The State of Blockchains Q2 2018
Lead Analyst: Joel John
Head of Research: Lawrence Lundy-Bryan

Outlier Ventures proprietary information
This research is private and confidential and has been provided to you to help build knowledge and understanding in
the emerging blockchain and DLT space. This information is provided ‘off the record’ and we would appreciate it if this
content is not quoted directly without our prior written consent. We would be glad to prepare comment for publication,
please contact Lawrence Lundy or Charlotte Baker using the details below.
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About Outlier Ventures
Outlier Ventures is a venture platform focused on building the infrastructure for the next phase of the Web. As the first
European venture firm dedicated to blockchain technology, we’ve developed an industry-leading investment thesis,
based on the convergence of decentralised technologies such as blockchains and distributed ledgers, with ‘deep
tech’ such as artificial intelligence, robotics, the Internet of Things, and 3D printing.
We are an LLP partnership, we invest our own money as long-term investors who intend to hold investments for
several years. We focus on early stage, seed and pre-seed projects where direct support to investee founders and
creating value post-investment is integral to our business model.
We have consistently proved our ability to identify exceptional projects, allowing us to constantly expand. Our team is
30 people strong, with a new office in the US, and with specialists in crypto-economics, research, legal, marketing,
and tech, we bring a powerhouse of support to founders.
Investing in both equity and crypto-tokens we have invested and partnered with some of the most impressive projects
in the decentralised space including, IOTA, Ocean Protocol, Fetch.AI, SEED, Sovrin and most recently Haja Networks.

About the authors
Lead Analyst: Joel John
Joel's interest in blockchains primarily stems from its potential applications in developing economies .Prior to joining
Outlier Ventures, he was the Blockchain analyst at Tracxn. Former involvements in venture capital include working with
GSF Accelerator (India) and Rebright Partners (Tokyo). At Outlier Ventures, Joel leads research that feeds into
management and portfolio decisions. He is currently focused on the building of a knowledge repository founders can
reference as they work on community building and token generation.
Head of Research: Lawrence Lundy-Bryan
Lawrence is exploring the intersections of artificial intelligence, blockchains and the internet of things. He is Partner and
Head of Research at Outlier Ventures and pioneered the funds’ investment thesis leading to investments in Ocean,
Fetch, SEED, Haja Networks, IOTA, and Sovrin. He helps inform the UK and EU on technology policy as an expert
advisor to the UK All Party Parliamentary Group (APPG) on Blockchain; steering committee member for the AI Global
Governance Commission; community member of the UK All Party Parliamentary Group (APPG) on AI; and member of
the European Commission Observatory on Blockchain. He is a regular speaker and commentator on a range of
emerging technologies having been quoted on the BBC, Bloomberg, The Economist, and The Wall Street Journal.

Contents • Executive Summary
• The OV Quarterly View
• Startups: Numbers
• Startups: Trends
• Startups: Insights
• Corporates: Numbers
• Corporates: Trends
• Corporates: Insights
• Government & Regulation: Numbers
• Government & Regulation: Trends
• Government & Regulation: Insights

Executive Summary

Executive Summary
The market has continued to be in its “winter” in terms of price action in the token markets and fund raises. Barring a
few events such as the EOS launch, there have been few reasons for hype and excitement in the market. However,
regulatory bodies, enterprises and venture capital inflow to the ecosystem continues at a sustained rate.
We aren’t in public token sale winter, but we might be soon…
Contrary to public reports, removing the outsized fundraises by EOS ($4 billion) and Telegram ($1.7 billion) would
reveal that token markets have seen a dip in the total amounts raised through token generation events. The sustained
bear market means a lower risk appetite from retail capital which has converted to lower raises. If Bitcoin or Ethereum
see a sustained rally in Q3, the result will likely be smaller token sales as retail investors hold on to their existing tokens.
This could mean a boom in SAFT based raises as teams raise funds from more sophisticated backers.
Regulatory clarity inching ever closer
More nations are beginning to come through with classification for tokens and the general meaning of
“decentralisation”. The SECs landmark statement on Ethereum not being a “security” due to it reaching sufficient levels
of decentralisation will prove to be crucial as the industry looks for more clarity from governments around what would
be deemed legal or otherwise.
Enterprises are fully on-board and driving adoption
IBM, Walmart, JD, Google, Facebook, the list goes on across sectors and regional markets. Blockchain specific teams
are increasing within organisations and hiring for individuals with relevant skill sets are continuing at a sustained rate.
Rising enterprise interest in the sector would convert to a higher number of individuals interacting with blockchains
without necessarily requiring the technical know-hows of private keys and personal wallets. We are interacting with the
beeping modems of the blockchain era. Broadband is right around the corner.

Startup Ecosystem
With 343 deals raising $1.8 billion in the year, we have surpassed funding levels of all previous years. However, this was
driven by a few large rounds in existing organisations that had found product market fit. It remains to be seen whether
the interest sustains over the year.
The era of mega rounds are here
Bitmain raised $400 million with plans of a possible IPO this quarter in what may be one of the largest series B rounds in
the ecosystem. There were multiple raises that crossed $100 million in the industry leading to sustained capital
concentration among a handful of companies that are now profitable and beginning to find product-market fit.
Tokens now acquire companies
Tron’s acquisition of BitTorrent marks the beginning of blockchain companies acquiring traditional, web 2.0 entities to
accelerate growth and establish brand names. In a similar move, Coinbase acquired over 7 companies in the past
quarter alone. As entities within the ecosystem turn “hungry” for growth, we will see a rise in exit opportunities for early
stage investors in smaller companies.
The seeds for mainstream adoption are being sown
Bitmain invested $50 million into opera, influencing the browser towards an integration of token wallets into their
android app. Similarly, HTC launched a mobile device that integrated CryptoKitties into their core offerings. Over the
coming two quarters, we’ll see a rising number of companies with access to large customer bases using their reach to
on-board individuals to tokens that are cash rich but are struggling for distribution.

Corporate Ecosystem
Corporate venture capital in the ecosystem has not necessarily risen over the past quarter. However, early stage
investments made by enterprises have provided great follow on rounds to organisations that raised capital from them.
This could convert to heightened risk appetite from corporate entities in the near future.
Exchanges are trending
A rising number of financial organisations have expressed interest in offering token exchanges and associated services
in the coming quarter. Notable amongst these is SBI Holdings own token exchange venture which launched last
quarter. Line launched Bitbox and Robinhood app integrated a number of altcoins into their system to allow individuals
to trade a
rising number of crypto-assets.
Key use cases are evolving
Although the financial sector continues to dominate the use cases for blockchains by enterprise, alternative systems
such as supply chain management, identity and even stable currencies are being explored by enterprises. Interestingly,
due to a rising market demand, we are witnessing briefer times between plans of launching a project and actual
implementation.
But open source is yet to be embraced
Enterprises continue with their age old practices of working behind walled environments. Although consortiums are on
the rise, the high number of consortiums within each sector represent how fragmented the ecosystem is amongst
enterprises. Notably, the quarter witnessed R3’s Corda’s open-source version (Cordite) being announced out of stealth
mode. It will allow for the creation of digital assets that are much like ERC-20 tokens on Ethereum.

Government & Regulatory Ecosystem
It has been a quarter of caution, calm and exploration for regulatory bodies around the globe as they consult experts
about the ecosystem.
Banks turn sensitive to government instructions
Regional governments have begun instructing banks to avoid working with token exchanges with the interest of
enforcing regulatory control over the ecosystem. This could however backfire as individuals move to peer to peer, cash
based exchange mechanisms. There has been a rise in token oriented crimes in regions without permissive token
exchange regulations in place.
Regulatory arbitrage will continue
Binance made headlines when the exchange shifted to Malta due to rising regulatory requirements. The region in
exchange “welcomed” the organisation and has since used the opportunity to attract more blockchain start-ups. As
regulatory environments around the world continue to fail to provide clarity, we will see both capital and entrepreneurs
moving between ecosystems to avoid rising scrutiny.
Governments are embracing blockchains
Governments across the globe have begun embracing blockchains as a viable mechanism to raise efficiency and
provide citizens with better services. Think-tanks, start-ups and enterprises are being increasingly consulted upon for
the implementation of blockchains for purposes varying from voting to maintenance of educational records and
issuance of subsidies. The first, truly large-scale implementation of a blockchain maintained by governments may go
live by as early as mid 2019.
However, amidst concerns of a lack of authority around truly decentralised, public blockchains and financial risks that
stem from token volatility, governments have restricted their focus on blockchains and not empowered the use of
tokens yet.

The OV Quarterly View

Jamie Burke, CEO
• As usual, the industry continues to develop at breakneck speed.
What is now clear is that the space has broken free of much of
the idealistic dogma and is now pragmatically laying down
important foundational infrastructure like dApp tooling, stable
coins, and interoperability protocols .
• A key macro-trend we are observing is the increasing levels of
M&A. We are seeing protocols launch venture funds and
accelerators as well as acquire equity-backed companies and
teams to scale development or buy network-market-fit. We are
calling this 'The Hungry Protocol' and understanding what M&A
looks like in a decentralised Web will be one of the most
important things for investors and protocol foundations to
understand and master.
• The Hungry Protocol is in reference to, and an extension of, Joel
Monegro’s ‘Fat Protocol’ thesis: the idea that unlike Web 2 value
in Web 3 will primarily be captured at the protocol layer rather
than the application / market layer. So in effect, The Hungry
Protocol is how tokenised protocols gets fat through M&A.
“This quarter it has
become clear that
M&A is becoming a
vital tool in the toolkit
of a successful
protocol. We are
calling this the Hungry
Protocol.”

Lawrence Lundy-Bryan,
Head of Research
• Facebook to get two billion people using blockchain
technology? This quarter Facebook beefed up its blockchain team
appointing one of its senior engineers, Evan Cheng, as its first
"director of engineering, blockchain”. This follows the announcement
early in the year that the company would create a blockchain team
led by David Marcus, who has served as the company's vice president
for Messenger and was formally President of PayPal. With the recent
19% share price drop, Facebook will need to take drastic steps to
address failing user growth. In order to assuage users concerns
around privacy and data protection, it is conceivable that Facebook
could build a blockchain-based tool that enables users to ’own’ their
own data and use third-party self-sovereign identity services like
Sovrin (a portfolio company).
• The battle to own the customer in crypt—investing. Line,
Robinhood, Coinbase and Revolut are all coming for millennials
money. While all of these messaging and investing services had a
different starting market (all except Coinbase are not from the crypto
industry) they are all battling to make it easier for millennials to trade
crypto-assets. This is one of the most interesting stories in the market
at the moment. The consumerization of finance continues apace and
for millennials crypto-investments don’t appear to be any different
from any other type of investment like stocks and shares.
“This quarter has proven
beyond doubt that interest
in blockchain technology
and crypto-assets goes
beyond price and trading.
Big consumer-facing
businesses like Facebook
and LINE are entering the
game and will on-board
millions if not billions of
users”

Q2 2018 market capitalisation
• Markets staged a temporary recovery in early may as
market capitalisation returned to a high of ~$492 billion.
• The figure tumbled to a low of $234 billion in June
amidst fears of hacks on Korean exchanges.
• The market capitalisation stays at ~$290 billion at the
time of publishing. Anticipation of a Bitcoin ETF may lead
to a rise in market capitalisation.

Q2 2018 transaction volume
• Bitcoin continues to lead in terms of volume, peaking
at close to $40 billion in volume in a single day in late
April.
• Bitcoin’s market dominance rose from 36% to close
to 47% in late July. Token prices seem to have
decoupled from a rise in Bitcoin prices indicating that
a higher number of traders may be selling their
altcoins for Bitcoin in the short run.

Startups:
Numbers

Venture capital wants more blockchain
• At 343 deals and ~$1.8 billion
raised for the year, VC funding
in the ecosystem has set new all
time highs.
• A key reason fueling the surge is
rounds consisting of
$100million+ raises with the
intention of conducting an IPO
or merging or acquiring with
competitors.
• With a single Series B raise of
$400 million, Bitmain has raised
close to the entirety of the sum
the ecosystem raised in 2014
with the intention of conducting
an IPO.
• Capital spillage from over-
capitalized firms will lead to a
series of M&A activity providing
more early stage investors exits
in the coming months.

But retail investors are only asking #whenmoon?
• The impact of the prolonged bear
markets have begun wearing the
token generation markets. Reducing
risk appetite in the industry from
retail investors has become evident
in the second quarter raising a little
more than half of what was raised in
comparison to Q1.
• The peak in Q1 may have been
largely fueled by individuals hedging
gains from the rally of December
2017. A high number of $100
million+ raises contributed to the
surge in the quarter.
• If markets believe Bitcoin prices will
recover in the coming quarter, we
may continue to see a ‘winter” in
public token generation markets.
This is why an increasing number of
projects have been raising in VC and
SAFTs.

M&A(turity) in the market is increasing substantially
• It’s official: the blockchain ecosystem now
has more M&A activity this year than any
other year with 30 acquisitions already.
• Startups and protocols have begun
seeing acquisition of Web 2.0 companies
and start-ups from 2014-2015 as an
alternative approach to attain scale.
• Tron’s acquisition of BitTorrent for $140
million raised eyes earlier in the year.
Stellar’s (claimed) acquisition of Chain for
$500 million is another major protocol
acquiring a start-up to accelerate growth.
• Coinbase has been a leader in terms of
providing M&A opportunities to smaller
players. Of the nine companies acquired
by the exchange, seven occurred this year
including Paradex, a well-known
decentralised exchange
Source: Crunchbase

Start-ups: Trends

Power laws emerging in decentralised exchanges
Source: DappRadar
• Decentralised exchanges have begun to gain momentum as
increased scrutiny on centralised exchanges due to changing
regulatory environments has pushed some users away.
• Lack of AML/KYC requirements combined with assets being held
in smart contracts attracted early volume into the space.
• However, lack of liquidity combined with heavy slippages, poor
UX, and steep learning curves have hindered growth of the space.
Idex has seen a 80% dip in daily average users.
• The top three decentralised exchanges for ERC-20 tokens: Idex,
Bancor and ForkDelta, collectively hold 91% of the market. We
expect power laws to continue to hold as exchanges gain more
users and liquidity leading to stronger network effects.

Decentralised applications are struggling to gain traction
Source: DappRadar
• Stickiness in decentralised applications (dApps) are at an all time low.
Average percentage draw-down of users across the apps mentioned is at
85%.
• While fear of a potential hack may have driven off users from Forkdelta, it
may be the lack of sustained utility and sticky game dynamics that drove
users away from Crypto-Kitties.
• Given that it is the early days of dApps, users are yet to form habits around
projects in the ecosystem and we may see users continue to flow from app
to app in the coming months.

Gaming and gambling continue to dominate dApp growth
Source: DappRadar
• Decentralised applications continue
to focus and innovate in gaming
and gambling. The ability to trade
in-game tokens and smart contract
based speedy settlements amongst
ERC-20 tokens are the key reasons.
• However, in terms of volume,
exchanges continue to dominate
the space. All dApp based games
collectively see only 400 Ethereum
in volume on an average day in
comparison to Idex alone handling
8000+ Ethereum every day and
Fomo3D’s (gambling app) volume
of 3700+ Ethereum.
• Marketplaces struggle to see
traction. The sector had a collective
volume of 50 Ethereum over a
week, of which 39 Ethereum came
from a single dApp (TradePasS).

Start-ups: Insights

Stable coins are the hot new thing for investors
What are stable coins and why do they matter?
High volatility in the token economy has pushed traders towards considering alternatives that allow them to hedge in
the event of wild swings. Stable currencies (hypothetically) allow an individual to hold and transfer dollar pegged
tokens between wallets without the need for a banking intermediary. This brings the speed, efficiency and reliance of a
blockchain in place of the long verification times banks take and reduce the requirement for verification and
documentation. Secondary solutions built on a stable currency could lead to insurance, escrow and trade settlement
solutions in the future.
Where are we?
There are over 10 live blockchain based stable currency implementations. Tether leads the market segment with a
current market capitalisation of $2.7 billion. Daily volume for tether paired altcoins currently run over $2.5 billion. The
token is claimed to be backed by dollar deposits in a bank and runs on the Omni and Ethereum blockchains.
Alternative approaches to providing stable tokens include issuing gold backed tokens and algorithmic adjusting of the
token’s issuance (Basis).
What next?
Enterprises and banks may soon provide stable currencies for inter-bank transfers. IBM has partnered with Stellar’s
uphold project to provide a dollar backed stable-currency. Similarly, Circle is working towards the issuance of USDC, a
stable currency alternative that will plug into Poloniex. The most notable fundraising in the segment over the past
quarter happened when Basis raised $133 million from backers including Google Ventures and Stanley Druckenmiller.
we may see state issued “digital fiat” being deployed in the future.

Non-fungible tokens are the hot new thing for devs
What are they?
Non fungible tokens (NFT) are non divisible tokens that are unique in the network. Conventional tokens like Ethereum
or Bitcoin are non-distinguishable from one another as they all represent the same thing in their respective networks. A
non-fungible token on the other hand is unique, non-divisible and representative of a certain character or asset on the
network. They draw value from their uniqueness, rarity and demand. Where fungible tokens often derive value from
demand on their network as an aggregate, non-fungible tokens have prices that are independent of one another as
their rarity varies much like baseball cards or similar antiques.
Where are they being used?
NFTs are currently primarily used in the context of gaming for tracking in-game assets. Notable amongst these were
cryptokitties, a dApp that saw over 15,000 daily users at its peak. The use of the token mechanism is also becoming
relevant in order to represent physical property such as real estate, antiques and vehicles. The application of the token
may soon be ported to identity in the future.
What next?
NFTs will find mainstream adoption as the infrastructure for their storage and transfer evolves. Gaming giants including
ones like Tencent in China have begun implementing NFT based games into their product like. In addition, the
implementation of token wallets in mobile browsers such as that of Opera’s will pave the way for an ever increasing
number of users engaging with non fungible tokens in the near future. Marketplaces for non-fungible tokens will evolve
to be exchanges for a new class of digital assets.

Now tokens have their own funds.. and funds have
their own tokens
• The rise in M&A activity within the sector is not fueled by institutional
capital alone. One of the means through which companies are
expanding is through issuing tokens tied to exchange fees and using
those as a mechanism to fund emerging projects.
• Token based funds that issue capital in the form of tokens, eventually
pass on the “risk” to the markets where the tokens are exchanged.
Markets perceive investments made by the fund as good reasons for
premium due to (potential) ecosystem growth.
• This does not mean a lack of interest in traditional venture capital
backing. It is only the source of capital that is changing. Ecosystem
funds are handled by individuals with prior experience as investors and
venture builders.
• Native token funds (e.g. Tezos, EOS) are set up with the intention of
attracting developers to their ecosystem and incentivizing individuals
building infrastructure (e.g. wallets) for the tokens.
Project Name Size
(millions $)
Ontology Accelerator 1,500
Binance 1,000
Huobi 1,000
Reflective Ventures (Rchain) 100
Community Fund DAO (NEM) 54
EOS 50
Tezos 50
The Stable Fund (MakerDAO) 45
Bitfury Capital 20
Coinbase 15
Source: DappRadar

Corporates:
Numbers

Corporate VC is great for follow on rounds
Note : Logos at the top indicate major enterprise backers in each company
• Corporate venture capital continues to prove highly attractive for
organisations that seek to do large follow on rounds. Industry
networks combined with niche expertise that comes with corporate
venture capital may be a key part of the reason.
• A major notable investment for the past quarter has been Xiaomi’s
investment in Xunlei, a Nasdaq listed company providing networking
solutions including blockchains as a service.
• Most venture capital rounds for startups with corporate investors
have come at series B, indicating that corporate capital backs
enterprises that have found product-market fit and are now ready for
scale.

But continue to invest in just a few sectors
• Corporate venture capital continues to
back a handful of niche sectors where
their value add is most evident. In terms
of frequency of investments trading,
financial services and infrastructure (e.g.
blockchains as a service) continue to
dominate the space.
• Although consumer facing apps as a
percentage of total companies backed
have increased in count, capital raise
has not substantially risen for the sector.
Internal teams and acquihires at
enterprises catering to the segment
may be a key reason.
• We continue to see investments into on-
ramps such as exchanges and wallets
for the quarter. Most notably, Bitmain’s
$50 million investment into Opera
(backed by Sequoia) could prove to be
a crucial moment for retail adoption of
tokens.
Note : N = 40, percentage figures indicate frequency of investments and not size of investment dollars

Corporates are trying to hedge risk through consortia
• Corporate entities have begun collaborating
through data share agreements and shared
infrastructure using blockchains for the purpose of
providing clients better experiences and reducing
costs.
• The advantage consortiums provide is in terms of
shared R&D. Leading consortia such as R3 have
raised (and deployed) over a hundred million dollars
towards sector-specific blockchain solutions.
• However, consortiums are yet to prove to be
substantially advantageous than in-house solution. A
high number of consortiums within a sector can
further dilute network effects.
• Emergent sectors such as mobility currently have
single consortiums that capture bulk of the value
from the large players in the ecosystem. E.g. MOBI.
• However as consortia grow in participants they often
struggle to meet the broader and often diverging
needs of the value chain, especially as blockchains
are often a catalyst for a shift in value capture within
a market.Note : Study sourced from Deloitte Report on Consortiums.
Source : https://www2.deloitte.com/insights/us/en/focus/signals-for-strategists/emergence-of-blockchain-consortia.html

Corporates: Trends

For corporates, exchanges are the new cool
• Japanese messaging app Line launched an exchange
(Bitbox) for over 30 tokens and support in 15
languages With close to 165 million monthly average
users (MAU) in the platform, this could be one of the
largest on-ramps for tokens in the near future.
• Renown fee-less stock trading app Robinhood
announced intentions of integrating tokens into their
offerings in Q4 2017. Over a million users signed up for
the waitlist in January. In Q2 2018, the product also
integrated options to trade Bitcoin Cash and Litecoins
into the platform. Israel based E-Toro opened its token
offerings to US investors in a similar move.
• Nasdaq CEO Adena Friedman has also indicated
interest in listing tokens on the exchange provided
regulations around the industry attain more clarity. For
the moment however, this remains only an indication of
interest.

Financial institutions are moving beyond ‘blockchain
not bitcoin’ and experimenting with crypto-assets
• Japan’s SBI Group announced the launch of SBI Virtual
Currencies (SBIVC), a platform specific to Japanese traders
earlier in the year. The platform had over 20,000
individuals in its wait list. The exchange currently supports
Ripple, Bitcoin and Bitcoin Cash.
• 9% WEG Bank AG was acquired by Litecoin Foundation
through a collaboration with TokenPay. The move is
anticipated to provide banking infrastructure for token
based startups that otherwise find it difficult to find
banking partners.
• NYSE’s parent organization – Intercontinental Exchange is
reported to be working on a Bitcoin exchange to cater to
the needs of institutional investors. However, much news
on the matter has not been revealed.
• Goldman Sachs has also started a trading desk to provide
exposure to clients seeking to trade contracts that derive
their price from Bitcoin.

While also exploring new use cases
• Payment Networks - Mitsubishi UFJ Financial Group, or
“MUFG” partnered with Akamai to create a blockchain that is
capable of one million transactions per second with two
second latency times. The system is anticipated to replace
conventional systems currently used for online payments. It is
being further developed to enable micro-transactions (e.g.
paying for an article) and payments between IoT devices.
• Trade Finance Settlement - HSBC and ING used Corda for a
live trade finance transaction for a shipment of soya beans
this quarter. The letter of credit transaction involved a buyer
and seller and their respective banking partners processing
the transaction on a single application. This digitization of the
process has reduced the settlement times from five to ten
days to a mere 24 hours.
• Insurance - Chinese InsurTech giant ZhongAn Insurance on
boarded over 100 hospitals to streamline record verification
and accelerate claims. The organization also use blockchains
to store all insurance policies from its parent company
ZhongAn Online securely.

Corporates: Insights

Emerging applications are finding product/market fit
• Supply Chains - Walmart and a number of other major
companies including Nestle and Kroger have partnered with
IBM to track food supply chain globally on a blockchain. The
system will be used to identify issues that lead to food recalls
and tracing outbreaks quickly to limit customer risk.
• Identity - IBM has joined the Sovrin network (an Outlier
portfolio company) as a founding steward to enable self
sovereign identity. The enterprise will be dedicating hardware,
security and network capacity towards maintaining the
foundation’s decentralised digital identity network. IBM join
other large corporates as stewards including Workday,
Veridium,
• Energy - Centrica in partnership with LO3 energy has
developed a blockchain based local energy market with an
investment of £19 million. The system will test energy
transactions in a peer to peer trading model across 200
businesses and residents. The trial follows an investment last
year from Centrica’s investment arm, Centrica Innovations.

More players joining the BaaS game
• JD - Chinese ecommerce giant JD.com announced plans of
entering the blockchains-as-a-service (BaaS) space in March
of 2018. Key applications of the blockchain would involve
government services, tracking charitable donations, supply
chain tracking and taxation. The organization has also
partnered with leading exchange, Huobi for exploring
opportunities in enabling IoT payments and exploring
opportunities in financial services.
• LG - A subsidiary of LG has launched an enterprise
blockchain platform that is claimed to be developed for use
in finance and manufacturing. Feature additions are being
designed around enabling local governments to issue local
currency and sending of welfare payments. This was
trailed by the UK Government back in 2016.
• Hitachi – Hitachi announced the launch of a fingerprint
based payments authentication system on the July 25. The
organisation has also partnered with Japan based Tech
Bureau to create a loyalty points management system on
NEM-based Mijin blockchain.

Government &
Regulation:
Numbers

Regulation is becoming increasingly favourable
Regulatory Index
In order to better understand
the nature of regulations
around the world, we rated
nations on a scale of 1 to 5 for
their approach to tokens and
ICOs for 50 countries. The map
represents the sum of the
scores allocated across the 3
parameters.
Note: Data is qualitative and
measured on a relative basis.
Favourable
Encouraging
Under Discussion
Hostile
Unknown

Trading bitcoin has become a global phenomenon
• Concerns around capital flight enabled by
token transfers have lead a number of
regulators in South-East Asia to consider
outright bans on tokens.
• A key approach taken to reduce capital
inflow towards the token economy is by
strangling banking relationships for token
based startups. India’s Reserve Bank
issued a statement requesting banking
entities in the region to stop providing
banking services to exchanges in the
region.
• However, Bitcoin is being increasingly
used as a currency hedge in inflation
stricken regions such as Venezuela. We
will see the trend sustain in certain
economies regardless of token volatility.
Favourable
Encouraging
Under Discussion
Hostile
Unknown
Note : Map represents relative stance of the government to token trading on a scale of 0 to 5, where 0 would represent a ban and 5 would represent favourable regulations

Nations want a piece of ICO action (with caution)
• A large number of countries had initially taken
hostile positions to crypto-assets that
stemmed from a public token generation
event. However, capital flight combined with
the rise in startups moving abroad has forced
regulators to reconsider.
• Regions such as Russia have begun enabling
startups to work within sandboxes with strict
government oversight. Companies receive
temporary reprieve from regulations in
exchange for additional transparency with the
government.
• A key focus for nations have been to define
categorization of tokens. The Swiss
Government’s FINMA took the early lead in
this regard.
• For the moment, protecting investors from
outright fraud and Ponzi schemes remains the
key focus areas for governments worldwide.
Favourable
Encouraging
Under Discussion
Hostile
Unknown
Note : Map represents relative stance of the government to token trading on a scale of 0 to 5, where 0 would represent a ban and 5 would represent favourable regulations

Everyone likes blockchains though
• Countries globally have begun
embracing blockchains as a means to
increase operational efficiency within
government. Key use cases vary from
land records to voting to welfare
payments.
• A major reason for the difference in
approaches towards tokens and
blockchains is that while the former
requires leniency in capital flow, the
latter is simply a technological
integration that can be censored and
restricted at will.
• Government contracts for blockchain
projects have begun concentrating
around a handful of enterprises
providing blockchains as a service
leading to a risk of rising vendor lock-in
as we saw with Oracle and SAP SQL
databases, this problem is especially
acute in developing economies.
Favourable
Encouraging
Under Discussion
No Known Initiatives
Unknown
Note : Map represents government interest in implementation of blockchains for key functions within national boundaries. A 5 would represent live implementations or PoC Testing.

Government & Regulation:
Trends

Banks are increasingly playing a key role in enforcing
regulations
• National banks have begun using banks as a medium to throttle and limit the rise of token markets within their
jurisdictions. This is primarily due to reasonable concerns of capital flight. Even in the presence of high levels of
AML/KYC integrations, banks currently have little control over where individuals move their capital once they receive
their tokens. The increased usage of decentralised exchanges also makes it even harder for national banks to
manage and track capital flows in and out.
• Notable examples for this include the Reserve Bank of India, Reserve Bank of Zimbabwe and the Central Bank Of
Indonesia. Startups in these regions were given an interim period within which client deposits were asked to be
returned. These moves from regulatory bodies are likely to lead to a rise in peer to peer transactions in cash that fall
outside the purview of regional regulators resulting in larger shadow banking systems in those countries.
• Regional authorities in Switzerland have taken a completely different approach. They are pushing towards ensuring
token based startups receive full-fledged banking support by the end of the year. These differences in banking
services provided to token oriented startups should lead to heightened capital inflow to regions that provide
banking services. Setting up bank accounts is still a challenge from crypto-related projects, and Switzerland can
expect to attract a lot of demand from startups struggling in more challenging jurisdictions like the United States and
the United Kingdom.

Regulators are focusing on raising investor awareness
• In regions where token sales and investments are common, regulators have begun spending time and resources in
raising awareness about red flags that can be detected in a fraudulent ICO. Tactics that generate a fear of missing
out such as a count-down timer or heavy “bonus” / “discount” offerings have been cited as indicators. These sorts of
approaches are valuable and are another tool in the toolkit of consumer protection measures that include
regulation. These softer methods that target demand have the advantage of not quelling innovation but lack the
force of regulations.
• In May, the SEC launched a “HoweyCoin” website with the intention of showing retail investors how to detect scams
in the crypto-asset ecosystem. The CFTC followed up in July with a warning for retail investors about the high
possibility of “pump and dump” events in tokens with low market capitalization.
• Canada’s Ontario Securities Commission has been proactive in conducting surveys within the region and engaging
with investors to understand token preferences. A recent survey of over 2500 Ontario residents revealed that 5% of
those surveyed held token assets and 42% of those within them did so with anticipation of making profit.
• Demand-side approaches from regulators to increase retail investor understanding and awareness of the risks of
tokens and token sales is expected to increase. However history suggests that regulators are likely to also address
supply-side token issuers sooner or later regardless of the effectiveness of consumer education.

Government & Regulation:
Insights

Rising hubs for pubic token sale activity
• Although regulations around token sales are yet to attain much in the way of clarity, there are a few regions in the
globe that are emerging to be increasingly attractive for token oriented entrepreneurs. Zug in Switzerland has been
home to a high number of token-oriented enterprises following in the footsteps of the Ethereum foundation back in
2014. FINMA’s asset classification in the region further allows token oriented start-ups to have a safe haven. With a rise
of banking services in the region later in the year, Zug will continue to dominate as a hub for token based projects.
• Malta made headlines earlier in the year when Binance, a large crypto-asset exchange, was given a “warm welcome”
to the region by their Prime Minister Joseph Muscat. The region has since passed a series of bills ( including the Virtual
Financial Assets Bill) that provides a framework for token based projects to be set up in the region. Malta Stock
Exchange has also partnered with Okex to build a securities oriented token exchange.
• Gibraltar has also been emerging as an alternative jurisdiction for token entrepreneurs to consider while setting their
organisations up. The Gibraltar Blockchain Exchange (GBX) has been set up by the Gibraltar Stock Exchange with the
intention of enabling the trade of crypto-assets in the region. The region is also expected to pass further legislation
governing token sales in Q3 2018.
• Despite the progress and favorableness of these hubs, the crypto-asset industry is unlikely to go mainstream until a
larger financial services market like the United Kingdom or the United States sets out a formal regulatory framework
for crypto-assets. Much of the existing financial services industry would like to get access to a large growing new asset
class but the risks are too high for most. Positive guidance and more clarity on utility-tokens and utility-token sales
would lend credibility to the nascent public token sale market.

FSB and IMF will continue to influence policy
• The G20’s Financial Stability Board (FSB) first made headlines in March when they suggested that crypto-assets do not
necessarily pose a threat to the financial stability of global markets. The body has since published an assessment
framework that tracks the key metrics to track as regional regulators assess the risks poised by tokens to their markets.
The framework currently accounts for exposures of banks to the token economy, risks accumulated from futures and
token sales. The Financial Stability Board has also asked the Financial Action Task Force (FATF) to clarify AML/KYC
requirements in the context of token markets.
• The IMF’s stance on tokens have been largely neutral. Christine Lagarde, Managing Director of the International
Monetary Fund has pushed for the need to regulate the industry with an even-handed approach to maintain a balance
between protecting investors and enabling innovation. She has also pushed for the need to explore blockchains as a
mechanism to further attain efficiencies and transparency in financial markets.
• Regional governments will continue to seek input and guidance from international bodies as they build the
competencies required to regulate and monitor the space internally. The U.K. Government’s Crypto-asset taskforce
led by the HM Treasury, Financial Conduct Authority (FCA) and Bank of England is leading the way in attempting to
shape and define a taxonomy for crypto-assets.
• However, considering the sensitive nature of crypto-assets especially related to their function as an alternative
currency and potential risk to financial stability, it will be challenging for the U.K. government or any other national
Government to fully articulate the transformative potential of self-sovereign ownership of a new class of digital assets.
That said, those Governments that engage in an open way and find a balance between innovation and consumer
protection will benefit in tax revenues and job growth from one of the fastest growing industries in the world.

Disclaimer
This document (the “Document”) has been prepared by Outlier Ventures Operations Limited (“Outlier Ventures”). Outlier Ventures Operations Limited is registered
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