The pandemic has triggered a broad push for more digitization. Token firms say they're along for the ride, too

While the coronavirus has disrupted working life, markets and the general status quo, it could be a boon for the financial digitization movement.

Top blockchain analytics firms have sustained blows resulting in lay-offs, but for firms focused on helping clients digitize, the future looks bright, according to those operating in the space. The reliance on video-conferencing apps has grown exponentially – as have the concerns of privacy.

The hunt for liquidity and the need to work remotely is driving new interest in products that could put the digitization movement ahead of schedule. Those with illiquid assets or those slowed down by manual processes are taking steps to make a move, according to industry experts.

The pace of adoption

Work-from-home orders brought on by the pandemic have accelerated the need for digital solutions, which could translate to a speedier acceptance of newer tech in traditional spaces. As the pandemic continues to create ripple effects, proposals related to regulation crowdfunding (Reg CF)  and Regulation A (Reg A) remain in the comment period of the Securities Exchange Commission (SEC). The ceilings of both may be subject to change, with industry hopes of a raised threshold.

While the virus wasn't the catalyst of the proposal, the growing move towards digitization in the pandemic era could affect the dialogue.

The SEC released its announcement of the proposal on March 4, opening a 60-day comment period that happens to coincide with the ramping up of virus precautions and subsequent need for work-from-home. The problems the virus has posed could lead to mass adoption faster than expected, according to Dave Hendricks, founder and CEO of Vertalo.

"Some of these things are happening coincidentally, but they're very timely," said Hendricks. "I would say that this situation now where everyone needs to do everything electronically is accelerating the adoption probably by a year or two for what we're doing."

A net positive for digitization

For those connecting firms with software, the work-from-home orders may have created a growing need for digital contracts. Hendricks said Vertalo has seen exponential growth in orders since early March.

He said the demand for Vertalo’s products coincided with the Depository Trust and Clearing Corporation’s (DTCC) decision to suspend the processing of paper certificates from the 23rd to the 30th.

"As soon as people started getting capital calls and people started looking for liquidity across their entire base of assets, it [paperless solutions] became important," he said. "Actually though, since the DTCC suspended processing of paper certificates, that's when things started getting really interesting."

The official notice of suspension came on March 20, but buzz around the possibility started in early March. Vertalo happened to launch a sandbox on its platform days before the suspension in a fashion Hendricks said was quieter than usual. The firm included it in its newsletter, and within two weeks had received 27 sign-ups from companies around the world.

Prior to that, Hendricks said a usual week saw about one closing with the usual time it took to sign off. Now, he estimated the number of deals signed has increased by about 300%. Amid a climate of lay-offs, Vertalo will probably have to hire in the next few months to keep up with its growth, according to Hendricks.

While some crypto firms are taking hits in the short term, some industry players feel that major digital push amid the pandemic could be a boon for blockchain-related services as well. Carlos Domingo, founder and CEO of Securitize, said the current climate will be a wake-up call for those who have yet to digitize their processes. 

"I think that after we pass the first six months of turmoil in the economy, overall this will be a good thing for blockchain," he said.

Though he said activity has slowed a bit, Securitize's business hasn’t taken much of a hit. The firm finished Q1 very close to its target numbers, according to Domingo, and though he expects Q2 will likely be slower, a raise at the end of last year has left the company in a comfortable position. That means no need for lay-offs to weather the storm.

Still, Domingo said some smaller costs had been cut to remain conservative – marketing, travel, a slowdown in new hires. Overall, the geographic diversity of the firm has created an atmosphere where the revenue stream of one region picks up the slack as another faces the brunt of coronavirus' economic impact.

"Business is slower now, but nevertheless, there’s going to be more demand," he said.

A rise in M&A?

Ultimately, the consensus is that the long-term effect of the pandemic is a push towards digitization, but firms have to be able to weather the current storm.

Domingo pointed out that there could be an impact to the venture capital (VC) market, which could equate to problems for smaller firms. As VCs lower valuations or slow down investments, those without runway could take significant hits. A slow down in investment activity could lead to less input for newer, or progressive companies creating digital solutions.

For this reason, Domingo said it’s a possibility that mergers and acquisitions will be on the rise in the wake of the pandemic.

"For any company that doesn't have at least close to 18 months a runway, I think you've gotta be in trouble," he said.

More traditional interest

With the traditional market’s volatility, investors are seeking safe assets, and the growing interest in digitization could create more opportunities for blockchain solutions in traditional spaces. Wave Financial's president and managing partner Benjamin Tsai said interest remains in the firm’s Bitcoin Index Fund, despite it taking a hit with the recent volatility. However, there’s been a significant uptick in interest related to a more traditional asset – a tokenized whiskey fund.

While the current reality is that the interest in investing has slowed, Tsai said the reception of the tokenized whiskey fund has been immensely positive.

"We're seeing a lot more interest in terms of people reaching out to us to want to talk about this," he said. "This is probably the only thing they really want to talk about in our portfolio of things that we have. I think most other asset classes have been quite battered and therefore, there's less of an interest there."

Though it is a tokenized fund, the medium isn’t necessarily the message, according to Tsai. Some who are interested in investing in whiskey aren’t interested in the crypto aspect at all, and that’s fine, according to Tsai, since the fund is designed in such a way that return is the main focus.

"I think that's [the tokenization aspect] something that we've decided that we didn't want to focus on as much," he said. "I think that's an angle or a point that a lot of the crypto-friendly investors are very focused on, and I'm happy to get into all the details that they want, but the reality is that the bulk of the investors, and rightly so, are more interested really in the return aspect of this investment."