially true in places like Asia, where cross-border services and payments are required and conventional structures have struggled to support those kinds of needs, said Sean.
Geopolitical tensions are also playing themselves out at the same time as this growth in blockchain adoption. China’s initiation of BSN can be seen as a tech framework or as part of a larger macroeconomic toolkit, which would enable the Chinese to facilitate transactions from a data and monetary perspective.
(6:08) “When you bring all these things together, I think we are certainly seeing a lot of interest in the Asia Pacific region along with the rest of the world…and that’s also one of the reasons why late last year we ran an Algorand accelerator here in the South East Asia region so that we can tap into the developer network, the startup communities that are trying to tackle these issues and also to look for [collaborative partners]… Activity is definitely better,” said Sean.
Regulation
(7:32) It’s fascinating that there are so many countries with varying degrees of understanding and appreciation of digital assets. These countries are monitoring, watching and learning from one another, and that’s healthy. It also brings more confusion and complexity for companies trying to build cross-border businesses.
The Chinese policy approach, for example, is to prioritize blockchain but it prohibits any crypto assets, and whilst that leaves no room for ambiguity on China’s stance, it precludes lots of business in a large market. Alongside that, China’s policy creates opportunities for places like Hong Kong and Singapore to be able to facilitate that lack of focus on crypto assets.
(8:52) “I appreciate the fact that we are getting more attention from institutions and regulators and I think that’s a very, very healthy thing,” said Sean.
(9:09) It’s going to be interesting where regulators in key capital market centers move, as this is where the main players in both the traditional and the new crypto space are, said Alessio. We need to observe and take note of what these key capital market centers are doing, and that approach will filter through to regional hubs. There are still regional discrepancies. Companies like Hex Trust need to hedge accordingly in terms of what platforms they can offer to clients in different jurisdictions, said Alessio. There are varying degrees of progress in all the key capital market centres.
Public vs. Private Blockchain
(14:23) There won’t be one blockchain that covers all global use cases, creating a need for specific use blockchains. Some will require public blockchains, others permission-based, said Alessio. They’re not exclusive to each other and the tech could be the same. The interesting aspect will be when you connect public and private blockchains via some kind of bridge. In that case they will converge to the same market infrastructure.
(20:50) Algorand’s transaction fees are 0.01 ALGO, which translates as virtually negligible when it comes to executing USDC and USDT trades, with a focus on onboarding other national stablecoin currencies as well as NFTs. Algorand is set up to enable bridging between public and private blockchains, said Sean.
Client Base and Security
(23:35) Hex Trust divides its client base into three groups: digital asset natives who are familiar with the risks and characteristics of the different networks; traditional financial institutions that are quickly becoming more blockchain literate; and corporate or small parties that are more focused on personal investment in blockchain, said Alessio.
(26:16) Algorand’s approach to risk is simple: as much primitives built into layer 1 as possible — the reason being that when things are built into layer 1 they’re much easier to deploy, design and implement. And because they’re easier to deploy and design, they’re more secure, said Sean. Algorand is working to build on top of that to make it easy to build dapps on algorands so they interact more easily with the layer 1 primitives. Algorand’s approach is to use simplicity to drive out security concerns and bugs, said Sean.
Mass Adoption
(28:53) There are two major factors that we built into layer 1 in addition to the co-chain element. The Algorand Standard Assets (ASA) is the first element, where the Ethereum equivalent would be ERC. Stablecoins minted as Algorand will behave in the same way as the ALGO, which bring advantages from a speed and scalability perspective and more importantly from a cost perspective too, said Sean. The second key feature is the speed and ease of use of the atomic swap.
The co-chain element is also another valuable feature built into Algorand:
(31:27) “The co-chain is this notion where Algorand is a public chain…We were built as a public chain… but there are going to be cases where we work with private institutions and/or governments where a permissioned version of the blockchain may become useful. That’s where the notion of co-chain happens: private permission chains that are hanging off that single main public chain thereby having various different use cases but still having this network of connectivity and bridges that allow for various different assets and transactions to go from one area of the chain to the other,” said Sean.
Algorand’s implementation for BSN in Mainland China is going to be one version of that co-chain, said Sean.
DeFi
(34:08) Hex Trust is providing a comprehensive treasury management solution, allowing clients to lend, borrow, stake and perform similar transactions without intermediaries in the market. The complication in the blockchain world is you don’t have centralized intermediaries to lend and borrow with, yet you have the option to do the same thing in a centralized manner or using DeFi protocols. Hex Trust’s clients have access to both the CeFi and DeFi worlds. Hex Trust already provides staking, which is thought to be a major stream of development, said Alessio.
Hex Trust and Algorand
Looking at the potential of collaboration between these to players, Alessio said:
(38:33) “There are many players in this industry, but I value three things the most about Algorand and the work that they’re doing. Firstly, having solid technology is key to being a leading player in this industry. The second one is having a really clear focus on which use cases your blockchain is going to solve and address. Finally the work that Algorand is doing is very good in terms of creating this community.”
2021 Outlook
(40:36) Algorand’s near-term focus is technical upgrades, going to 46,000 transactions a second and a two-second finality, said Sean. Algorand is due to announce its governance program in the next few months, moving to partners and community committing to the network and having a say in the future direction of Algorand tech, ecosystem and funding decisions. For a public blockchain like Algorand, adoption is very important, so working on the education aspect and investing in research with leading institutions is very important, said Sean.
(43:23) Hex Trust’s focus for 2021 is threefold: completing the treasury management solution, supporting security tokens, and support for NFTs. In addition there will be two big announcements in the next month, firstly with respect to fundraising to be disclosed in the next week, and a licensing announcement coming shortly, said Alessio.
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