How Goldman Sachs lays out blockchain
With the continuous development of blockchain technology, blockchain has had a great impact and impact on the financial sector. Earlier, 01 Blockchain wrote “The Big Five US Banks' Views on Cryptocurrency”. In the early days, traditional banks such as Goldman Sachs and J.P. Morgan Chase were not optimistic about the future of blockchain. However, over time, traditional banks have entered the market one after another to lay out related businesses. For example, J.P. Morgan Chase has made frequent moves. So what is Goldman Sachs's layout as a traditional investment bank in the blockchain field? What is the current concept of blockchain?
Goldman Sachs builds blockchain trading platform
On August 22, 2022, the Wall Street Journal stated that Goldman Sachs has been using the Ethereum network to trade bonds and process business for customers for some time. In 2021, Goldman Sachs helped European investment banks arrange the issuance of 100 million US dollars of bonds. The bond was registered in France and processed using a self-built platform on Ethereum. The physical bond sales meeting, which originally took about five days, was completed in just one hour. The high liquidity also helped customers to have more flexible capital turnover. Furthermore, due to the nature of blockchain, the risk of a counterparty disrupting the completed transaction is also reduced. The Wall Street Journal said that currently Goldman Sachs's digital asset department is responsible for all blockchain-related technologies.
Mathew Mc Dermott, the global director of Goldman Sachs's digital asset division, is currently responsible for leading about 70 employees, and is committed to making Goldman Sachs use blockchain technologically and legally to bring profit. Interestingly, Mathew Mc Dermott had a relatively bad impression of blockchain before. However, with the maturity and popularization of blockchain technology, many investment banks are using blockchain technology to build their own trading platforms, etc.
Mathew Mc Dermott said that in the next 5 to 10 years, the financial system will evolve into a way where all assets and liabilities are generated natively on the blockchain, and all transactions will take place on the chain. Due to the characteristics of blockchain, migrating transactions etc. to blockchain platforms will greatly improve efficiency, including bond issuance, asset securitization, and loan generation. Basically, the digital financial system ecosystem can adapt very well to blockchain platforms.
The Wall Street Journal said that although Goldman Sachs is unwilling to disclose how much resources it has invested in the digital asset department, what is certain is that Goldman Sachs's vision is to build a trading platform that can serve itself and its customers, and may also be used by other banks.
On August 23, 2022, Goldman Sachs also publicly stated that it will build a new system for transactions based on blockchain technology, which is faster, cheaper, and more profitable. Goldman Sachs said in this regard that using blockchain technology on trading platforms may reduce transaction risks, and that the system will help securities issuers track holders of assets such as stocks.
Goldman Sachs Investments in Blockchain
In June 2021, Goldman Sachs participated in the $28 million Series A investment of blockchain infrastructure provider Blockdaemon. Greenspring Associate, BlockFi, Support, Voyager Digital, Illuminate Financial and others participated in this round of investment. This financing also brought Blockdaemon's valuation to $5 billion. Blockdaemon provides blockchain services that allow users to trade with leverage.
Konstantin Richter, CEO and founder of Blockdaemon, said that for Blockdaemon, this funding is an important milestone. With investments from industry-leading financial technology providers and venture capital firms, this round of financing will enable Blockdaemon to further expand Blockdaemon's node infrastructure services, increase Blockdaemon's growing team, and strengthen Blockdaemon's presence in emerging markets around the world, while deepening Blockdaemon's existing strategic relationships with global financial institutions. Blockdaemon provides its customers with a “simplified” gateway to the blockchain industry and provides tools for “scalable operations”, the latter of which Goldman Sachs may be particularly interested in.
Blockdaemon allows institutional customers such as Goldman Sachs to own and deploy nodes, and the company provides secure, scalable, and relatively reliable services. Through Blockdaemon's service, the company can access Ethereum's beacon chain (Eth 2.0), Bitcoin, Lightning Network, Cardano, Polkadot, Cosmos, etc.
Oli Harris, head of digital assets at Goldman Sachs North America, said blockchain is a key driver of innovation in the financial services industry, and Blockdaemon is powering its infrastructure. Goldman Sachs is excited to join them as they can provide institutional-grade blockchain technology.
In addition to Blockdaemon, Goldman Sachs also invested in crypto research firm CoinMetrics. On May 6, 2022, the cryptographic data analysis company Coin Metrics announced that it has completed Series B financing of 15 million dollars led by Goldman Sachs Goldman Sachs. Goldman Sachs Managing Director Mathew McDermott and its head of blockchain and crypto expansion will join the Coin Metrics board of directors. Mathew McDermott said that the reason Goldman Sachs invested in CoinMetrics is that data is critical to mainstream cryptographic applications.
Other investors include existing investors Castle Island Ventures, Highland Capital Partners, Fidelity Investments, Avon Ventures, Communitas Capital, Collab+ Currency, Acrew Ventures, Morningside Group, BlockFi, and Warburg Serres Investments. Coin Metrics said the funding will accelerate the company's global expansion and enable further product innovation.
Goldman Sachs invested 54 billion won (approximately 310 million yuan) in South Korea's KCOIN in June 2021. KCOIN is a cryptocurrency that can be used like cash. It can pay online stores and offline franchisees, communication expenses for the three major domestic news agencies, gas expenses, national pensions, and health insurance premiums. As long as they log in to the mobile chat app called KTALK, users can mutually accept KCOIN or give away KCOIN, and can pay for electronic gift vouchers.
Goldman Sachs is involved in digital currency derivatives
In fact, in 2018, Goldman Sachs launched Bitcoin-related services to clear Bitcoin derivatives for customers. However, it didn't take long for that service window to be closed by Goldman Sachs.
In June 2021, Goldman Sachs collaborated with crypto investment giant Galaxy Digital (Galaxy Digital, a New York-based cryptocurrency financial service provider owned by billionaire Mike Novogratz) to launch a Bitcoin futures trading product for customers. Galaxy Digital positions the company as a bridge between traditional financial companies and cryptocurrency trading companies, mainly helping Goldman Sachs customers such as large hedge funds and institutions invest in Bitcoin.
In March 2022, Goldman Sachs collaborated with Galaxy Digital's trading division to execute their first over-the-counter (OTC) cryptocurrency transaction. At the time, the product Goldman Sachs bought was a Bitcoin-based non-deliverable option, that is, Goldman Sachs bought a contract betting on the future price of Bitcoin instead of actually buying a spot cryptocurrency.
On April 29, 2022, Goldman Sachs provided its first Bitcoin-backed loan. This was the first time Goldman Sachs used Bitcoin owned by the borrower as collateral to borrow cash. Goldman Sachs said the deal was particularly interesting due to factors such as its structure (which consists of Bitcoin and cash) and 24-hour risk management. The loan launched by Goldman Sachs allows Bitcoin holders to prepay Bitcoin as collateral to banks to borrow fiat currencies such as the US dollar. However, some people point out that this loan may be risky due to Bitcoin's potential fluctuations, that is, if the price of Bitcoin falls too much, borrowers may be required to increase collateral, otherwise they risk being liquidated.
Goldman Sachs's Views on Blockchain
In December 2021, Goldman Sachs released a report stating that blockchain and cryptographic technology will become the core of the virtual world because it will allow people to securely own digital items in different virtual worlds. Goldman Sachs says blockchain is one of the most disruptive technology trends to emerge since TCP/IP and HTML “were introduced to the internet in the 1990s.”
Goldman Sachs said in the report that blockchain technology will surely become the core of metaverse development because it allows users to securely own assets or items and move them to different platforms without requiring permission from a central party. For example, The Sandbox runs on the Ethereum crypto network, which enables users to buy and sell in-game land and NFTs (digital products, etc.) on exchanges outside of the metaverse (such as OpenSea). If any virtual goods or services can't move from one space to another with users, Goldman Sachs believes their value may be limited. As far as the metaverse is concerned, blockchain is the only technology Goldman Sachs sees that can uniquely identify any virtual object independently of a central authority. This ability to identify objects and then track ownership is critical to the eventual functioning of the metaverse. Goldman Sachs believes that blockchain allows “partial elimination of centralized control,” such as the ability for users to log in to any platform or application without requiring third-party authentication (such as Meta, Google, or Apple).
Goldman Sachs's report is generally bullish on blockchain, although it says it's still too early to develop a clear investment strategy around it.
