Lykke is a Swiss-based builder of marketplaces, including the Lykke Exchange, for the free exchange of digital financial assets such as Bitcoin and Ethereum.
By leveraging the power of emerging technology, our platform eliminates market inefficiencies, promotes equal access from anywhere in the world, and supports the trade of any object of value. Lykke Corp, incorporated in Switzerland, issues its shares in the form of Lykke Coins on the Blockchain.
Lykke’s mission is to build a new ecosystem for the outdated finance industry by leveraging the power of the blockchain. Since its inception the company has been committed to upgrade finance and support the industry in reinventing itself, with a systemic approach across both B2C and B2B markets. Through its marketplace, Lykke offers unique financial products and empowers both retail customers and financial institutions to invest with no intermediaries, low cost and ease of use. Our Lykke Business provides cutting edge blockchain technology solutions in the dynamic financial, consumer, and service sectors and is a leading contributor for the Open Vasp protocol. And last but not least, earlier this year Lykke launched the Open Initiative, a project which addresses the problems raised by the COVID-19 crisis through science and blockchain technology.
Lykke intends to launch one of the first regulated security token exchanges upon receipt of the Swiss Securities Dealer and OTF (Organized Trading Facility) license from FINMA. Lykke will leverage its platform and products via broker licenses in EU and Asian markets and its license via regulatory wrappers for third parties.
Thought leader
Richard is a pioneer in high frequency finance with extensive entrepreneurial experience and is well known for his academic work. He was a co-founder of OANDA, a currency information company and market maker in foreign exchange. Under Richard’s stewardship as CEO of OANDA, the Company was a shooting star that launched the first fully automated FX trading platform, offering second-by-second interest rate payments and generating 37m profit in 2007. Whilst at OANDA Richard conceived the first trading platform with second-by-second interest payments. He is visiting professor at the Centre for Computational Finance and Economic Agents at the University of Essex. His ambition is to transform financial markets into a seamless system without the inefficiencies that we today take for granted.
Q&A with Richard Olsen
How is DLT and Blockchain reshaping wealth and asset management? Where is the industry today and how do you foresee things changing in the future?
The wealth management industry does not have a good understanding of the benefits of DLT & Blockchain. There is a lot of confusion about the state of the technology, the benefits and the challenges of utilizing the technology. In addition, there is a lack of understanding of the shortcomings of the existing financial infrastructure, the marketplaces and the financial instruments and how the DLT & Blockchain could help in solving the actual problems that wealth managers face. The immediate challenge is one of education in the wealth manager industry. This challenge is difficult to overcome, because there are many gurus claiming to know the future and giving advice. The strategy of Lykke is to build the ‘real’ thing and showcase examples of the new products and their capabilities and in this way educate wealth managers. Our situation is like that of Apple prior to the successful launch of smartphones. At the time users could not imagine how a smartphone could function and how it would be possible to build a broad universe of consumer applications that are all super easy to use. Apple just went ahead with building the product and step by step released the product to the market. We plan to do the same.
The longer-term challenges for the DLT & Blockchain industry will be that of any successful new technology. How to create a scalable environment that can fulfill the exponentially growing expectations of users around the world and service a broad range of users from asset managers to governments, corporations and obviously retail.
In the post COVID19 economy there will be disruption and many industries will have to undergo profound change. It is likely that a number of governments will face default; this is not a pretty scenario. Wealth managers have to prepare for this scenario even though we all hope that this does not come to pass. At the simplest level wealth managers will have to be able to embrace cryptos and related products as a source of asset diversification. This includes index products, such as LyCI or ShortLyCI that Lykke has launched. These products are by design not correlated with traditional investment products and offer a hedge to the existing financial product universe.
More importantly for wealth managers to understand is that DLT & Blockchain will solve some of the systemic issues that the wealth manager industry faces, such as:
Counterparty risk: wealth managers face counterparty risk - what would happen as in 2008 when the big banks fail, and even governments might default on their obligations. Such an event today is on the cards and wealth managers have a duty to their customers to get prepared.
Settlement in the financial industry as it stands today occurs with a two day or more delay. The lack of immediate settlement adds a lot of risk and stands in the way of creating liquid markets that are resilient to stress scenarios. Immediate settlement would have an additional benefit as well. It would be possible to create an intraday money market with an intraday yield curve opening a new type of money market products. This innovation would lead to significantly higher returns from bond portfolios due to increased efficiency of the bond markets and improved liquidity
Absence of Short products: wealth managers are confined to ‘long strategies’ where they only make money if equity markets go up and interest rates go down. Yes, there are alternatives, but they are cumbersome and involve additional risks. Blockchain and DLT will change this and open a huge universe of short products. In a post COVID19 economy where there is no plain sailing and a lot of change will occur, this is a big benefit for wealth managers.
Investment products that make money in nontrending markets: Wealth managers know how to make money, especially when there are strong trends such as when equity markets are rising and interest rates are falling. In the post COVID19 economy wealth managers cannot expect an easy market environment. DLT & Blockchain technology will provide the foundation for a new class of investment products that generate alpha by providing liquidity to the market. This is a huge growth area that can attract large assets under management and does not have the capacity constraints of other types of investment products.
Blockchain and DLT are the infrastructure of the future. Short-term it is important for wealth managers to stop debating ‘should I’ or ‘should I wait’. Wealth managers have to kick off the Blockchain & DLT project as soon as internally possible, as acquiring the knowhow of a new technology takes time. The first simple step is to make an initial allocation to cryptos and explore the different investment products in this new universe. In a second step the wealth manager is advised to formulate a concrete plan of how he can drive adoption. The strategy will depend on the size of his business. If they are a large player, they should also consider investing in several of the new Blockchain and DLT ventures to acquire knowledge and build up industry connections. My bold prediction is that in a short three years all the major investment products will be tokenized and 95% of all the investment products that a typical wealth manager has on his portfolio can be processed in the Blockchain & DLT environment. Wealth managers that have migrated to this space will be in a class of their own. Their customers will be exposed to lower risk, improved performance and more product innovation. They can also provide new innovative services to their customers, which is very exciting.
What solution(s) does your company offer that wealth and asset management firms should consider?
For asset managers who first come to blockchain & DLT we offer crypto products. They can buy the cryptos with zero fees and this is unique in the industry. Our crypto and theme-based index products are very interesting for asset managers. The key advantage of the index products is their automatic rebalancing (every minute) and low fee structure. Investors do not have to worry about the ongoing regrouping in the crypto market, as specific cryptos gain market share the index replicates these market shifts. The asset manager does not have to rebalance himself and equally important he does not have to pay the huge transaction costs that rebalancing normally entails. In our index products we also have a ShortCrypto index, where investors can buy a long product whilst shorting the market. ShortLyCI earns 10 percent when the crypto market drops 10 percent. The combination of LyCI and its counterpart ShortLyCI make investing in crypto markets super easy.
As soon as we can launch the Finma regulated OTF we can finally go live with a whole spectrum of tokenized traditional investment products. The big advantage of these products is very low transaction costs and a sizable number of short products for the traditional financial instruments that do not exist in this way in traditional markets. Finally, all products are tokenized and do not involve second order counterparty risk as is the case for traditional markets.
Benefits
In future, all traditional investment products will be tokenized. Tokenized investment products do not rely on the complex middle and back office operations. The whole administration of the product happens on blockchain & DLT in highly automated and streamlined processes that are very cost efficient. There will be Apple, IBM, you name it equity tokens. All indices will be tokenized as well as all bonds, commodities and derivatives. Tokenization will enhance transparency and there will not be any second guessing of asset backed securities, if the underlying assets are already included. Now the details are typically hidden in an Excel spreadsheets somewhere, in the future they will be all clearly visible on the blockchain & DLT providing vastly improved transparency.
Deployment and future development
Lykke has operated a crypto exchange for the past several years. We are in the process of releasing a number of enhancements that will transform the exchange into ‘the’ leading exchange. The Lykke exchange has zero fees and is therefore highly cost efficient compared to other exchanges. We are also developing a storage solution together with a partner that seamlessly integrates with the top 20 blockchains. Lykke is in the final stages of receiving the Finma OTF license which is a brokerage license that empowers Lykke to tokenize any financial instrument and provide a fully blockchain based financial service offering. This will be a game changer for the whole industry and be the foundation for Lykke on which it can provide wealth managers a comprehensive blockchain & DLT based offering for all asset classes and instruments.
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