When it comes to the mass adoption of cryptocurrencies and their underlying technologies, one critical aspect that must be in place is the infrastructure for the implementation and deployment of such technologies. One of the industry leaders in the creation and provision of blockchain-based trading platforms INX Limited (“INX”) recently acquired Israeli-based broker-dealer ILS Broker Limited.
With ILS Limited being an NFA registered member among other things, it shows that the mass adoption of cryptocurrencies is just around the corner. We spoke to Douglas C. Borthwick, the Chief Business Officer at INX Ltd. on this and many other issues. Here is what he had to say.
Douglas C. Borthwick, Chief Business Officer at INX Ltd.
- Congratulations on your ILS Brokers acquisition! What’s next for INX Limited?
Douglas C. Borthwick, INX Ltd.: Well over the past few months we have taken ownership of Openfinance, ILS Brokers and opened our crypto trading platform to the public. We now have to spend time upgrading technology on these platforms and integrating them with each other.
- How has the journey been as a digital asset trading platforms provider?
Borthwick: Well they say the days are long and the months are short. I think that describes the business for now. It is certainly an exciting time for digital assets, with new protocols and technologies being introduced on a weekly basis.
- What are the implications of the ILS Brokers acquisition for the digital asset space?
Borthwick: Our conversations with larger banks have led us to believe that the NDF product, traded between banks, will likely be the first product adopted by them. The NDF product gives banks access to price and volatility of a limited number of digital assets without any custody concerns. Meanwhile adoption of any product with digital characteristics will serve to increase the interest in the space
- Please, can you tell us your thoughts on the regulation of the cryptocurrency space?
Borthwick: Regulation is inevitable. If you fight it then you will be limited to geographies on the fringes, and consistently running from regulators. We prefer to have regulators in our passenger seat rather than our rear view mirror.
- As the world begins to come to grips with the existence of digital assets and their underlying technologies, what are the issues that need to be addressed and resolved to improve their adoption?
Borthwick: Perhaps the simplest way to improve adoption is through refining the User Interface (UI). Some digital assets require more than a passing knowledge to access. We need to reduce friction in accessibility. This means replacing the word ‘wallet’ with account… The general public buys equities almost seamlessly. We need to bring a similar experience to the trading of digital assets.
- Please, can you tell us more about the general operational concepts behind INX Limited and its governing philosophy?
Borthwick: INX Limited seeks to offer digital assets in the form of currencies and securities to retail and institutional users. We look to meet demand wherever it lies. Be it through voice, API or APP. We aim to educate issuers and investors as to the merits of digital securities and what they will grow into. Digital currencies, commodities, fixed-income and securities. All trading 24/7/365 and available to retail and institutional investors.
- What are the various issues that have affected the digital asset trading space?
Borthwick: A lack of clear regulatory oversight has held many back from entering the space. That and a lack of deep knowledge surrounding the space. There remain many misconceptions regarding digital assets, and so the learning curve is steep.
- How has ILS Limited been able to solve those problems?
Borthwick: Well we spent over 950 days working with the SEC to create the INX token. The first of its kind security to IPO on the blockchain. We didn’t run out of the gate and then ask permission. Rather we asked for permission first! This has created a roadmap for others looking to issue digital securities.
- Please, can you tell us more about the INX token?
Borthwick: The INX token is the first of its kind. A digital security token sold to retail and institutional investors in 75 countries. We introduced a new way of raising capital for a pre-revenue business. We were a self-issuer, and investors participated over the internet, without any broker/dealer or exchange involved. The token gives the holder a right to a pro-rata distribution of 40% of our net operating cashflow (profit), if there is one, each year. It is not backed by equity, but rather by potential profits in the future. The token can also be used to reduce expenses on the securities side.
- Please, can you tell us more about non-deliverable forwards and their impact on digital asset markets?
Borthwick: Non deliverable forwards have been traded for about 25 years in the foreign exchange space. They allow banks to trade and hedge exchange rate volatility in countries that do not have a deliverable currency. For example countries with currencies that are restricted. Like South Korea, China, Chile, Argentina and Brazil. Cryptocurrencies have similar characteristics to an extent. Banks are not sure that they want to deal with delivery, but they do want to experience price volatility and hedging characteristics. NDFs will add another fungible product to digital assets, with prices moving similar to those on the cash and futures markets.
- In what ways do you think digital assets and their underlying technologies will change the world?
Borthwick: New technologies make us impatient as people. There was a time when we were willing to wait for a letter to be delivered, or a package to be delivered. That time has passed. Yet while package and message delivery have hastened, the delivery of money and securities has changed little since the pony express. There is no reason why a wire from the US to the UK should take a few business days, or why securities delivery should take a few days.
These delayed delivery times only exist because legacy providers have not been forced to speed up. The blockchain is fixing this, and soon money and securities will have instantaneous delivery. Allowing for the creation of new products and reducing market friction and the use of ‘middlemen.’ INX wants to be at the forefront of this movement.
- Please, can you tell us more about the listing of the GYen and your partnership with GMO Trust?
Borthwick: GMO Trust developed the world’s first stablecoin backed by the Japanese Yen. It is our view that in the next few years folks will use stablecoins for money transfers and as speculative instruments, replacing fx trading as it is seen today. Overnight trading of USD/JPY is often around $800Billion, while for BTC/USD around $30Billion.
So the volumes in the Yen dwarf those of Bitcoin. Japanese investors are a large part of daily Yen volumes, and GMO is the largest player with Japanese investors.
We see the GYen as a great way to introduce FX players to crypto products and vice-versa, and we are honored to be able to work with GMO Trust to that end.
- What are your thoughts on the institutional flows into the digital asset space?
Borthwick: Institutional flows today are the trickle before the flood. Soon all institutions will be forced to enter this space by their shareholders and investors. Think of when Ford came out with the motor car. You either kept selling buggy whips and horse-feed or you pivoted to selling tires and gasoline. We are at a similar juncture. A new, more efficient technology has been invented. Those that it threatens most are the loudest protestors.
But soon the pure efficiency of the new technology will overcome the negative comments. Remember when the cellphone was invented and we all said we would never use it? Or we worried about getting cancer from holding it to our ear? The fears were overcome.
- Where do you see INX Limited in the next decade?
Borthwick: We would like to be a digital supermarket in a retail and wholesale space. Whether you have an interest in crypto, currencies, commodities or securities, we would like to offer these products under one roof, wherever you are from and whatever your wallet size. We believe that digital securities democratize banking services, allowing the ‘little guy’ similar opportunities that before were kept only for the wealthiest clients.
- How do you think the traditional and cryptocurrency worlds will merge? Please, can you give us a scenario of how you think this will occur?
Borthwick: First we will see banks adopting stablecoins as a more efficient alternative to SWIFT and ACH. They will then open digital wallets for their clients, first institutions and then retail clients. This will open up custody solutions, where the banks offers custody solutions to institutions and retail clients.
Once custody is there, widespread trading will commence. We will no longer talk about ‘wallets’ we will just have our transactions recorded and sent to ‘BOA’ or ‘Chase’.
The same wallet will be able to hold stablecoins, cryptocurrencies and digital securities. All under one roof, with renewed opportunities for cross products and Centralized Finance products. Imagine earning a yield on the stablecoins and securities you are holding at your bank!
- Do you have any secrets you want to tell us? Care to spill the beans?
Borthwick: I’m afraid loose lips sink ships.
- If you had three wishes and a Genie that could make them come true, what would they be for INX Limited and the rest of the cryptocurrency space?
Borthwick: I would wish for greater regulatory speed, greater regulatory understanding and 3 more wishes.