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and my magazine story on Chain and its work with Nasdaq.
Transcript
Laura Shin:
Hi everyone. Welcome to Unchained, a podcast engineered by Fractal Recording and produced by me, your host, Laura Shin, a Forbes contributor covering blockchain cryptocurrencies and FinTech, thanks for tuning in. If you’ve been enjoying this podcast, I would so appreciate it if you would rate, review and subscribe to Unchained on iTunes or wherever you get your podcasts. Those ratings and reviews help others find this show, I’d also like to extend a big thank you to our sponsor, OnRamp, branding isn’t just a logo, your brand is the essence of who you are and what you offer your customers. OnRamp is a full service creative and design agency that provides its clients with concise and exceptionally designed branding, websites and marketing materials that will resonate with your audience, effect its purchase decisions and ultimately grow your business. You can learn more at thinkonramp.com.
My guest today is Fredrik Voss, Vice President of Blockchain Innovation at Nasdaq, one of the leaders among financial services companies working on incorporating blockchain technology into their products. Nasdaq was the first incumbent to launch a blockchain-based product, Nasdaq Linq, which is used to manage shares in private companies. It has also launched an effort in Estonia to create an electronic shareholder voting system that uses blockchain technology and last year, the company unveiled a financial framework for clients who want to incorporate blockchain into their products and services. Welcome, Fredrik.
Fredrik Voss:
Thank you, Laura and thanks for having me.
Laura Shin:
So, tell us what you do at Nasdaq.
Fredrik Voss:
Yeah. So, my contribution to Nasdaq’s blockchain innovation project is, I work with a ________00:01:49.6 on what our corporate objectives should be across the entire Nasdaq, proposing strategies for achieving those objectives and I do also get involved if we have you know, investment opportunities in the space.
Laura Shin:
Okay, such as, for example, one that I know of is an investment that you made in Chain, which is also your partner?
Fredrik Voss:
Absolutely. That’s correct.
Laura Shin:
And what are some others that Nasdaq has made?
Fredrik Voss:
Well, actually, in the blockchain space, Chain is so far, I think there will be more, but so far, our only investment in sort of parallel financial innovation tracks that we’re working on like machine intelligence, we have done other investments for example, in a company called Digital Reasoning, but in blockchain so far, it’s been Chain.
Laura Shin:
And what was your background before this role?
Fredrik Voss:
My background is really in the commodity derivatives space. I’ve been involved in exchange and clearing house operations for commodity derivatives since the mid ‘90s, actually.
Laura Shin:
And how did you end up learning about blockchain technology?
Fredrik Voss:
Yeah, so, my previous roles as co-heading our European commodities business, I’ve had that role for six years and it was sort of time to do something else and at that stage, this was early 2015, Nasdaq was looking to expand its you know, blockchain innovation initiative and was looking for a person with some you know, commercial background in the space, in the capital market space and you know, I got the question if I was interested in the role and that’s the way it went.
Laura Shin:
And had you heard about bitcoin or other cryptocurrencies or blockchain generally when they approached you about that.
Fredrik Voss:
Yeah. I’d heard about bitcoin, I cannot say I knew a lot about it and particularly I wasn’t familiar with sort of the technology upon which bitcoin operated so, that was new to me actually when I took up the role almost two years ago.
Laura Shin:
And why did you know, other than wanting a change of, I guess, a change in your work, why did you decide to take the role?
Fredrik Voss:
Well, I’ve always been interested and intrigued by the way capital markets function so you know, aspects of liquidity, market structure, capital markets for the good of society and reform and change of capital markets I’ve, for example, been involved in various projects you know, closing trading floors, going electronic instead and I found it intriguing that while the front-end, the trading part of capital markets had gone through a fantastic amount of innovation over the last, let’s say, 20 years or more, the post-trade part is very much unchanged and this is a technology that has the potential to be contributed to a reform and an enhancement on that part of capital and financial market, so that was intriguing to me.
Laura Shin:
So, let’s talk about Nasdaq’s main blockchain initiatives. I briefly described them at the beginning of the call, but can you go into more detail around what they are?
Fredrik Voss:
Yeah. I mean, first of all, there are three areas that are of interest to us when we think about blockchain in capital markets, that is not because those three are exclusively interesting, but they are the ones where we have started and are a keen interest to us and they are you know, as I mentioned the post-trade plumbing on capital markets, it’s regulatory transparency, it’s the relationship between issuers of an asset and the investor of the asset and when we look at our projects, ideas, initiatives, PoCs, etc., we typically sort of validate them against those three buckets of interests and we have a pretty large portfolio actually of projects. So far, we only publicly announced two of them and then you know, as you mentioned the private company Linq solution and the voting project in Estonia, but we do have other project initiatives that we are working on as well, some are very you know, R&D and laboratory oriented and they will probably never be in-house and some are more commercial in nature and we will you know, see at some point, we will go public with them.
Laura Shin:
Okay. Well, let’s dive into some detail on Linq for instance, how would you say, how does that work?
Fredrik Voss:
Yeah. No, I think you can’t really conclude on that yet, it is still a solution in evolution. We are looking to expand the capabilities of the Linq solution in, actually, in many dimensions we are looking to expand the user base, we are looking to expand the feature set, possibly geographically as well, so it’s by no means a done deal.
Laura Shin:
But actually, can you just start with what it is you know, how it works like what the product is?
Fredrik Voss:
Yeah. So, it is a blockchain-based solution that allows a private company to issue shares, transfer those shares to its investors and if there is a secondary market trade, transfer those shares between the investors and the intriguing part is that this is done electronically using blockchain technology and with no trusted third party like a depository in the middle, so it’s an electronic version of the current sort of peer-to-peer basis upon which that market operates so, it really not only validates the technology, it actually validates the alternative market structure of you know, the transfer of ownership of digital shares in a peer-to-peer network and that’s sort of the key part of the Linq initiative as it stands right now.
Laura Shin:
And how does it compare to previous systems for managing those types of services?
Fredrik Voss:
I mean, and this varies of course from country to country and market to market, but if we talk about the US market, that historically has been basically paper based, when a private company issue shares, it typically does that in a paper certificate, those paper certificates are then transferred to investors in those companies and then between investors if there is a secondary market ________00:08:35.8 so, this is making that market more efficient, making it more electronic, less prone to errors and of course, in other markets around the world, even private shares, are sort of electronic and decertified, but in those markets you typically have a trusted sort of database in the middle, a depository or a registry and of course, Linq demonstrates that you don’t have to have that you can continue to operate this on a peer-to-peer network basis.
Laura Shin:
And so, in terms of the ways that blockchain, in this case, improves upon the existing software is that it probably eliminates some of the problems that you might have with a paper-based system such as if, let’s say, an investor or an employee receives more shares in the company or something like that you know, then you don’t have sort of like these invalid previous paper certificates that are floating around or you know, or in just the fact that you don’t have to deal with paper in general means that it’s just much more efficient. Is that a correct characterization?
Fredrik Voss:
That is a very accurate characterization. Basically, it helps the company to better keep track of its capitalization tables, basically who owns what in the company. You will see much fewer errors, you will also see faster processing of these transactions so, it is both reducing errors, but actually enhancing you know, let’s call it operational productivity in that ecosystem.
Laura Shin:
And what about the electronic shareholder voting system? How does that work?
Fredrik Voss:
Yeah. So, sort of the technology stack is very similar, we leverage the chain core, blockchain ledger protocol for both these cases, we do have a middleware, the financial framework that you eluded to and then we build sort of some unique applications in each of these cases so, the applications for the voting solution looks a bit different from the application for the private company application, but so, the technology stack is very similar. In the voting case, it is a slightly different use case of course in that, the key things we wanted to verify there was you know, we had wanted to force ourselves to work with the issue of identity. How do you identify a person on the blockchain? How do you identify a person representing a company? How do you work with delegation of rights on the blockchain if you want to delegate your voting rights from yourself to a proxy for example and so, we wanted to challenge ourselves on a different…with some different challenges in the voting case and you know, that’s why we took on that specific project.
Laura Shin:
And so, in general, for this electronic shareholder voting system, what problems exist in the current method that you feel like blockchain can resolve?
Fredrik Voss:
I mean, first of all, this implementation allows the companies in Estonia to participate remotely in the AGMs for example, in the shareholder meetings, which hasn’t been possible before, but more importantly it allows the casting of votes remotely, as well and it allows the delegation of those votes so, if you own shares in the company, you will be given basically ________00:12:21.5 based tokens equaling to the number of shares you own, but then you can transfer those on the network and you can, for example, give them to me and I can vote on your behalf in the course of the strong capabilities of blockchain technology to keep track of you know, provenance of a digitized asset and in this case a vote.
We can follow the whereabouts of these votes and one problem that solves is for example, if you’re a proxy today it is very difficult to demonstrate to the person who delegated his votes to you, that you actually voted in accordance with the instructions. If you leverage the foundational capabilities of blockchain technology, that is very easy, you can basically see that the voting token was you know, cast in either the yes or the no ballot and that is also a problem that the technology helps solving in a very good way.
Laura Shin:
In both these cases you know, Nasdaq Linq as well as the electronic shareholder voting system, what would you say is the benefit of using blockchain here like, how did you decide to use blockchain as a solution to improve these systems as opposed to some other technology?
Fredrik Voss:
I mean, first of all, when we set out on these projects and they were both started in I think, 20 year 15 or early 2016. The key objective of these projects was actually learning, we wanted to acquire learning on the technology, but also around legal and regulatory aspects, also around you know, business model questions and about integration and transition questions so, the key objectives for us were actually learning. They were, in that early stage, not intended to be you know, sort of a highly profitable product. As we now are three years down the line, of our blockchain project, we’re sort of shifting the objective somewhat, it is going to be less about learning and actually more about you know, ________00:14:25.1 commercialization going forward and that also means that we will sort of, a little bit tweak the nature of our projects and become more focused on the satisfying needs that, that clients in these cases are willing to you know, pay for us to sort of solve their problems.
Laura Shin:
And aside from the commercialization aspect, how else do you evaluate whether a product or service could benefit from blockchain because you hear a lot of kind of joking in the industry or I think there have even been comics that have gone around that have you know, said like, oh you have this problem, let’s put a blockchain on it and you know, there’s this perception that everybody thinks now that it’s going to solve everything when of course, that’s not the case so you know, aside from just like business model considerations, how do you figure out whether or not a certain problem or service is actually going to be improved by blockchain?
Fredrik Voss:
Yeah. I think first of all, I think it is worth putting it into context on our overall innovation portfolio and sort of our long use of technologies for solving problems in capital and financial markets and you know, we use and investigate machine intelligence, we work with cloud computers, we work with ________00:15:47.6 computing with augmented reality, cryptography in general so, we don’t think that we have a hammer here, a blockchain hammer and everything that we see is nails.
We think we can be pretty focused and selective on the uses of the relevant technology for the relevant problem, but it all goes back to the problem and the market need that we’re trying to solve and identifying you know, does that problem lend itself to a peer-to-peer structure for example, does it have the need for you know, provenance in the work flow for example, that it’s important that you keep track of where the asset has been throughout its life history, which is very important, for example, in the private company example and when we are you know, when we are satisfied that you know, we understand what is the need here? What is a good market structure look like? What is the good market business model look like and then we sort of map them across all our available technologies and if we see that, well for this particular case you know, the blockchain-based solution seems to be the best fit, that’s when we try to sort of you know, deploy that technology and we are not trying to sort of bend the problem to fit the technology because we have a very broad toolbox of many different technologies and we try to find the best fit for the problem and when we see that you know, that distributive ledger info structure is what this problem needs to solve that is when we look into use it.
Laura Shin:
And I like you know, how you are thinking about this in terms of this much broader toolbox of technologies and yet, I know also that you launched this financial framework that enables companies to use blockchain in many different ways so, can you first describe what the financial framework is?
Fredrik Voss:
Yeah. The financial framework is a framework that allows…strategically it allows the user to future proof it’s technical roadmap so, it allows you to combine different kinds of data stores. It, for example, it allows you to combine a blockchain with a traditional database, it allows you to combine different kinds of blockchains. It allows you to move from one data storage to another, so maybe today you want to use the traditional database with a traditional market model, but you may want to move to a new model and a distributive ledger database and then the way this all fits together on the modular basis allows you to do those changes and do those sort of transfers from one technology to another without you having to change the whole stack.
You can basically keep your application layer constant and vice versa if you want to move your applications or change your applications for various reasons you know, you want to change the collateral management application or a settlement application or payment application, you can swap those out without having to change the underlying data store so, it is a model or framework that allows the company to you know, as I said, future proof it’s technical roadmap for the future by having this modular structure.
Laura Shin:
So, I am not familiar enough with the technology at least you know, kind of like in this sort of deep back end way to fully understand exactly what some of this means in terms of future proofing, but can you walk me through like, you gave some examples of different types of services that companies might offer where they might use this framework like, you mentioned collateral management or payments, what would be an example of you know, how a client might use this financial framework?
Fredrik Voss:
Yeah. So, it can actually be used by almost any type of capital market participant, I think what is closest to us is of course, our supply of solutions to exchanges to clearing houses to depositories for market surveyance purposes, for you know, regulatory transparency, so if you are a ________00:20:20.7 depository for example, this will allow you to use this framework, maybe unchanged today, but as the technology evolves as your business evolve, it will allow you to continue to sort of adapt and transform your business models without having to do a significant changes to your technology even after your business changes and I think that is the key value of the Nasdaq financial framework. Then, of course, if you are a broker you can possibly use it as well or if you’re a bank, I can see use cases for it as well, but you know, in Nasdaq’s background has been in sort of a change and ________00:21:05.6 business and I think that’s where it sort of starts in terms of the use of the technology.
Laura Shin:
And what makes this possible? Is it blockchain technology?
Fredrik Voss:
No. I mean, it is integrated with blockchain technology and blockchain technology is a potential key component of it, but it is technology independent, you can use it with blockchain technology or you can use it with you know, traditional databases as well and that is what makes it so flexible, that it’s not tied to a particular kind of data storage and also, it is not sort of tied to any particular applications either. So, it’s a framework for capital markets use that allows the user to be sort of flexible in its use of it. Now and for the future.
Laura Shin:
And who is currently using it?
Fredrik Voss:
Yeah. So, this is something we announced earlier this year, we actually use it for our Estonia initiative on the voting side. Our technology business that you know, sell and provide solutions to our clients around the world are in discussion with a couple of clients about the use of it, but it’s a relatively new framework that we are continuously enhancing that we are you know, looking to you know, increasingly deploy over the coming years.
Laura Shin:
And is the business model for that software as a service?
Fredrik Voss:
You can deploy the Nasdaq financial framework either in your own data centers, but it can also be deployed in a cloud, definitely.
Laura Shin:
Well, that’s a great thought. I just want to pause things right here to bring in an important word from our sponsor OnRamp. The best companies in the world obsess about branding, killer branding will transcend your company and strategically and competitively position you in the market. Done well, a remarkable brand with affect buyers and their purchase decisions and give your organization a voice that sets you up for long term success. OnRamp is a full-service creative agency that helps its clients maximize brand awareness, gain market momentum and accelerate growth, whether it’s branding and identity for a new start up, redesigning an existing website to generate traffic and leads or executing a custom design project or marketing strategy, OnRamp will get your organization strategically poised for the future. You can learn more and see examples of its work at thinkonramp.com. I’m speaking with Fredrik Voss, Vice President of Blockchain Innovation at Nasdaq. So, we briefly touched on this, but now that we have kind of a bigger overview of what you were doing at Nasdaq, how would you characterize Nasdaq’s overall blockchain strategy?
Fredrik Voss:
Yeah. So, I mentioned the three areas that are key interest to us, post-end plumbing, regulatory transparency and a relationship between an issuer of an asset and the holder of that asset and to sort of serve those areas, our strategy is basically based upon, we develop applications that leverage the inherent capabilities of distributive ledger protocols, we actually don’t develop those protocols ourselves, we’ve been working and working closely with Chain as a protocol provider to us. We leverage the fact that we are both a technology supplier to capital markets around the world, but we’re also a service provider you know, we run our own exchanges, our own clearing houses, our own depositories and that sort of gives us a unique insight in how these markets could potentially use the technology, so I think our strategic approach is one all the you know, developing and having a history of developing high quality applications to these markets and actually leveraging the fact that we use those products ourselves and that gives us a sort of a unique insight and understanding and capabilities of serving the needs of capital market service providers. Basically, regardless of technology, but is definitely very helpful when you’re embarking on looking up a new kind of technology like blockchain technology.
Laura Shin:
How do you see this technology helping the requirements you have you know, for showing certain transactions to regulators?
Fredrik Voss:
Well, one of the strengths of the blockchain technology is of course, it’s very, very good at keeping track of possession of a digitized asset, especially in a peer-to-peer network environment and of course, with the technology, we think it’s possible that to give a, sort of like a special set of ________00:26:04.8 to regulators you know, you can give them a special kind of node in the blockchain ledger networks that allows them to basically see what’s going on, on a broader scale and with more transparency than today and that is of course helpful, that could potentially allow regulators to faster and in more detail, see where you have potentially concentration risks in a market ecosystem or systemic risks involving in a market. Now, of course, this all remains to be proven, but it looks to us like the technology could potentially have a lot to offer on that front.
Laura Shin:
And you mentioned earlier that things have evolved for Nasdaq in terms of the way that it’s approaching blockchain you know, three years ago, as opposed to now. What were the company’s thoughts back then around what the technology would mean for Nasdaq?
Fredrik Voss:
I mean, Nasdaq is being a technology in the…technology company in the financial space for over 20 years I mean, you know, as I said, we investigate and explore all kinds of new technology, so for us you know, blockchain is more of a you know, an ordinary work day than Christmas morning so, we take upon us for the benefit of our clients, ourselves and actually we owe our shareholders to understand and explore all technologies and I think the common theme on new technologies. So, I think the common theme for all of this is the quest for increased productivity, increased efficiencies, but also potentially new business models and new alternative market structures and three years ago it was an idea, it was a desire to better understand the potential of the technology in capital markets and now we see that there is you know, good hope that the technology has a potential in the future for a you know, larger scale adoption in capital markets so, our understanding is better, we understand that there is a long way to go before we see a very wide scale adoption of this technology in capital markets, but we think, now, it looks more promising now than we thought three years ago, I think is a good way of characterizing the situation.
Laura Shin:
Oh wow. Well, that’s interesting to me because you know, as I mentioned the cartoon where every solution…the joke is that every solution can be applied through a blockchain, but because of that sort of like derisive attitude that people are abusing it or you know, or don’t know what to do with it or over using it, I’m actually surprised to hear that you are more optimistic about the potential. What do you feel like you’ve learned over the last three years?
Fredrik Voss:
I mean, first of all, it won’t be useful for all kinds of problems and you know, and all kinds of market structures, but we certainly see that there are cases and situations where a technology that is strong on keeping track of ownership of digitized securities on a peer-to-peer basis could play a significant role, I think, but ultimately this comes down to the market participants and the choice of their market structure so, today many markets are using a trusted third party in the middle like a CCP or a CSD and you know, they are happy with that and one should not try to squeeze in a technology that is not fit for that purpose, but on the other hand we see markets like, for example, the private company market in the US that lends itself very well to this kind of structure or actually already have that kind of structure, but a blockchain-based solution could be superior to the technology that is currently at hand. So, we think it has the role to play, but not for every kind of problem, I think I want to sort of nuance that, reply a little bit.
Laura Shin:
But why are you more optimistic now than you were even three years ago?
Fredrik Voss:
Yeah. First of all, I think it’s because of a general better understanding and of course the technology evolves, we see that the protocols that are being worked on have evolved in a constructive and positive way and some of the problems that were identified with the technology, so many of them remains to be solved, but it looks promising that they could be solved. I think we also have a better understanding of all of the you know, how does the…how does solutions built on this technology fit into legal and regulatory framework. So, it’s a better understanding of the technology and it’s a better understanding of the potential role it could play and therefore it looks to us like you know, it could have a role to play on the capital markets in the future.
Laura Shin:
And when you say that there are still ways that the technology needs to evolve or develop in order to you know, really be useful you know, in all the ways that you can imagine. What are some of those things that you feel still need to happen?
Fredrik Voss:
It’s still very much sort of a hope and a belief. Many of these things remains to be proven in production and on a large scale, so you of course have issues around ________00:31:43.7, scalability, security, how it fits into legal and regulatory frameworks, for example so, it is more about battle testing the technology and figuring out and identifying what works well, what doesn’t work so well, what needs to be changed and you know, a couple of these issues are already being address I mean, if we talk about ________00:32:10.0, we talk about scalability, what’s available now is much more ________00:32:16.9 scalable, protocols than we had like only two years ago so, we see how things evolve, we understand that it still needs to be…work that needs to be done, but it looks quite promising to us.
Laura Shin:
So, as you mentioned at the beginning of the call, Chain has been your partner for much of your blockchain work. Why did you choose chain and how does the division of labor break down between the two companies when you collaborate on something together?
Fredrik Voss:
Yeah. No, we think they have…they’re a great team, first and foremost, they have a great technology and that’s, of course, two key parameters when choosing a partner. In our joint products, of course, we come with a vast experience of building applications for use in capital markets, so we contribute that. They are very good on the distributive ledger technology part, they have a great protocol and when we sort of sit down together and work on our joint projects, I think we help them understand how that technology fits in capital market and they help us to provide a high performing ledger protocol for what we need going forward for our…for Linq, for example and for Estonia and for some of the other projects we are working on so, I think that’s a very constructive match that we have with the guys with Linq…at Chain, I mean.
Laura Shin:
Yeah. When you talked about how you think they’re a great team, I actually also had Adam Ludwin, the CEO of Chain, on the podcast earlier and you know, he’s always a very kind of insightful person to talk with about this technology. So, something that’s interesting to me is that I had spoken to you earlier and you talked with me a little bit about some of like the more mundane aspects of adopting this technology that are just important to consider from like a practical perspective. Can you talk a little bit about that you know, like when you really get down to the nuts and bolts of trying to incorporate blockchain into an existing product or service? What are some of the obstacles that you come up against?
Fredrik Voss:
First of all, we talked about that a couple of minutes ago about you know, the technology is not the finished product so that will of course evolve over time, but actually when we consider what are the bigger challenges to the adoption of the technology in capital markets on a large scale. We think that the technology will evolve faster than some of these other…how some of these other mundane aspects will be addressed and one area I touched upon and that is of course, the legal or regulatory landscape and many of these new alternative market models and ideas and proposals for products and solutions that emanate from blockchain technology, they are so innovative that they are simply not contemplated by existing laws and regulations so, the issue is not so much that regulations prohibit these new ideas, it is more that they were not contemplated and therefore you have a legal void and legal uncertainty and when you have legal uncertainty, it is difficult for market participants to allocate a lot of assets to those kinds of solutions.
So, in parallel to technical innovation, we think there is in many areas, a need for legal and regulatory innovation and that is, of course, not a show stopper you know, we change laws and regulations all the time, but it has an impact on the timeline because it’s you know, it’s labor intensive work that needs some time to happen so, that’s one example. Another one is you know, going from vision to blueprints and the implementation of those blueprints is also not a show stopper, but it’s time consuming and has an impact on the time line I mean, we all hear about faster settlement, less need for collateral, cheaper solutions so, I think there is a common…there is a lot of people that subscribe to the visions of what can blockchain bring, but you need to go from those vision to the blueprint of how do you want it to work and many of the benefits of the technology is reliant upon there being a network, an ecosystem, a market participating, adopting these new solutions based on the technology, but then you need to find an agreement across these parties of how do you actually want it to work.
Yeah. We may have faster settlement, but how fast? Are we talking ________00:37:08.8 or are we talking ________00:37:10.5 plus a couple of hours or are we talking optional settlement fees and just take one example of one aspect that needs to be agreed upon and agreeing on these blueprints also will take some time and impact the timeline, by which we see this technology being adopted and thirdly, any implementation of an adoption of a new technology doesn’t happen in a vacuum I mean, it needs to fit into an ecosystem of already existing infrastructure.
So, there is a need for integration of the technology and again, we do integrate the capital market participants to integrate new technologies and systems all the time, but it takes you know, it is work and it takes time and also of course, if we’re talking about replacing old technology, there also needs to be credible transition plans in place before the market embarks on these big transitions. You want to know that you are looking at a potentially successful transition before you invest in a new technology so, I think those three areas, legal regulations, from vision to blueprint and integration and transitions are three examples of sort of non-technical aspects that will be critical before we see the implementation of the technology on a large scale in existing capital markets.
Laura Shin:
And can you walk me through what that would look like applied to, for instance, Nasdaq private market you know, how long do you think it would take because as far as I understand, there’s currently five clients that are using the blockchain-based solution and then all the others are still on the previous version of the software that you had. So, what are all the steps that need to happen in order to get everybody on board with Linq?
Fredrik Voss:
Yeah. So, I mean first of all, if for the sake of argument saying that we are right in what are the challenges to the wide scale ________00:39:20.2 technology then of course, we think that the commercial opportunities in the early stages will be those where you don’t have a lot of those challenges so, we think that the emergence of early commercial opportunities will be in sort of regulatory-like environments and in markets with relatively low technical complexity and that is actually one of the reasons why we picked the private market as one of our first markets.
It is actually a lower level of legal and regulatory complexity than if you’re talking about public markets for example, and also the level of technical sophistication in that market is relatively low compared to, again, to, for example, publicly listed markets so, for some opportunities these three mundane obstacles to adoption are less prevalent and of course, in those markets we think we will see an earlier adoption of the technology like, for example, in the private market, but that will serve as a great you know, test bed and data point for decisions on whether to deploy the technology for more complex and larger markets as well so, not all markets have the same level of that complexity.
Laura Shin:
But even for Linq, I thought that it would still take a while to roll out Linq to all of Nasdaq private market? This was referenced in an earlier conversation that I had with you and at that time you know, you did say it will take a long, long time and so I understand that this might have been the first application that you guys pursued because of these ideal conditions, but even then I think it seems, at least that’s what you seem to be saying in the previous interviews, that there are still hurdles?
Fredrik Voss:
Yeah. I think what I hope I said was that it’ll take a long time before every company, every private company and every investor in private companies uses the technology. Of course, it follows sort of a traditional adaptation ________00:41:35.2 that you know, some participants in these markets will be earlier adopters than others and one of the good things is that you don’t have to do a big ________00:41:47.0 across the entire market, you can sort of adopt this on a, let’s say, company by company basis, but of course if you are a large private company with maybe hundreds of shareholders and you want to switch from a traditional technology to this kind of technology, obviously it is more complex to do that than if you were a new start up with maybe a handful of investors because you’d really do not…probably don’t want to have different technologies running in parallel for the same purpose so you know, adoption of the technology will not be uniform, it’ll be sort of happening over time and then depending upon the size and the need, etc., over the various companies that want to leverage the solution.
Laura Shin:
So, because I…at least I consider Nasdaq further along than most other companies in incorporating blockchain technology into its business, I have two questions for you based on your experience. What is the biggest or what has been the biggest surprise to you in terms of what impact you expected blockchain technology would have on financial services and what impact it’s actually having?
Fredrik Voss:
It’s almost a little bit too early to answer in terms of biggest surprises I mean, so far, I think, compared to our experience from looking at you know, other technologies and their potential using capital markets, we’re sort of following the same curve in way, so no surprises there.
I think…I don’t know if it’s a surprise, but the very positive thing has been even though…even if it were to be that blockchain doesn’t actually have a role in capital markets on a wide scale in the long term, it has generated a debate about how do we structure part of our ecosystem and it also forced market participants or encouraged market participants to talk to each other about some of the sort of collective utilities you know, are we happy with how the post-trade plumbing work, are we happy about the level of transparency we provide, regulators and so on so, maybe that has been a little bit surprising that the energy with which the community has engaged in this space and actually sort of encouraged…the technology has sort of encouraged the financial markets to sort of look at some of its problems with fresh eyes.
I think that has been positive and then as I said in the beginning of the call you know, all innovation for over 20 years was focused on the front-end, finally we have sort of innovation focusing on the post-trade plumbing of capital market so, I think those are positive experiences over the last couple of years sort of regardless of what happens in the future, in a way.
Laura Shin:
And based on your experience, what advice would you give to other companies also looking to incorporate blockchain into some of their products and services?
Fredrik Voss:
Yeah. I mean, first, really be thorough in understanding what the technology really is and what it can contribute. Avoid falling into the trap of doing ________00:45:21.3 projects just for the sake of doing it as you…to your point for that you know, it is not a solution to all problems. I would also say that because the technology potentially enables you know, new business models and alternative market structures, it is not just a faster engine, it has potentially more fundamental impact on markets than that, I think it’s important to very early on, engage your business side and your you know, supporting functions like your compliance regulatory people in the process, this is not just an affair for engineers and developers and technologists.
Laura Shin:
And what new products and services do you imagine that blockchain could help Nasdaq offer in the future?
Fredrik Voss:
So, you know, some of those we’ll, of course, announce when we get there, but I think it has definitely a role to play in the ________00:46:29.6 and the sort of settlement processes of transactions in capital markets and I can certainly see how it will allow us to provide new services to markets, Linq is an example of that and as a technology supplier, it is interesting to say that now we’re starting to get encouraging signs of people who want to sort of addresses new market opportunities coming to us and looking for technology, so I think it potentially could lead us to sort of create new technical solutions, building on the Nasdaq financial frameworks to satisfy some of the needs of the clients that have ideas and approach us with them. So, I think we will see some new services from Nasdaq based on this and I think we could also see some new technical solutions and products coming out from Nasdaq as a consequence of this.
Laura Shin:
Great. Well, where can people learn more about your work and get in touch with you?
Fredrik Voss:
I think a good starting point is to get in touch with me, you can always go to nasdaq.com, see more about what we do. We recently published a piece on our Estonia initiative and one of our social media links so yeah, that’s what I would recommend people to do.
Laura Shin:
Great. Well, thanks so much for coming on the show.
Fredrik Voss:
My pleasure. Thank you very much.
Laura Shin:
Thanks for joining us today. If you’re interested in learning more about Fredrik and Nasdaq’s work on blockchain technology, check out the show notes which are available on my Forbes page, forbes.com/sites/laurashin. Thanks so much for tuning in to Unchained, check back in two weeks for the next episode and if you’ve been enjoying the podcasts, please remember to review, rate and subscribe to it in iTunes or your preferred platform. Thanks again for listening.
