Blockchain technology has many benefits that lend themselves nicely to capital markets. As fears of disruption and job losses begin to subside, smart traders and asset managers are waking up to the possibilities. Even staunch Bitcoin critic UBS CEO Sergio Ermotti recently stated that blockchain technology was “almost a must” for banks.
And as blockchain-based investment marketplaces start to pick up speed, investors of all shapes and sizes are diversifying their portfolios. The demand for alternative asset management is on the rise, estimated to reach over $15 trillion by 2020. Even off-chain companies are beginning to tokenize their assets to gain access to new sources of capital.
The Vice President of HighCastle, Ulyana Shtybel, Ph.D., says, “Blockchain will have a tremendous impact on the capital market infrastructure.” As the world’s biggest blockchain-based investment marketplace, HighCastle provides access to over 12,000 projects with a combined value in excess of $5 billion.
Aiming to bridge the gap between investors and founders, HighCastle is tokenizing securities to enable the smooth trading of global alternative аssеts.
“Blockchain has the potential to radically change the way that companies raise capital,” Shtybel explains. “Blockchain implemented by exchanges and alternative capital market operators could reduce settlement times and organize financial transaction data, making it more transparent and efficient.”
Beyond removing intermediaries and allowing for a shared view of permissioned data, blockchain simplifies many areas across the board, from asset servicing and accounting to allocations and administration. According to Shtybel, these are the top seven ways that blockchain can benefit capital markets:
7. Faster Validation
Decentralized transaction processing becomes a tool for transparent and automated verification of holdings. This makes for faster and more secure trading.
6. Cost Reduction
Securities issuance processes on the blockchain are automated. This erases the need for the central clearing of real-time transactions and reduces operational complexity.
5. Blockchain Records for Trustworthy Audits
Transaction data recorded at the cash and assets ledgers is trusted and acceptable for automatic reporting and provides greater transparent supervision for market authorities.
4. 24/7 Access to Markets and Trading
Blockchain provides an unprecedented opportunity to access securities trading anytime from anywhere without needing to close the market.
3. Liquidity and Market Depth
Private securities are generally illiquid assets. This means that individuals and institutions who invest through crowdfunding platforms or private placement deals don’t have an organized secondary market allowing them to exit their investments.
With blockchain technology and the proper legal structuring of tradable security tokens, this market can finally be created. This liquidity greatly enhances the attractiveness of investing in alternative assets.
2. Automated Compliance
Blockchain also integrates with external databases, allowing the automation of AML checks and KYC due diligence. By using an automated criteria-based decision-making protocol, clients’ profiles can be analyzed faster.
1. Transparency of Returns
Blockchain increases trust and transparency in dividends and interest payments as payment instructions are automatically generated in the cash ledger based on the obligations computed by the smart contract at maturity.
The meteoric rise of ICOs has clearly demonstrated the popularity of this type of investing. Regular investors can access innovative projects like never before and companies can gain access to funding.
However, with the fear of regulatory compliance, businesses and investors alike are seeking legal options that meet the requirements of regulators.
Compliant alternative investment marketplaces allow innovative companies and traditional businesses alike to offer tokenized securities. This means that investors can hold traditional shares or bonds in their crypto wallets, along with their Ether and Litecoin.