Digital Asset, the six year old enterprise blockchain provider behind the DAML smart contracts language, is one of the oldest and most established companies in the enterprise blockchain space.
With its charismatic Wall Street veteran — Blythe Masters — at the helm, the company became famous for its rapid market dominance of the blockchain-in-financial-services space as it signed a dizzying array high profile deals with financial services clients, and pulled in large amounts of investment.
However this infamy also became problematic when market sentiment turned and the company, for a while, became a victim of its own success. As a number of its high profile deals faltered, critics were quick to seize on this as evidence that the company had gone out over its ski’s. The criticism continued as the company shifted its business model, and its CEO left the company.
However, the company has shown remarkable resilience, emerging from a tumultuous two years with a major client success story and a fresh round of investment from a number of major technology and financial services firms.
To understand how the company is thinking about the next chapter in its life, Forbes.com recently spent time with Digital Asset CEO Yuval Rooz and Chief Marketing Officer Dan O’Prey.
Digital Asset — The Early Formulation
The company, founded in 2014 by Sunil Hirani and Don Wilson out of a bitcoin trading operation created by the Chicago trading firm DRW, rose quickly to prominence through aggressive acquisitions in talent and technology.
In 2015, former CEO at JP Morgan’s commodities division and Wall Street titian Blythe Masters joined to lead the company.
The company gained an early reputation for being highly acquisitive: Blockstack.io, Bits Of Proof, and Hyperledger were purchased in quick succession. The acquisition of Hyperledger proved prescient, because while few knew about that small start-up, it provided the Digital Asset team with a solution to an architectural limitation of blockchain technology that existed at the time: early blockchains relied on the concept of a coin1, however, Digital Asset found that as unworkable when modeling more complex aspects of financial instruments. Whereas Hyperledger provided a coin-less way of representing financial instruments.
The company gained early client traction in September 2015 when Pivit, an online gaming portal, completed a $5 million round of funding with a portion of the debt issued through Digital Asset’s software.
NEW YORK, NY – OCTOBER 25: Digital Asset CEO Blythe Masters speaks onstage at Yahoo Finance All … [+]
In 2015-2016, the company announced a number of new clients including; Master’s previous employer, JP Morgan, the Australian Stock Exchange (ASX) and the Depository Trust And Clearing Company (DTCC).
In a surprise announcement the company donated the Hyperledger trademark to the Linux Foundation, an association of enterprise blockchain companies.
Following a $50m+ raise from a range of Wall Street firms in 2016, Digital Asset’s final feather in its cap was the 2017 acquisition of Elevence, which had developed a unique financial services modeling smart contracts programing language. This set the company on a path that would result in the company launching its own smart contract language — Digital Asset Modelling Language (DAML).
The Tide Turns
Through 2017, like a few of its competitors such as R3, Digital Asset both benefited from the market hype around blockchain technology and also, itself, played a part in fanning those flames through highly publicized deals and blanket media coverage.
However, by 2018, as the blockchain fervor started to subside, investors and the media started to question whether blockchain technology companies could quickly transform the archaic and conservative world of financial services and deliver on promised returns. As one of the market leaders, Digital Asset came under the microscope.
Critics began to point to shifts in the company’s business strategy and the slow progress of deals as evidence of Digital Asset’s shaky foundation. A number of clients were reticent to move beyond the successful pilot phase into a production setting; the Depository Trust Clearing Corporation hit pause because, as Murray Pozmanter, head of clearing agency services, explained,“basically, it became a solution in search of a problem.” (Digital Asset is quick to point out that the trial did meet all success criteria and provided a launch-point for some follow-on areas of exploration).
Post-trade services provider, SIX Securities Services, a unit of the group that operates Switzerland’s stock exchange, also passed on progressing to production.
The company also attracted notoriety for a churn of high profile staff: Masters and a number of senior staff members left, including Digital Assets’s European head, followed by the CIO and CTO of engineering and a board member.
In the following year, stories circulated calling into question the health of the ASX project, which was one of their flagship deals. This was accompanied by an announcement that infrastructure virtualization provider VMWare had stepped in to the project as a new partner. With VMWare appearing to have taken over the consensus layer of Digital Asset’s stack in the deal and Digital Asset switching the attention to DAML, critics seized on this as evidence that Digital Asset was having challenges with their technology, requiring a third party to step in.
For Digital Asset — The Smart Contract Layer Is Where The Value Is
Yuval Rooz – CEO – Digital Asset
Credit: Digital Asset
While Rooz and O’Prey wouldn’t be drawn in to talking about Master’s reasons for leaving the company, they were more forthcoming around the question of the company’s “pivot,” portraying it as natural evolution of their product: as the blockchain industry has matured, blockchain vendors have started to focus and specialize on certain areas of the stack where they can differentiate.
“We might have pivoted our business model, but we didn’t pivot on the tech,” says Rooz. For Digital Asset, competing against other vendors in the industry across the full technology stack isn’t where the value is.
Rooz goes on to draw parallels in the smartphone industry: Apple controls their stack vertically from the application ecosystem through to the phone hardware and competes with other companies across that full stack. Whereas companies such as Google, with their Android offering, have decided to take one part of the stack and compete on that, and leave the other elements, such as phone hardware to other companies.
Digital Asset, has decided to specialize on its smart contracts language – DAML and leave the underlying technical plumbing, a layer that has become largely commoditized to the large scale infrastructure companies to provide.
In the same way that Android is available across a range of devices, Digital Asset has been able to make DAML available across a range of consensus models, giving adopters a myriad of choices for what underlying infrastructure they want to use including Hyperledger Fabric, Sawtooth, R3 Corda and Amazon QLDB.
“Early in 2019, against the backdrop of all these leading tech companies coming into the market, I asked myself and my team if there was a bigger vision to what we’re doing here at Digital Asset? If your product is to build the entire stack, then your strategy is to compete with everything and everyone.”
So why did Digital Asset build a consensus layer in the first place? The answer, according to Rooz was out of necessity — there was simply nothing else available to use at the time. The team hasn’t abandoned the technology entirely, however. “We still have a team working here on blockchain tech, i.e., a ledger,” says Rooz, adding that this team is solving complex problems that others don’t: “We think we can help our partners enrich their own blockchain offerings.”
Rooz claims that the company’s focus on DAML has paid off, pointing to a range of market leading features that the language has, which had they not had such focus they wouldn’t have been able to bring to market so quickly.
“Today, building and deploying distributed applications is far from intuitive. In fact, you probably need a Phd to get a scalable distributed application running. We’re working to change this.”
However, that still leaves the question as to how the company will be able to make money out of an offering that is open source and therefore free to use. Rooz sees a number of paths to revenue generation.
While DAML is free to use, the company plans to charge a support fee for enterprise support. That will allow adopters to ensure that they are eligible for upgrades, special enterprise features, and s expert assistance around how to use the language effectively.
The company will also offer – and charge for – “customer enablement services” to provide the expertise and support to help clients with deployment into production; as adopters are starting to find out for themselves, it’s one thing to experiment with the technology in the lab, quite another undertaking to move it to production. Digital Asset will be well placed to assist clients as today’s experiments start to translate into complex initiatives to move to production.
Setbacks Are A Part Of Pioneering
The Digital Asset Team
Credit: Digital Asset
The conversation with the Digital Asset team turns to the slow adoption rate in financial services of blockchain technology and the numerous setbacks that have beset both the company as well as other blockchain providers over the last few years.
For Rooz, it’s a matter of expectations and perspective.
“When people asked about the arrival of the Internet… did they say ‘is it ready yet’?” quips Rooz. His point: If the Internet had been as eagerly hyped prior to wide-spread adoption as blockchain, then possibly the media would have been criticizing Internet pioneers about their slow progress as they do with enterprise blockchain vendors today.
To give the company its fair dues, Digital Asset has not been alone in its setbacks with customers being gun-shy in moving to production, and the industry success rate overall has been low. In that context, therefore, it could be argued that the company’s one major early success — ASX, out of a handful of initiatives — could be considered a relatively high batting average in the industry as a whole.
Australian Stock Exchange
The Digital Asset team are quick to “correct” the media narrative that the ASX implementation was delayed, arguing that from the outset of the initiative there was an agreed window of time (albeit quite a wide one) and that after a consultation process conducted by ASX, it came to the conclusion to settle on the later end of that window with a go-live date of April 2021.
Rooz claims that the project remains healthy and that they have yet to miss a deadline. The ASX remains dedicated to the effort, which is evidenced by the sizable dedicated team that the exchange has in place to implement the technology as well as through the exchange’s continued investment in Digital Asset that now totals $40m.
“When you think about all the components that go into building a system like CHESS, it’s incredible what we have been able to achieve with the ASX in such a short period of time.”
To many, it did seem strange that both the ASX and Digital Asset appeared to be publicly championing a project that’s not really a great poster child for distributed ledger technology. After all, the exchange is already one of the most digitized, consolidated and centralized in the world, and with such a decrepit infrastructure in place, implementing any modern technology as a replacement would have sufficed.
The Digital Asset team has some sympathy for this argument, but for Rooz and O’Prey the real opportunity is the long term opportunity; the CHESS replacement provides a toe-hold that ultimately will expand into a myriad of adjacent areas that include “back office as a service”, the creation and lifecycle management of new forms of digital assets, as well as potentially taking on the colossal superannuation business.
Financial Services Is A Focus But Not The Only One
Digital Asset claims that DAML has widespread applicability to any business process, not just modeling financial instruments. The company points to its marketplace that showcases a number of solutions across a range of industries including healthcare, aviation, and retail.
Yet despite the company’s ambitions to deploy DAML across industries, Digital Asset’s brand remains closely associated with financial services; the company is a regular fixture at Barclay’s derivatives hackathon, where the majority of teams choose to use DAML over other smart contract languages. Digital Asset also sends their own team to the hackathon and claims to have created a simple swaps contract in just 100 lines of DAML compared to the 800 lines of Kotlin. For the company, that’s a major proofpoint of the language for Fintech.
A DAML branded mug atop a windowsill in Digital Asset’s downtown office.
Credit: Digital Asset
For the company to meet its ambition of achieving ubiquity, broadening DAML’s appeal beyond financial services will be critical, especially given how notoriously conservative and slow to change financial services has been. It’s possible that the company may be able to make more headway in these other verticals, many of which are more lightly regulated and less archaic.
Feature, Not A Bug
While that may be the case, those that are close to the language have complained that it is hard to use, mirroring aspects of how financial instruments work rather than how programmers intuitively think. That creates a learning curve and commands a very different programing mindset than is employed by developers of traditional non-domain-specific languages, such as Java, making adoption more challenging.
For Rooz, it’s a feature rather than a bug — programming complex distributed applications through smart contracts is different from standard programing, and therefore the experience shouldn’t feel familiar. Rooz contends that “with DAML, you’re trying to solve really complex problems. It is naive to think you can solve complex problems with simple, general purpose, tools.”
The Digital Asset team points to another key feature of DAML, which is how the language has been designed with the principle of composability at its core. The power of composability is that it enables a programmer to pick off one small part (or service) of a much larger and complex problem rather than fully solving for the whole piece. This means that an engineer can decide to solve just for the payments aspect of a complex supply chain rather than seeking to fully move the whole solution to blockchain. In turn, companies can slowly integrate blockchain technology into their processes, thus reducing the risks and costs inherent in the all-or-nothing approach to adoption.
Ready For The Next Phase Of The Journey
Regardless of how the company got to where it is today, what is arguably more important is where it is headed.
With a new injection of cash of $35m from it’s recent Series C financing round, the company plans to “accelerate adoption of DAML across multiple industries, expand the number and variety of DAML-enabled partner products, and fund new products designed to enhance the DAML developer experience”.
Its newest strategic investors, Salesforce and Samsung, are likely to be strong allies in enabling DAML to become ubiquitous and we may see in the coming year DAML becoming integrated into Salesforce CRM or in range of Samsung products across a consumer, medical, heavy industries, and automotive segments.
A C round is typically used to scale a company that has achieved some traction in the market. However scaling is not without risk, and companies going through this type of expansion can sometimes take their eye off the ball with so many things simultaneously vying for management attention. The company will need to balance the complexities of expansion with staying on target for getting ASX live by April 2021.
The company will also need to start demonstrating to investors as it scales its business model that it is able to deliver healthy and repeatable revenue, especially given that some of those investors have been waiting for over six years now.
The coming year will certainly be an interesting one for Digital Asset.