Noelle Acheson is a 10-year veteran of company analysis, corporate finance and fund management, and a member of CoinDesk's product team.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to our subscribers.
After a week of rumors and speculation, this much we know: Goldman Sachs, Banco Santander and Morgan Stanley (most likely) have left R3CEV.
The departures by three of the blockchain consortium's larger members is being taken by some as a sign that blockchain enthusiasm is waning, and consortia are losing influence. Neither viewpoint is accurate.
While we are not privy to the closed-door meetings that led to the respective decisions (which are apparently unrelated), we can deduce that the banks did not leave because they no longer believe in blockchain tech. Between them, they have published glowing reports, invested in blockchain startups, conducted trials outside of R3 and even filed one blockchain-related patent.
Some sources hint that they were unhappy with the terms of R3's latest financing round, but it's probable that they would have left soon anyway.
Why? Because of the nature of investment banking, and of consortia.
Goldman Sachs, Banco Santander and Morgan Stanley are major players in a highly competitive business. Participating in a consortium is not a natural fit, either in terms of style or objective.
Consortia work well in for-profit sectors if they focus on non-strategic areas. Collaborating with others offers synergies and economies of scale in testing new technologies, and when you’re starting out, exchanging knowledge can significantly accelerate the learning curve.
But when an area becomes strategic, the incentives change.
Differentiation becomes more important, and significant progress weakens the desire to share gains with those scrambling to catch up. As members gain experience and knowledge, they also gain confidence, and are less likely to be willing to give up competitive advantage.
When the three banks joined R3 over a year ago, blockchain was probably not as high on their list of priorities as it is today.
In this light, their decision to "go it alone" can be interpreted as a declaration of the increasing strategic importance of the technology to their core businesses, and could even hint at an imminent roll-out of real-world applications.
It's also worth pointing out that the better a consortium does in terms of successful trials and media attention, the weaker it becomes. The greater the number of members, the more complicated its governance, and the more diluted the overall benefits.
A greater pool of knowledge is a good thing, yes, but it is difficult to effectively manage when not all the participants are at the same level.
Consortia will evolve
That's not to say all blockchain consortia are doomed to fail. Far from it.
It's also unlikely that R3 is running out of steam.
Its funding round and the resulting structure do raise questions (is it becoming more like an incubator, or a blockchain services startup?), but are unlikely to stop the innovation. Over 70 members is still a drop in the ocean compared to the potential for future growth.
Governance will get more complicated, and we may see further regroupings and reshufflings. As the group continues to grow and as clients' priorities change, some will leave but more will enter.
In this case, increasing churn is not a cause for concern. On the contrary – it's exactly the opposite.
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