How Investors Warmed to China's BSN Builder Red Date

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By Marc Hochstein, Executive Editor

September 26, 2021

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A few weeks ago, I wrote about how crypto derivatives exchanges had lowered the maximum leverage they allow traders to take on. Here's another sign of "risk-off" market sentiment.

The charts below, from the forthcoming CoinDesk Research Quarterly Review for Q3 2021, suggest market participants are also becoming more conservative with the kind of collateral they post (or demand).

The proportion of open interest in contracts margined with regular (i.e., volatile) cryptocurrencies fell dramatically this summer. Meanwhile, open interest has grown for contracts collateralized by stablecoins and cash.

That's just a taste of the insight-rich, 70-slide report by CoinDesk Research analysts George Kaloudis and Teddy Oosterbaan, set to drop Oct. 5, which will also cover everything from bitcoin's oddly consistent September price blues to Ethereum transaction fee volatility. Mark your calendars and bookmark the CoinDesk Research page.

In this week's Briefing, CoinDesk Asia correspondent Eliza Gkritsi presents candid comments from institutional investors on a sensitive topic. I won't spoil it for you.

– Marc Hochstein, executive editor

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The Briefing

How Investors Warmed to Chinese Blockchain Builder Red Date

For its investors, Red Date was an acquired taste.

With fewer than 200 employees, mostly engineers, Beijing-based Red Date Technology is building the Blockchain Services Network, an architecture that it hopes will be the underlying infrastructure for a new blockchain-based internet.

The project has attracted controversy due to its potentially global implications and close ties to the Chinese government (which frowns on cryptocurrency but loves it some blockchains). The company and its investors insist it is taking concrete steps to ensure that the globally available version of the BSN is free from potential interference.

In June, Red Date announced a $30 million Series A round led by early-stage venture capital firm Kenetic Capital and Prosperity7, the diversified venture fund of state oil giant Saudi Aramco. Bangkok Bank and Swiss financial services giant Pictet Group also participated in the round.

Global investors over the last half decade have been looking for ways to profit from China's robust economic growth (recent worries about the country's property sector notwithstanding). But putting money to work there presents challenges, not least of all when both technology and the government are involved.

"There's a lot of things we had to get comfortable with, with regards to where it [the BSN] originated. Is there going to be a back door? What is Red Date's role?" Joe Chang, managing director at Prosperity7 in China, told CoinDesk.

The BSN is backed by Chinese government-adjacent entities, including the State Information Administration Center, state-owned telecom China Mobile, payments provider China UnionPay, and the National Reform and Development Commission, China's macroeconomic planning institution under its cabinet.

Over a six-month period, the Aramco fund had "a chance to look under the hood and really understand what it was all about," Chang said, a process that convinced the team to invest in the company.

Bangkok Bank and Pictet Group declined to comment for this story.

Transcending politics

Much like the internet itself, the BSN is different in China and abroad. The network is split into two, a Chinese and an international version. The Chinese version doesn't allow for completely decentralized protocols, or public chains. The BSN instead adapts public chains into so-called "open-permissioned" blockchains.

Red Date is setting up a foundation in Singapore that will manage the international version of the network, CEO Yifan He told CoinDesk. It plans to bring representatives from global tech and financial companies to sit on the board, he said. The company also wants to eventually open source the technology of BSN International, He said.

Jehan Chu, co-founder and managing partner at Kenetic Capital, said he hopes the network will eventually "transcend any single player" to be truly communally managed by stakeholders. If so, Red Date would go down in the network's history as "a footnote."

Kinetic also owns stakes in derivatives exchange FTX, which hit a record-breaking $18 billion valuation this summer; OpenOcean, an aggregator that compares platforms to find the best yields for crypto lenders; and Compass Mining.

Convinced as they are by Red Date's intentions, the investors acknowledge the geopolitical risk but said it's not a dealbreaker.

Given today's politics, BSN International's vision "may be overshadowed by special interests and political agendas," Chu said.

Chang agreed there are geopolitical sensitivities associated with the network, but argued they stem from perceptions rather than facts.

Ultimately, the investors said they see the BSN as the new internet. Chang compared it to Amazon Web Services for blockchain with the added benefit of interoperability, while Chu emphasized its capacity for connecting private and public chains.

"Red Date is either going to be a $100 billion company or it's going to be a zero," Chu said.

– Eliza Gkritsi

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Chain Links

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Dapper Labs closed a $250 million funding round on Wednesday rumored to give the company a $7.6 billion valuation. TAKEAWAY: Dapper Labs was quick to follow Sorare to unicorn status as the competing firm also raised $680 million earlier this week. Institutional investors are looking to position themselves across an exploding NFT market.

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A JPMorgan analysis of CME crypto markets claims institutional investors have been favoring ether over bitcoin. TAKEAWAY: CME ether futures trading at a premium to spot prices could signal large investors are looking to gain exposure to the second-largest crypto asset. Ether was historically in the shadows of bitcoin, but an increase in price, volume and network usage has brought the asset to the forefront of crypto.

Financial advisors are taking a cautious approach to bitcoin as client interest in the space increases and new products offer retail investors easier access to this new asset class. As trusted guides, advisors cannot risk falling behind, even if the jury is still out on bitcoin's role in a client's portfolio.

At Bitcoin for Advisors 2021 on Oct. 6, Michael Kitces and Tyrone Ross share insights from the front lines. Apply today.