Jonas Christensen 2:59
Daniel Liebau, welcome to Leaders of Analytics. It is fantastic to have you on the show today.
Daniel Liebau 3:07
Thank you for having me. We've been trying for a while. And now we're finally together, so that's cool.
Jonas Christensen 3:13
You are very busy man and I'm lucky to have you on here because we're going to be talking about something very interesting and very in with the times today, which is the world of cryptocurrency, decentralised finance, blockchain and these are technologies or components of technological universe that is really taking the world with storm at the moment. So, we'll get into that in much more detail. But before we get to that, Dan, could you tell us a little bit about yourself, your background and what you do?
Daniel Liebau 3:43
Sure, it's probably unavoidable that you spot my German accent. So, I grew up in Germany. My dad's from Argentina, though. So, sometimes I feel a little bit like I am bipolar. You know, Argentinians and Germans are very different, that I can tell you. From a professional perspective, I spent most of my career in technology, in financial services, and more specifically in investment banking. So, since 1999, I've been busy withthe kind of systems that manage transactions of sorts, which is probably one reason why I also got really excited when I first learned about Blockchain 2016. So not that long ago. You know, I can't claim I'm one of those people ''Yeah, I knew it all in 2008''. And I guess, sort of, the next milestone, important milestone was in 2014 for me, when I decided to leave investment banking, because I thought it was the right time to try and start something by myself. So I did start a company called Lightbulb Capital, which is basically an innovation advisory firm that focuses on financial services. Since, yeah, pretty much 2016, I've been looking into the topic of blockchain and how it affects financial markets, exclusively actually. And I thought ''Oh, maybe should go back to school''. I'm still working on my PhD that also deals with blockchain and markets. I've got a class at school here in Singapore. Actually multiple classes. They all deal with blockchain and DeFi and all of these topics that we're going to talk about today. So yeah, that's kind of little, little bit of background.
Jonas Christensen 5:18
Yeah. And you mentioned there that you're in Singapore and you also teach things. Could you tell us a bit about your background in what you call being a tech pracademic? What does that mean?
Daniel Liebau 5:31
I think, you know, most of my life I basically spent in the industry, and then only more recently, I kind of discovered academia for myself. What I realised is that being in both areas at the same time is actually quite a good mix. I think practitioners probably don't look at data enough. And then academics, maybe don't look at the real world enough. So when I say is 50% academia and 50% practitioner, I kind of tried to merge those two. And it's hard. Yeah, because I mean, academia comes with a lot of rigour. That's what I need to learn. Practitioners are perhaps a little bit more agile. So I'm trying to kind of combine as good as I can the traits of each of those areas.
Jonas Christensen 6:21
And you teach at three different universities as I could understand, in different countries. And the things that you teach there are FinTech, Crypto, and DeFi (Decentralised Finance). Could you tell us about what these courses are and what the students are learning and why they're learning the stuff they're learning? Because I think you've also developed these courses yourself. Is that right?
Daniel Liebau 6:41
Yeah, yeah. So when I - When was this? I'm trying to remember. 2012 or 2013, I went back to school and I studied the topic of innovation at SMU here in Singapore. And I realised that, you know, in investment banking, my work environment, there's very little innovation going on. And this is way before every company had an innovation lab, right. And that kind of also triggered that I then eventually left large corporations and try to start my own business. But what I thought was, you know, why is there no course in FinTech at the university? And so I went back to them and I said ''Hey, I think we should have a FinTech course''. And they said, ''Oh, yeah, that's a really good idea. But maybe later''. So the following year, I went back again and said ''Hey, you still don't have a FinTech class. When are you gonna launch a FinTech class? You know, there's so many startups. I think it's about time''. ''Aiya, aiya, very good. Maybe next year''. So anyway, in 2016 or actually in 2015, they said, ''Okay, Daniel. Now we want to launch a course on FinTech''. So eventually, I designed it and then we launched it. At the time, I think it was the first course for executives to learn about FinTech in the Asia Pacific region. And it ended up on all sorts of ''Best FinTech Courses In The World'' lists, so it's, kind of, a cool starting point. And then very briefly after, you know, Blockchain came about and I said ''Oh, I think I gotta go through this feel again''. And I proposed to them, ''Hey, let's do an introductory class, to blockchain and digital assets'' and they approved much quicker. So that was very cool. So, that I've been teaching for a while now and then the latest one that we launched is basically one on decentralised finance. I think we're gonna talk about that as well. Basically, you know, how can blockchain-based financial services really work? Basically, everything's in a smart contract, right? You don't have the intermediaries anymore. So I think it's quite an exciting thing to look at from a research perspective, but also from a teaching perspective. And it's fascinating, you know, the type of people who come. It's not only the people who work in banks and investment managers. It's also regulators who say ''Okay, we're taking this very serious. We need to understand, you know, where the risks lie. What are the opportunities for this, sort of, new technology?'' So yeah, so that's, kind of, another one that we're doing at the moment.
Yeah, that's really interesting, that mix of different attendees to the course and especially the regulators. I think about where you are in Singapore, which is traditionally and also this time around, one of the most sort of forthcoming or suppose, visionary regulators, when it comes to adopting new ways of looking at how a financial system can be structured. Is that something that you're seeing on the ground as well? That the FinTech is really exploding in Singapore or I should say DeFi, blockchain and FinTech, all those things combined?
All of it, all of it. I take my head off when I think about MAS, our local regulator, because they take this ''We want to be a very fast number two''. So, they don't want to do things first in the world. They kind of de-risk. Many things they look into by letting somebody else go first. But then they try to take the lessons and basically be a very fast follower in that sense. And I think as a regulator, we have to remember regulators mission is not to drive innovation, right. That's not the mission. I mean, that's something that the industry can do. So from a regulatory perspective, what are you worried about? You know, you're worried about investor protection. You're worried about the stability of the financial system. And of course, you want to make sure that your tarp or your your country is basically leading when it comes to a financial services marketplace. These are the three things that are very important. And I think FinTech plays a big role. I don't think that there are many regulatory frameworks that are as comprehensive as the one that they have just released, the so-called "Payment Services Act". While it's being deployed, they're already thinking about how to expand the reach of these payments and services. So it's very encouraging. And I guess the approach is, you know, we often warn the public about the risks of all of these cryptocurrencies and NFT's and speculation and scam and all of that, but we also don't ban it. And I think that's a very smart way to approach it.
Jonas Christensen 11:01
Absolutely. And it is, in my view, the future of financial services, whether someone likes it or not. There is so much technology here that's going to shape things to come. Let's take into that, now, the topic of today. So is our future financial services really going to be decentralised? And you mentioned there, the course that you're teaching on blockchain is about how blockchain can actually be used to drive financial services in a decentralised way. And we've heard about blockchain for the last, call it, 10 years. There's something that's just about to take off. And still, I think when we say the word blockchain, most people think about Bitcoin and maybe a couple of other large cryptocurrencies. But other than that, it's sort of still very nascent to people what the use case is. Could you explain to us how blockchain is going to revolutionise financial services and why?
Daniel Liebau 11:01
Sure, how much time do we have, because that can be quite a comprehensive overview. Why don't we start - can I suggest - why don't we start: I'll give you my definition of what a blockchain is, because I think I can do that in a very kind of simple way. So, a blockchain is basically a piece of technology that allows its users to transact without having to trust their counterparty. That's why sometimes blockchain systems are also called trustless systems, not because we cannot trust the system, but because you don't have to trust your counterparty. And how is this organised? Well, it's basically organised through a, what we call, a distributed ledger. So it means it's basically a database that sits on many different computers. And these many different computers reach agreement as to what to add to this database through a process called a "Consensus Algorithm". And once there is agreement, basically, the data cannot be manipulated. And if you think about the value of this kind of technology is not to make things faster, better, cheaper. And that's often what we think about when we when we think about application of new technologies or "How can we automated? How can we reduce the cost?" and in blockchain, that's not really the case, right. In the sense that the primary objective, this, sort of, trustless interaction and that's why, you know, we also need a token on these platforms. So I'm a big sort of proponent of what we call "Public Blockchains", which are these decentralised ledgers where everyone can join at any time or leave. Because basically, these systems are designed so that they can work in the absence of rule of law. So that's not how our world works today, right. So if I steal something from you, Jonas, you probably know my name and then you go to the police and eventually we end up in court, and, you know, maybe I get sued or something. But in the more anonymous world of blockchains, because you don't know who you're dealing with, you don't have that ability to go to court. So then we need a token, so that they can be an incentive structure that basically allows for rewarding of good behaviour and punishing of bad behaviour. And that's actually another kind of feature of these blockchains. In theory, it they can enable economic activity without having the need for rule of law, which is interesting. I guess that also explains why when we think about how these technologies can be used and how PACs regulators think about them, there's always tension, because the regulator obviously comes with one type of frame of mind and then perhaps the, sort of, more liberal entrepreneurs that put together discussions come from a very different perspective. And I guess that's interesting to watch. But I think yeah, we'll see how that continues.
Yeah, so you have the blockchain enthusiast saying "Don't worry, guys. We don't need any regulation anymore. We've got it sorted with this algorithm" and the regulator's say "Well hang on. We're here to regulate you. That's not going to happen". So that's the definition of a blockchain. And then we have other terms like Cryptocurrency and Decentralised Finance. How would you explain those in relation to this topic?
Sure. cryptocurrencies are basically - it's kind of a word that encompasses many different things. You know, different types of tokens. I just spoke about the tokens that can be part of the incentive mechanism for good behaviour on these different platforms. And I think we'll talk a little bit later about different types of tokens. But perhaps I should answer the second part of your question. What is Decentralised Finance? So, there are different types of blockchain platforms around. Everyone probably knows about Bitcoin and is basically this very, very huge decentralised ledger that has some characteristics that are similar to money, or at least it's kind of. The intention was to build it so that it can become money and others. Sometimes a bit philosophical. But then there are also other platforms. For example, you might have heard of Ethereum or about Algorand, for example. These are platforms that are basically the operating systems for other people to build on top of. Now, you can think about it as a distributed version of Microsoft Windows. It's a platform that software developers can use and then build decentralised applications on top of. And what DeFi is a couple of things as well. I guess, is a movement of people who want to provide financial services outside of the existing, sometimes people call it "TradFi" or "Traditional Finance Realm". But it's also a set of applications that are built on top of these smart contract platforms to provide financial services. And they do that in the form of a smart contract and what that means is that basically, a lot of the intermediaries that we have in traditional finance are perhaps not required anymore. And just for context, I worked in banking technology for so long and I always thought I was working on really disruptive or big changes. But then recently, I attended the seminar and one of the scholars put up a slide and showed the cost of a financial transaction over the last 130 years. It's been a long time. And it's basically 2%. And with all the improvements and high frequency trading, and you know, electro and ATMs and all these things that have happened over the last 130 years, the cost is like 2%. So when I think DeFi also is is perhaps a mechanism that can actually really change the economics of financial services now. Because if you think about what it takes to maintain a smart contract and to deploy it, it is a very different order of magnitude of costs, compared to running HSBC, right, with a quarter of a million people. So I think that's gonna be really interesting to see how much adoption there will be. Because these expensive intermediaries, obviously all struggle with their cost income ratio, and maybe DeFi platforms will not have that issue.
Yeah, it's a really interesting topic of this. Obviously, a very inflation proof business model that banks have. Always taken 2% of whatever the amount is. I actually experienced that probably a month or two ago, where I transferred some money from Europe to Australia. And just like you said, it took probably four days for the money to go from one country to the next. And I had to pay both banks some money. One to send the money and the other one to receive the money. And it was received in a local currency. So for me, it doesn't make sense that it's costing...
The effects, right?
Jonas Christensen 18:48
Yeah, it is, but there, but you're paying for some handling at both ends. A fee that is abnormally large compared to what you do in a domestic system, which is typically low cost or free in most countries. So there is definitely room for some disruption here, in my opinion. So we say that this is coming, this disruption and the DeFi is revolutionary. But why is it so revolutionary? And what are the opportunities and risks that lie within this space for individual users, corporations, nation states?
Daniel Liebau 19:20
So let's look at an example. And let's look at Uniswap, right. Uniswap is a decentralised exchange, where you can basically swap one token for the other one. And I don't want to get the number wrong now, but I read somewhere that basically the lines of source code for Uniswap to facilitate the swap of token A versus token B is in the hundreds, okay? In the hundreds, it's nothing. It's very, very low. And yet, sometimes the total volume traded on Uniswap is higher than on Coinbase. Coinbase, last time I checked - it's probably all different now - was a company with around $50 billion and MarketCap was listed on NASDAQ as a few thousands employees. And I guess comparing these two kind of nicely shows the order of magnitude of the difference between a DeFi platform and what it takes to run and how perhaps simplistic it is, versus that what the traditional financial services companies are setting up. Now, let's also not fool ourselves. And I think I'm always trying to be very realistic. Of course, the functionality that Coinbase as a company offers to its clients is massive. Yeah. And it's cannot be compared with Uniswap. But I still think that this is a good example, to show that DeFi, you know, has a lot of potential because of its simplicity. Now, one thing that we sometimes forget is that it's kind of important, which operating system you build the stuff on, right. So remember how we talked about the different smart contract platforms and they all come with sort of different features. And some of them are expensive and some of them are slow and some of them are both and some of them are fast. And I think depending on the use case, that we find is crucial to pick the right platform. And you know, now we have this whole topic about sustainability and "Are blockchain sustainable?". Yes or no. So increasingly, companies will have to look at the sort of sustainability characteristics of these platforms, because otherwise, in the reporting, they'll just get hammered. And it doesn't matter whether they're investors or whether they're corporations trying to adopt blockchain technology.
Jonas Christensen 21:38
Yeah, and you're sort of touching on a topic there that we'll get to later on, I think, which is the trade off, sort of a triangular trade off, the trilemma, which is sort of scale, security and decentralisation are things that you're trying to optimise. And it's nearly impossible or it is probably impossible to maximise all three and maybe even two out of three. And could you tell us a bit about this dilemma and how to make that trade off, depending on the use case?
Daniel Liebau 22:05
So the trilemma is basically very similar. I mean, most of us are probably familiar with a different trilemma in project management. So basically, the trilemma says you can only have two out of three. So if you run a project and you want it really fast and it can't cost much, then the quality is probably not very good. You want really good quality and really fast, and it's probably going to be quite expensive. So in the world of blockchains, we also have a trilemma. Basically, the three corners of the triangle are scalability or basically transaction speeds, for no better word, and then also decentralisation and security. And what I find fascinating is that whatever new blockchain comes about, right, the first thing they'll say is "We finally cracked it. We learned how to fly. We learn how to - I mean, we all know there's gravity, but we fly", right? I almost like to compare this trilemma a little bit with rules of physics, if you like. And we have to be cognizant that if some platform is, for example, extremely fast and transactions per second, I don't know, thousands, something has to give. And that doesn't mean that this platform cannot be good. But in my mind, smart contract platforms is not a "Winner takes it all" sort of a situation, where one of them will eventually be the one that everything runs on. It's more about, there are so many different use cases in the world, you know. A government might use it in one way. A DeFi platform might use it in another way. Corporation, like Adidas, who wants to mint an NFT might want to use another one, right? So, then it's really down to which kind of designed features of these platforms are really most important for the use case that I am trying to pursue? And that's why they're they come in different shapes and forms. So it is almost like, I know that this example is not exactly correct. But if you think about a smart contract platform, it might be a little bit comparable to a country because it's basically a set of rules on how economic activity can happen. And it even has its own currency. So do we have one country? No, we don't, right? We have different countries and they all look different and they come with different cultures and different citizens and different rules. So I really think that there is room for more than one, but perhaps some of them will at least look to me more sustainable than others. That's also an interesting takeaway.
Jonas Christensen 24:34
And I like your analogy of a country because if you think about a country in an abstract way, it is an operating system of sorts that you can build your solutions on top. There's laws and rules and regulations that govern that jurisdiction. And now we've turned it into code in a virtual world. Ethereum or LANA or ADA or whatever, Katana or whatever platform that you are thinking about, the same sort of concept in an abstract way,
Daniel Liebau 24:58
It's not a perfect example. Yeah, because a country obviously comes with a whole bunch of other things like, you know, enforceability and armies and all these sorts of things. But I think to get the idea across of, like this kind of, common set of rules that can govern economic activity, that's why it's a good example. Nevertheless.
Jonas Christensen 25:17
Yeah, it brings me to another topic, which is some countries might actually see this decentralised world as quite a threat. And you've seen - we talked about Singapore here as an example of a place that wants to embrace it, but the other countries are seeing decentralised finance and some of the networks there as threats to their financial system, economic system and are shutting them down, making them illegal. What do you think this sort of scenario will do to the world, where you have some really big nation states actually wanting to take control over something that inherently is designed to be uncontrollable?
Daniel Liebau 25:54
Yeah, I have a dear friend who always talks to me about decentralisation. And he would argue that it's probably a multi generational effort, right. Maybe the, sort of, path towards real decentralisation is longer than our lifetime. So I don't have a crystal ball. But I stand by what I said earlier. Of course, it's exactly what you said. These systems are effectively designed to enable all this activity without rule of law. So therefore, if they are thrown into a world that is run by rule of law, there is friction and tension. But many regulators are actually trying to understand how they can perhaps support this effort. It' s not like everyone says "Oh, this is all horrible and we have to shut it down". It's difficult to shut it down but it's also, a little bit, against the principles of wanting innovation and advancement. And I will borrow something that I heard just yesterday, when I met a very knowledgeable person in crypto and he made this analogy. He said "When you touch a smartphone for the first time, you don't want to go back to using a Nokia phone, right?" And he mentioned it's kind of the same thing. Once you got into this whole world of blockchain, very difficult to, kind of, come back and then stick to the olden, kind of, approaches on how to do business. But yeah, I think in summary, this is gonna take a while. This is not something that overnight will change and regulators have to wrap their head around it. They try to look at the risks. It's all very controversial. I mean, privacy, for example, is a big topic, especially in the last few days with the conflict. And it's really about: Who's allowed to say who gets banned and who doesn't get banned, right? Very, very sensitive topic. Because it's easy to say "Let's exclude terrorists from the financial system". But then also: Who gets to say who's a terrorist? It's a complicated topic. And I think the only thing that can help with it is that we slowly explore what it all means and how it could look like, so that all parties basically can kind of live and advance together. That's kind of how I look at it.
Jonas Christensen 28:14
We want to still enable the good guys and not enable the bad guys. But in an anonymous world or environment, it's hard to know who's the good guys and the bad guys. And for listeners, just for context, Daniel mentioned the conflict. So at the time of recording, Russia has just invaded the Ukraine. And as a result, there's been some sanctions put on Russia, including shutting down the Swift transfers, so international banking transfers to and from Russia as part of that from other countries. So this is a very pertinent topic right now, actually. Now, Daniel, we talked a little bit about different tokens earlier. And I'd like to dig a little bit deeper into that. So there's generally three types of tokens: Payment, Utility and security tokens. And could you explain the difference between these and how they are likely to be used in our future financial system?
Daniel Liebau 29:03
Sure. So I spent about 10 months writing a research paper with my co-authors at Rotterdam School of Management on this topic. So at one point in time, I said "I never want to talk about what token comes with what features anymore because I couldn't see it anymore".
Jonas Christensen 29:21
Oh, I'm sorry.
Daniel Liebau 29:22
But basically the payment token: I'll keep it relatively short. But then of course, if anyone wanted to reach out, we can have a, sort of, more detailed discussion. But basically, a payment token is kind of a subset of a utility token, where the single utility this token has can be used for payments. You can think of it as pretty much a cash equivalent on Blockchain. And what's interesting about Payment tokens and Utility tokens is that often their issuer is not a for-profit company. It's often a foundation. So that kind of shows that this is idea of community that we often talk about in the world of cryptocurrencies is also implemented at the legal level if you want. A utility token is basically like a voucher. So it gives you a consumptive right to access a product or a service that this particular issuer is working on and hopefully, eventually also delivers. Many of the tokens that were sold during the initial coin offering period in 2016 - 2018 fall in this category: Utility tokens. Obviously, they were sort of pre-sold because the products or the services didn't exist at the time of sale. So that means there are like a voucher for something that doesn't yet exist. A security token is a digital representation of an investment product. And in most jurisdictions around the world, a investment product is sort of regulated in one shape or the other. So it's three very different things. I think the security token is probably most akin to what we can find in the traditional world of finance. It's basically a traditional finance product on top of Blockchain. And there are many interesting and exciting developments in that space. So for example, if you look at Liechtenstein. Liechtenstein has a Blockchain act that basically allows for recording of ultimate beneficial ownership on blockchain-based platforms. In many other countries, this register of ultimate beneficial ownership sits with a government entity. And therefore, by definition is centralised. And if you show up with a wallet that has a bunch of Daniel Liebau company tokens in it and I go to court with my accept from the government entity, then there's no question who's gonna win that in court. It's always the person who has the receipt from the government. But then some countries are moving in a direction where all of that is stored on Blockchain. So this is interesting, but it's kind of close to traditional finance. A utility token is very different, because it's not an investment product. And many people might actually disagree, because so many people buy these tokens and then they get rich and whatever. But if you think about it, as what it is, which is this voucher kind of concept, it really doesn't qualify as an investment product, because this thing is issued so that people can spend it. That's kind of something very important to understand. It's not issued for somebody to buy it as an investment. Ultimately, these economic systems that are powered with utility tokens only work properly, if the token can be spent for the product or the service that the platform offers. And yeah, I guess, I mean, that's a little bit about the differences. I, obviously, could talk a lot more about it. But these are the key differentiating factors. And if you just remember that the utility token is somewhat a voucher and not an investment product, then I think it's all ready. You know much more than any other people.
Jonas Christensen 32:59
So I think utility tokens are probably where people start thinking or innovating a lot more than potentially in some of the other types of tokens there. And once you start thinking about it, there are quite a lot of use cases for these tokens. Could you give some examples of how they are being used and how they could be used to create different ways of looking at how we do things compared to now?
Daniel Liebau 33:24
Sure. I mean, there are multiple examples. But one example that kind of gets used a lot is the one of: It's got the Basic Attention Token (BAT) and that Basic Attention Token was basically associated to a browser, similar to your Chrome browser or Safari or Internet Explorer. What this browser does is it basically removes the marketing or the advertising on different websites. And then there is an economic system built around whether you want to see adverts or not and then eventually the token can be a compensation for you, as a user to entertain these advertising that is being shown to you. So that's kind of one example. There are multiple other tokens now especially in decentralised finance that are perhaps a subcategory of utility tokens, so-called ''Governance Tokens''. So the utility of these tokens basically allow you to participate in some sort of voting process. You know, you can have a say, according to how many tokens you have, with regards to key proposals that are being put forward by anyone in the community, actually. Anyone can propose. And then there's this voting process that allows you to participate and say "Okay, I think we should make the background screen yellow or make it green". This could be a voting proposal. So that's also exciting. Suddenly it gets very blurry, right? Because one thing that defines a security is a security as a control right. So suddenly, if you can vote inside of this voucher kind of situation, then it becomes really complicated, which is why I think, until today, we don't have a clear understanding of - I don't want to say clear understanding. I want to say we don't have agreement between regulators, what qualifies as a security and what qualifies as a utility token. I think to the US, for example, all tokens are basically securities, which is something that we disagree with in the paper. And it's kind of a side comment.
Jonas Christensen 35:24
Yeah. And some more abstract uses that I have also read about, and you can tell me whether you think these are security tokens or utility tokens, are things like let's say there's a musician who is not famous yet, but you really think they're great. They might issue a token that gives you access to their music today for some monetary. So you swapped some sort of - You pay them basically, and you get this token and you get access to their music now, but you also get some small fraction of future earnings, for instance, that gets paid to the owner of this token. And that is potentially a money earning thing if you hit the goldmine, but it's also a way of financing this person right in the now. So there's both a community and potentially a financial benefit to it. Things like that, how would you classify them? I don't even know if it's important to be classified, but potentially, it is if you need regulation, I suppose.
Daniel Liebau 36:17
In earlier versions of the Paper, we also talked about so-called ''Hybrid Cases'', where you kind of have distinct features of both types in one token, yeah, and I think this is kind of one of them. Because on the one side, yes, you you basically get a voucher to listen to the music. So that's kind of on the utility token end of the spectrum, if you like. But then the second thing around the participation rights of the success of the artists, that basically looks very much like a security because in addition to control rights, the one thing that defines a security is basically to have a cash flow right. And if there is a cash flow, right, it's kind of difficult to argue that it's not a security. So then that's how I guess many regulators will probably look at the sort of token.
Jonas Christensen 37:05
Yeah, it's a really interesting development. And you can see this example is also an example of things that have been centralised actually becoming decentralised, because it's actually not too different to crowdfunding platforms. We've seen a lot of popularity around the last 5 - 10 years. But again, that's a centralised location or platform where you rely on that crowd that sits on there versus this decentralised version of you issuing tokens. Interesting development.
Hi there, dear listener. I just want to quickly let you know that I have recently published a book with six other authors, called ''Demystifying AI For The Enterprise: A Playbook For Digital Transformation''. If you'd like to learn more about the book, then head over to www.leadersofanalytics.com/ai. Now back to the show.
Now, you've mentioned that a couple of times, Daniel, and one of the hardest things in the crypto space at the moment is NFTs. Non Fungible Tokens. There's a lot of hype around these NFT's and a lot of criticisms about their purpose, usefulness and also the very eye catching situations of people paying millions of dollars for some JPEGs, which is, of course, how a lot of people see it and how it's portrayed in media. Could you describe NFT's for us and what their future is as an asset category?
Daniel Liebau 38:32
Yeah, I have to disclose. I'm really not an NFT specialist at all. You know, one thing, I guess, that is worth considering is to have a colleague of mine on your show, who's recently launched a course on Non Fungible Tokens at SMU as well. She's much better qualified to kind of go into the details of what a non fungible token is and why we ascribe value to certain things. And I guess that's one of the biggest questions in NFT's. Why is this JPEG worth $11.7 million? So she can talk about all of this very eloquently and I'm very happy to introduce her to you. Maybe that could be something interesting, but I guess for today, a Non Fungible Token is basically a token that represents some sort of unique item, right? That's why it's called non fungible. So fungibility evolves around whether you can replace one item with the next, right. If you have - Sandy always uses this example - if you have like many, many different Lego blocks, and they all the same shape and all the same size and all the same colour, then they're fungible, right. Because basically, one looks like the other one. Or I don't know you could think about rubber duckies, right. Rubber duckies are all the same. But then if you think about, I don't know, the property that you live in, is quite unique, right? And even if there's the same property above you and below you, because you live in some sort of high rise building, is still slightly different view, and then if it's higher up, it might be a little bit more expensive and and so on. Right? So these kinds of unique items can then be represented on a blockchain as a non fungible token. But yeah, I really, I mean, I'm not so qualified to talk about NFT's at length, to be honest with you.
Jonas Christensen 38:32
I think you're more qualified than most, but I will let you escape today. It is a fascinating topic. And people are paying a lot of money to things that for some people is not worth anything, but that you can say the same thing about stamp collection and coke bottles and other things, in my opinion. Anyway, Daniel, a couple of last questions here. The next one is a big one. If we look into the future 5, 10 and 20 years out, how will blockchains, cryptocurrencies and DeFi be part of our lives?
Daniel Liebau 40:50
Yeah, that is a big one indeed. I mean, on other shows a few years ago, I always said that one of the main issues of adoption of these cryptocurrencies is that my mum can't use them, because it's complicated. And I was of the opinion that basically, user experience design is a critical success factor to the adoption of blockchain-based systems and platforms. But I'm not so sure about that anymore. Because my mom, whether I like it or not, is sort of an older generation, and half of the world is now millennials, who grew up with platform businesses around them. So there's basically no reason why you would create a business that is not a platform, sort of a value proposition. And they really don't like corporations, which is why I believe this whole idea behind communities is so attractive to millennials. So you combine these two things and then you quickly realise that pretty much everything that's provided by a platform business today, by a centralised one, will effectively be replaced by one that is decentralised, community-owned, governed by people who hold the token, and so on. So I think that's sort of my guess. But then again, it will take a while. So, you know, there's this meme ''We are still early''. I kind of really believe in that. Because if I put my finance hat on, many, many characteristics of, whether it's smart contract platforms or the applications on top, many characteristics are really not priced in. And that's why the volatility of these tokens is so high, because if there was kind of more consensus around what something is really worth, then the volatility would be a lot lower. So my interpretation of sort of current markets is that it's not really very well understood. And we need to quickly move from a market where there are a lot of opportunistic people who try to extract value from, let's say, information asymmetries and so on to a market where people really do fundamental analysis of these platforms to understand how value accrues to the token and then will eventually all come down. But I think if it comes down, it will probably increase quite a bit because the adoption is not really so broad yet. I mean, there is adoption, obviously. And trends like DeFi and also the NFT movement all require these smart contract platforms, which basically means that crypto has created its kind of own consumer in that sense. And you know, now the next one is the Metaverse. For economic transactions in the Metaverse, again you need smart contract questions below. So that's all exciting. And there will be more of those. But effectively, we also need interoperability with IRL, right, IRL (In the Real World). So yeah, that's going to be exciting to watch.
Jonas Christensen 43:53
Absolutely. This is such a mind boggling world development that we're getting into in this financial space. So perhaps we get you back in 5,10 and 20 years to come and what's happened in that time, if the show is still live.
Daniel Liebau 44:08
We hope so.
Jonas Christensen 44:09
Yeah. Let's hope so. Now, they know we're at the end now. So I only have two questions for you left. One is I'll ask you to pay it forward. And you do that by telling me who would you like to see as the next guest on Leaders of Analytics and why?
Daniel Liebau 44:25
Sure, I give you two options. Both of them I think I have quite good reasons. So, Sandy Oh would be a really good candidate to talk about NFTs. It seems like that it also something that is on your agenda, so that could be one. The other one is Matt Dixon. Matt Dixon is a professor in the States. He's also a associate editor of an academic journal that I run with two other colleagues. And most importantly, he's written a book called ''Machine Learning In Finance''. So when we stick sort of more to the title of your podcast and your show, then obviously he knows a whole lot about analytics and how data really changes financial markets. That is kind of my option number two, if you like.
Jonas Christensen 45:16
I love options. Thank you for those recommendations. They both sound spot on. So we will do whatever we can to get them on the show.
Daniel Liebau 45:22
Cool.
Jonas Christensen 45:23
Now, Daniel, lastly, where can people find out more about you and get a hold of your content?
Daniel Liebau 45:29
So the easiest way is probably LinkedIn. So if you just want to follow me on LinkedIn, that's easy enough. I try, I've done it for 33 weeks now. I publish a weekly post on an academic paper that I thought was worth reading, because for my PhD, I have to read or look at so many papers anyway. So then when I see one that I thought ''Okay, this is kind of worth reading from end to end'', I publish it and the series is called ''A Paper A Week Makes Your Blockchain Knowledge Slick''. So a little wordplay there. But yeah, I mean, I guess LinkedIn is probably the the easiest and it's the platform that I use the most. To everyone out there, please don't be shy. Like, I'm very happy to connect and if you have any questions, I'm more than happy to kind of try and help out where I can.
Jonas Christensen 46:14
Yeah. Listeners, I do recommend that you go and check out Dan's LinkedIn posts. I have been reading some of those papers myself and some are incredibly interesting and some of them are incredibly complex. Potentially opening up your eyes to all the stuff you don't know yet, which is always good. We got to get in that learning zone. Daniel is really a great facilitator of knowledge in this space. And if you want to learn more, I think he is a great place to start.
Daniel Liebau 46:42
Thank you.
Jonas Christensen 46:43
Daniel Liebau, thank you so much for being Leaders and Analytics today. Really appreciate your time and sharing your thoughts with the world. We look forward to seeing how all this stuff plays out. And hope to have you back again in the future to talk more about it.
Daniel Liebau 46:57
Fantastic. Thank you very much for having me on the show. It was really good chat over the last hour or so. Thank you.
