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What will the blockchain investment space look like in 2020?

(Image credit: Image Credit: Zapp2Photo / Shutterstock)

“Too early, I’ll revisit later.” This decision isn’t motivated by tight purse strings, but rather by questions surrounding blockchain’s ability to reach a mass audience.

The pre-conditions for mainstream adoption are high levels of functionality, network scalability, and regulatory clarity. With each year, we’re moving closer and closer to these central objectives.

In 2020, with this overarching goal at the forefront of the industry’s efforts, it’s likely we’ll see new business models emerge, greater opportunity for retail investors, further discourse around regulations, and more.

Here’s how we see events unfolding in the blockchain investment space this year:

Token-based fundraising models will make a resurgence

Today, the investment sphere is hindered by an access problem, with only a small proportion of opportunities available to retail investors. One solution to this issue can be found in token-based fundraising models—made infamous by the boom and bust of the ICO market in 2017-2018—which could enjoy a resurgence.

The 2017 ICO market represented the first wave of token-based fundraising, and the industry learned many lessons from its collapse. Unfortunately, there was a lot of collateral damage and many individuals fell prey to illegitimate projects.

However, this doesn’t mean that alternate fund-raising models based on tokens are universally illegitimate. Creating new fundraising models is the first step in distributing value across a network of stakeholders, with a host of benefits for both businesses and investors.

Take Uber and AirBnB, for example. What if drivers could have received tokens for providing supply on a new marketplace, or hosts for taking a chance on a new platform and entrusting their homes to strangers?

This was an early promise of blockchain technology, and we have yet to see true equitable stakeholder distribution play out, so far.

Fresh business models will emerge

In 2020, we anticipate plenty of innovation in the way blockchain businesses capture value. We’ll see new business models emerge for Layer 2 technologies and Dapps that are unlike those we’ve seen in the era of Web 2.0.

On the infrastructure side, we will see blockchain incumbents increasingly relying on traditional Software-as-a-Service (SaaS) repeatable revenue models for providing core infrastructure and services for a maturing industry.

We will also see companies employing the token models that have proved valuable to date, such as using tokens for staking, validating, delegating, voting, and providing API access.

Without measures of this kind, blockchain businesses will continue to lose the value capture fight.

Decentralised finance (DeFi) projects will flourish

The DeFi ecosystem is also set to flourish this year, as more experienced developers and serial entrepreneurs flock to the space to build applications. These projects will see levels of consumer adoption beyond anything we’ve seen to date.

So far, DeFi use cases have largely focused on the crypto community and speculation-based use cases. However, we’re starting to see business-based borrowing use cases emerge, which is necessary for any healthy credit market.

The stage is also set for DeFi to truly proliferate in emerging markets with the strong uptake of stablecoins. This will allow people in emerging markets to engage with financial applications that have historically been inaccessible.

Due to regulatory arbitrage, it’s likely that a significant proportion of innovation on this front will happen outside of the US.

Disputes with regulatory bodies will continue

As the call for regulatory clarity grows and given the ongoing debate stoked by the launch of Libra, it’s likely we’ll see more blockchain businesses at loggerheads with regulatory bodies in 2020.

In 2019, Telegram and Kik were both embroiled in high-profile disputes with the Securities and Exchange Commission (SEC) surrounding the classification of tokens as securities.

Telegram raised $1.7 billion in funding for its “Telegram Open Network” (TON) in a 2018 ICO. The SEC later deemed the ICO illegal because Telegram did not register their sale of GRM tokens, which the body considers a security.

The SEC also charged Kik Interactive, the company behind Kik Messenger, in June 2019 for conducting a $100 million illegal ICO. The lawsuit was brought in relation to Kik’s “Kin” token, which the SEC also considered a security. In response, Kik launched the Defend Crypto Fund, hoping to crowd-source crypto donations to help fund its battle with the US regulator.

These are just two examples of a broader pattern that will likely continue into 2019 and beyond. Disputes with the SEC and other regulatory bodies show no sign of abating this year.

Although the classification of cryptocurrencies remains unclear, incremental progress is being made. As the pool of precedents grows, US regulators are better equipped to piece together a framework to guide future endeavours.

Despite ongoing disputes with regulators, the blockchain investment space has much to be excited about as we head into the new year. The re-emergence of token-based fundraising, new business models and the explosion of DeFi will all serve to shift the blockchain investment paradigm in 2020.

Min Teo, Partner, ConsenSys Labs (opens in new tab)

Min Teo is Partner at ConsenSys Labs.