Securities-Specific Blockchains: The Next Step in Tokenization Technology?

Why blockchain for securities?

The problem with general-purpose blockchains

  • Built-in anonymity of users. It not only raises costs for companies that should do KYC themselves but also makes them create complicated procedures that restrict transfer to other users. The need for whitelisting makes issuer a bottleneck in a number of potential transactions and limits liquidity.
  • Lack of privacy of transactions. Even though the wallets are anonymous, transaction and ownership structure are seen to everyone. This, for example, means that the size of a venture investment into a startup would be automatically disclosed, that the strategy of a private equity or a hedge fund could be derived, etc.
  • Inherent crypto features: internal settlement is done via cryptocurrency, holding tokens requires having a crypto wallet, etc. For many traditional investors and businesses cryptocurrency has a very bad reputation and stops them from investing in securities on blockchain. In our practice, we have encountered many investors that have already lost their money during an ICO rush and will not invest in crypto assets ever again.
  • Lack of built-in protocols for different types of securities.
  • Lack of built-in operations with securities except the most basic transfer.

Market landscape

The road ahead

Conflict of interest

Author — Borys Pikalov

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