We had the opportunity to talk to Philip Matov from the infrastructure solution company ConsenSys. Philip talks about his journey from being a math student in Paris to how he founded his own crypto consulting company in Bulgaria to working for ConsenSys in London. Let’s read about how important infrastructure in blockchain is for creating structure and splitting for the ecosystem.
Philip Matov (Venture Architect at ConsenSys)
Interview Date : 26th March 2020
ConcenSys and Ethereum relation
ConsenSys was found in 2014 by Joseph Lubin only a few months after the foundation of Ethereum. Today, it is the world’s largest blockchain technology company for enterprises and governments. While Ethereum is managed by the Ethereum foundation, Joseph Lubin who is one of the co-founders of Ethereum, started ConsenSys with the mission to build the tools and develop the ecosystem of Ethereum. The Ethereum protocol was managed by the foundation, and there was a for-profit-organization ConsenSys which was managing, creating, building the infrastructure and the tools that would help them build the ecosystem.
Today we are a little around 700+ people of experts, entrepreneurs, computer scientists, designers etc. We are represented in many different places around the world such as the US to Asia, Europe to Africa and Australia. We started off as a venture production studio, meaning investing in a lot of new businesses where we saw huge potentials. We were helping to develop these businesses to a certain point in their development. At that point, we start using our connections from the infrastructure we have build to support use-cases in larger enterprises and governments. We provide capital to companies that are in need of that, especially infrastructure solutions, which most of them are making the base of most widely used enterprise blockchain solutions today.
Initial stages of ConcenSys
Infrastructure solution such as Infura, PegaSys, Codefi, Alethio etc., are what make our core products. We also have portfolio companies that we have invested in. Some of them are Kaleido Trustology, Metamask, uPort, Rhombus etc. All of these make part of our company portfolio. We started off by investing money in this by building infrastructure and products that can help build this ecosystem. We did a lot of education to developers, entrepreneurs and corporate managers about Ethereum and about blockchain. We actually started by educating people, putting capital in companies and also started engaging in very large projects.
Banking in the Philippines through Ethereum blockchain Infrastructure
The type of projects that we have been investing in include Union Bank, which is one of the largest banks in the Philippines. A fact that not many people know is that ⅔ of the population in the Philippines is unbanked. They have more than 500 rural banks with no actual access to the central banking system, and also no web e-bank access either. A while ago, transferring money from one island to another was quite a challenge. So we went to the Philippines, and we worked with the union bank and the central bank. We introduced Ethereum as a settlement layer for these rural banks which they agreed to. So today, we have more than 100 rural banks who settle their transactions on Ethereum on a daily basis.
After 6 Years of University, I stumbled upon Crypto
I am originally from Bulgaria, but I studied mathematics in Paris for 4 years. After I finished my University course in Paris, I did 1 year in Hong Kong. After my masters in Hong Kong, I did one more masters for 1 year in Paris, I did 1 year in Hong Kong. After my masters in Hong Kong, I did one more masters for 1 years back in Paris because I did not want to start working right away.
My first job though was in Tokyo, and I lived and worked in Japan for 3 years. At that time I had a Japanese teacher who was teaching me the language, but my job was to help with Digital Transformation at BNP Paribas Cardif in Tokyo.
I think that I still might be able to get by with my Japanese conversation skill but by no mean can I speak any business Japanese! It’s not the same thing! But I completely fell in love with Japan and this is actually where I learned about blockchain back in 2016.
Blockchain Kick off with Japanese Mentor
My start in blockchain was in Japan, where I met my mentor in blockchain school, Mr. Kobayashi Satoshi. He is the founder of Smart Contract Japan, and was one of the first blockchain evangelists in Japan. He co-organized the first blockchain conference in Japan in 2016-17, where they invited ConsenSys to present in Tokyo. It was a huge event with every investment bank and investment company. It was quite impressive, the concepts and ideas they were talking about were just presented in a very different way. These would include anything from managing electricity to new ways of viewing music, and right distributions to payments to digital assets, etc. It just blew my mind and I went down the rabbit hole.
From there on, I started learning a little more about blockchain and understood from quite early on that this new invention is as much about the blockchain technology as it is about the way of unconventional strategies and thinking; it is a way of approaching solving problems and organizing entities and work, I started thinking about how I could apply blockchain in the context of my work that I was doing at Paribas. However, there was not much we could do with blockchain at the time but I definitely kept interest in blockchain.
My next step was to found my own company , so I came back to Bulgaria for a couple of years. I started my own company which was a blockchain consulting company. We worked with a number of large enterprises in the region to consult on blockchain strategies, and how it can bring value to their work. However, the South East European market is quite limiting as it’s not a big enough market. I really was feeling like I wasn’t in the forefront in where blockchain was happening, and I was following up with ConsenSys from the moment I learned about blockchain.
I admire ConsenSys’ Co-founder Joseph Lubin a lot. I sort of felt an obligation to help ConsenSys to achieve their goal because I share the vision of the company, and because they first introduced the concept of blockchain to me back in Japan. So I was very excited to join ConsenSys. It has been a little over a year in the London office and my role is to help develop our business, especially business developments focusing on digital asset strategy. This market is very new, so it requires a lot of effort to really find the right product market fit for different use cases. So far, it’s been quite a journey.
Proof of Stake Mechanism
The way that we transact through Ethereum today is through a consensus mechanism called proof-of-work. This consensus mechanism defines the rules which will allow me to send and receive tokens. Bitcoin uses the same protocol. Each time a transaction is posted for validation what happens is that there is a race between several different miners to solve complicated mathematical algorithms in order to verify that transaction. The problem with this approach is that it is quite energy inefficient. Furthermore, it is not as scalable as we would like it to be.
ETH2.0 is offering an alternative consensus mechanism called staking; if you are a holder of Ethereum you can stake that Ethereum in order to protect the system and in order to validate the transaction. If you have any bad intentions, you will be penalized because you have staked that Ethereum. The upside is that because you stake that Ethereum to support the system, you will get some rewards. So, you will get some return out of it. When staking becomes available, you will be able to put your Ethereum in the bank and the Ethereum will start generating interest. That is a big opportunity for exchanges, custodians, investment funds for crypto, and large Ethereum holders in general to start benefiting from it.
However staking is not as straightforward and is easy as it may sound. There are a lot of risks that you run into by staking, and you need the appropriate infrastructure to make sure that you are doing it right. Within ConsenSys, one of our solutions is a “Staking as a Service Solution” for ETH 2.0 and we already started a pilot program with exchanges and custodians before the launch of ETH2.0. We want to make sure that our solutions correspond to their technical and functional requirements. The idea is that in July these players would be able to start staking right away without necessarily building their infrastructure. So, that’s something we are focusing a lot on right now.
Sharding as a Scaling Solution
Sharding is a type of database partitioning that separates into smaller, faster and more easily manageable parts that are called shards. There are 2 ways how you can scale data base; either horizontally or vertically. This means that if you have a database collecting personal information from your name to your address to your ID, one way to separate it would be to put your name and address to one database and your id on another database. Now you have created 2 places where you can search for information instead of going through everything.
Another way to scale your database is horizontally. Here, the same information is in the database, but let’s say that the same information is ordered in alphabetical order of names. A type of horizontal division is called sharding. So sharding is a type of horizontal database division. The result of all this is that you are going to have a more manageable, easier and faster database and Ethereum functions.
Financial services on Blockchain
We do not only rely on very gigantic blockchain projects that happen once in a while. We also build a lot of products, some of them are infrastructure and development tools, and some others are applications. However one of our core products today is Codefi.
DeFi is an umbrella term for financial services such as borrowing, lending, or trading but built on a decentralized blockchain such as public blockchains using smart contract examples include decentralized lending, security token offerings and many others. This is an alternative way to manage our assets that is much more efficient, but in order to fully benefit from its potential, there is an important intermediate step which consists of transitioning many of today’s financial instruments and assets from paper-stored and centrally-controlled to a distributed ledger. That transformation from analog to digital is a process that quite a large number of companies are getting involved into. We have heard much about tokenization of assets, about security tokens and stable coins, they are part of this financial transformation. Codefi is our approach for solving issues of asset manufacturing.
For years, the FinTech space has been solving a lot of problems on distribution levels. Let’s say we have 3 different layers , first one is manufacturing, the second layer is middle office and the third layer is distribution. A lot of these FinTech companies have been solving problems on that distribution level. These incl. Robinhood, Revolut,and many others that have been figuring out new ways of how to distribute products that have been existing for a very long time. These are the same products that have been there for a very long time, but now are distributed in a much more appealing way, especially to younger consumers. There have been some improvements in the middle offices, especially in efficiency gains, so some companies have been focusing on that.
However, no companies have been focusing on the manufacturing of assets. The foundation of the financial system hasn’t changed for many decades. Our approach to solving that problem is that we really want to create an operating system that will help a new way of launching assets and in managing them. So we have built Codefi which is what we market as the operating system for commerce and finance built to optimize business processes, digitize assets and financial instruments.
It has 4 pillars, that are Codefi Assets (use-cases of issuing, distributing and managing of digital assets), Codefi Networks (staking into ETH2.0, lending protocol and other blockchain features), Codefi Payments (crypto and stable coin payments with reporting tools) and Codefi Data (analytics, management and risk analysis). It’s an operating system where you build your asset, you issue them through Codefi Assets, you manage payments through Codefi Payments. You also get all the useful insights from the market like risk analysis from Codefi Data, and then you collateralize these assets against a loan if you want to be using Codefi Networks. So that’s our answer to approaching that problem that we have been promoting and that has gained a lot of traction. It’s been quite an interesting journey.
Letters of Credit exchange through Komgo
Komgo is a platform that we helped to develop. It’s a platform that holds 15 of the largest trade finance players in the world in commodity trade finance, specifically for oil. Some of the companies are Credit Agricole, Citi, Shell, etc,. We have built out a platform that helps these players exchange Letter of Credits.
Letters of Credit, especially in the commodity trading business, is an essential instrument. It’s ensuring that when you are trading for example petrol from Asia to Europe, you typically not only have a buyer and a seller, but you also have a financial institution that takes holds of the cargo on the way that makes sure the transaction will follow up efficiently.
It was historically a process that required a lot of different players. You can imagine that commodity trading also includes a lot of jurisdictions and rules in different places, and it requires a lot of paperwork to manage these transactions. So we have reduced paperwork quite substantially as we use blockchain to gain efficiency, and have created transparency for the different players coming to work together. That is only one example of our many credentials, and we are quite proud of that.
Payment Mechanism and digital Efficiency
Very often projects connect with us, so we receive inbound marketing from companies and people who have seen information about our products and our vision. They are typically projects that are in different stages of their development. Sometimes we work with startups, but more often we work with large enterprises and later-stage startups with funding, and who already know and have a product-market fit. They are looking into blockchain because it is a technology that enables 3 things; process efficiency, transparency, or ultimate connectivity leading to increased and more diversified access to international capital. Hence, your asset can be traded on different exchanges around the world which today may not be ready yet, but a lot of different parties are contributing to building out that infrastructure that will create a much more efficient way of trading in the future when it has fully matured as an exchange.
In terms of clients, we talk with investment funds, specifically private equity funds. Traditionally, this has been a space that stays very closed. However, this is not the ideal way to keep a relationship with their investors; they don’t have access to the international market, and the pool of investors that get money from are quite limited. So, we help them streamline their processes and potentially get more access to the international pool of investors, and make their work easier.
Other types of clients are large enterprises and banks. This may include central banks looking to explore central bank digital currency. This is a very important use case because we’d like to enable access to a digital representation of stable value which will serve to facilitate the payment mechanism.
There is this concept in blockchain that is called atomic DVP (Delivery Versus Payment). DVP is a securities industry settlement method in which the transfer of securities only happens after completion of payment. Let’s say if you have an asset that is a digital representation of a real estate, and you get one share of that. If you want to exchange it with someone whose money also is managed on the same blockchain infrastructure, the transaction can happen automatically. The reconciliation is the same is the transaction. So the settlement and the exchange would become the same thing.
However, if one leg is purely digital as a token, and the other one is not, that will creates friction. I can exchange the token very easily, but then you may have to send a wire transfer to my bank account. Many digital asset platforms today are offering the exchange of assets to happen through a wire transfer. Nevertheless, we are looking forward to a world where both legs of the transaction will be digital so that the whole transaction and the system will be much more efficient.
We are in a Transformation
We are very fortunate to be at the beginning of something which we believe will add substantial value to the world. We have been very lucky to not only have found support in the institutional and traditional financial institutions but also the retail and commerce industry. It takes a lot of education, convincing, and time to explain the value of distributed databases but it’s worth the effort. Some hurdles we face are to finding the right product-market fit, or the right solution that could be scalable and repeatable using blockchain technology for a certain company. I believe that ConsenSys has completed a successful transformation towards becoming more of a software product company. We are becoming much more focused on specific use-cases and markets that we believe will benefit most from a digital transformation and distributed ledger technologies.
We support the development both of Enterprise blockchain as well as the development of decentralized infrastructure. Code Network and Payments are parts of Codefi exploring use cases using crypto. So, things like staking, lending protocols, utility tokens, crypto payments, etc. We recently launched Activate which is a platform for buying, using, and managing utility tokens.
Regarding commerce and finance, we have been working very closely with some of the largest investment banks, largest supply chains, retail solutions in the world. A lot of the focus of blockchain efforts today is around rethinking how to issue, distribute, and manage the life cycle of any asset and this is impacting a very wide range of companies.
Bulgarian Crypto Market today
There are two sides to the crypto industry in Bulgaria. On one side when I came back to Bulgaria from Japan, I was positively surprised by the vibrant crypto culture existing in Bulgaria. I was also very happy to learn that quite many substantial and very important blockchain projects were started by Bulgarian entrepreneurs, and some of them were even developed in Bulgaria. Projects such as Aeternity which at one point was one of the top 30 projects. It did not have as much support as Ethereum of course, but it was a great project. It helped grow the blockchain ecosystem in Bulgaria, including delivering capital, facilitate crypto meetups, and building protocol infrastructure.
We have another project called NEXO, which is a crypto loan project. The solution allows you to get collateral against your crypto. They got more than 50 million dollars in funding in an STO (Security Token Offering) as companies have seen its potential.
We have AdEx which is in marketing and commercial space, and another one called Propy which is a Real Estate. So quite a few blockchain projects were founded in Bulgaria, and we’ve developed quite a large community. We have the tech people, it’s always been a place with concentration highly skilled technologists.
On the other hand, the business environment is very traditional and conservative. Some Companies are taking risks, especially IT companies looking to develop products to outsource other markets. Traditional businesses like finance and insurance are typically branches of large international corporations which makes their innovation budgets quite limited, and the amount of power that they have over “what can we invest in” and “how much of a difference can we make” is much less than what you would have with the same company in their head office talking and working with the technologists and innovation officers. In short, the blockchain startup ecosystem is quite impressive and there are very great people from whom I learned a lot. On the other hand, the business environment may not be best to scale your solution.
Interviewer , Editor : Lina Kamada
The Article published on this our Homepage are only for the purpose of providing information. This is not intended as a solicitation for cryptocurrency trading. Also, this article is the author’s personal opinions, and this does not represent opinion for the Company BTCBOX co.,Ltd.