How tokenisation and blockchain will disrupt capital list of ways to make money markets – crypto latest

In this post, we discuss how tokenisation, security tokens and blockchain technology will change the nature of list of ways to make money the capital markets. This article is a good read for business or technical list of ways to make money people involved in finance, blockchain and the tokenisation space. In this short introduction we cover how capital markets are list of ways to make money defined for the context of discussion. Then we dive into how tokenisation will change the structure list of ways to make money and roles of the market, where we will find the benefits and how all this list of ways to make money aligns with other macro trends. What are capital markets

Based on the trading counterparty, capital markets can be divided into primary markets (raising debt or equity capital) and secondary markets (trading those instruments forward to next investor). The difference: when you buy a share in a primary issuance you list of ways to make money are typically giving money to the issuer. When you are buying that share in secondary markets, you are giving money to your trade counterparty.

The financial instruments, or securities, which get moved around, can be equity or debt based. Equity is company’s shares, representing ownership in the company’s revenues and assets. Debt is a loan agreement, which represents a right to receive interest payments as well list of ways to make money as a return of principal invested. Structure and history of capital markets

In the public markets, also known as main markets, the issuer goes through more scrutiny and has stricter regular list of ways to make money reporting duty. In contrast, alternative investments fund raising happens often in private, offers are less scrutinised, but the cost of fundraising is lower. The term alternative investment terms is broad, and not well defined, and may capture also non-securities investments like real estate. How securities are held?

To hold securities, you need to open an account with a broker. The broker then holds their own account on a bigger list of ways to make money broker. At the top of this hierarchy, the top level balances are kept in the database of list of ways to make money a central securities depository (CDS). The most well-known CDS is the depository trust company (DTC) in the united states which maintains top-level ownership records of $53 trillion USD in assets.

Security tokens, or more correctly tokenised securities, take the above idea of the dematerialisation of ownership records list of ways to make money further and move the record keeping activities from a custodian/broker managed records to a distributed ledger. If you are new to securities and security tokens you list of ways to make money might want to read in-depth introduction about these here.

Investors are typically divided into two classes. Retail investors, or everyday investors, are not experts in financial markets. They can be people saving in stock markets or normal list of ways to make money businesses managing their treasury. Institutional investors, e.G. Blackrock, make investments for everyday, have the training and have the supporting staff to make list of ways to make money well-researched high-value transactions.

Intermediaries are supporting this ecosystem. Investment banks like goldman sachs help their clients and issuers list of ways to make money to raise money by underwriting the offer. Brokers, like fidelity, have an existing audience of retail and professional investors. They then market the investment opportunities and broker the trades list of ways to make money for them, taking a fee in the process. Custodians like BNY mellon account the assets on behalf of list of ways to make money their clients and provide trade processing and reconciliation services. Activities

Investors do research in the available investment opportunities, by analysing market conditions, expected risks and return of investments. When an investor decides to proceed with the investment, the trade enters the execution phase. Execution may be signing the subscription agreement of new shares, or filling the online shares buy/sell form on a broker platform.

After the execution begins the post-trade phase, the different service providers exchange information and money to ensure list of ways to make money that the new owner of the shares receive them. This action is correctly recorded in the master ownership records list of ways to make money or shareholders registry. Because the traditional markets and banking systems do not work list of ways to make money in real time, there may be settlement failure, e.G. When the subscriber of the new shares did not make list of ways to make money the wire transfer to pay for them. Future capital markets

Transition is happening, not just because of blockchain but also because of consumer list of ways to make money behaviour and regulatory changes. We have observed a similar evolution in the past for list of ways to make money ecommerce, retail banking and mobile internet services. Securities markets are opening up around the world. More capital flows across borders and investment opportunities are more list of ways to make money readily available for a wider global audience. Interaction does not happen by visiting a bank desk, but mostly online, through browsers, forums and apps.

What changes, however, is how effectively the capital markets themselves will operate. This does not only mean improving cost but also time. For example, it is cost-effective to create exchanges where they could not exist before, e.G. Small-cap minerals. Security tokens, will also make it easier to invest and manage early list of ways to make money stage equity investments across borders. These efficiencies will indirectly make investments more attractive. Blurring the line between private and public securities

Managing shareholder records on distributed ledgers has a low transactional list of ways to make money cost and no barriers to entry. This is unlike the current custody infrastructure which has evolved list of ways to make money to serve the public securities market. Distributed ledgers are so practical in the record keeping process list of ways to make money that it makes sense to use them even for managing list of ways to make money for small business cap tables.

Investment platforms will consolidate the capital raising business in a list of ways to make money similar manner to what has happened in ecommerce. Customers will go to portals to see more opportunities (products) that they can compare side-by-side and investing in them is an effortless paper free list of ways to make money transaction. The access to information and opportunities is democratised, meaning that retail investors across the globe get access to list of ways to make money the same opportunities as the seasoned private equity investors

As seen from the diagram above, securities industry has a lot of organisational complexity around clearance list of ways to make money and settlement. All this can be done more streamlined with a distributed list of ways to make money ledger. This will change not only the cost of operating markets, but the structure of the markets: trading 24/7 is different, but globally more fair, than trading during london business hours. Direct-to-investor exchanges

Currently, securities exchanges operate on a two-tier principle: retail investors cannot directly trade on an exchange themselves, but they need to go through a broker who has list of ways to make money bought a membership to the exchange. Then, the broker will trade on the exchange on behalf of list of ways to make money their client. Cryptocurrency exchanges are the opposite and everybody has direct access list of ways to make money to the order book as well as the ability to list of ways to make money trade instantly.

Legacy exchanges did not want to deal with retail investors list of ways to make money directly as the scalable online systems handling the management of list of ways to make money a large number of investors had not yet been invented. Also, on legacy exchanges, members often traded on credit and there was a need list of ways to make money to ensure the creditworthiness of members. Limiting dealing with members only is also a way to list of ways to make money exercise power, protect the business interests and maintain the status quo.

In private equity, professional investors may prefer a “clean cap table”: only having a few big names in the shareholder registry. Retail investors, employee-owners and other small ticket investors are lumped together behind list of ways to make money a proxy entity. This kind of structure is often called a special purpose list of ways to make money vehicle (SPV) or nominee structure. The proxy structure prevents small ticket investors exercising their investor list of ways to make money rights directly, but also makes the company management more lightweight.

The nominee structures are historically preferred because there are no list of ways to make money efficient ways of managing a large number of small shareholders. Corporate governance actions such as inviting shareholders to the meetings list of ways to make money and paying dividends happened through unscalable methods like paper mail. Financial market regulators, however, dislike proxy structures as they add middlemen and put a list of ways to make money certain class of investors at a disadvantage.

When ownership is tokenised and shareholder accounts are on a list of ways to make money blockchain, corporate governance actions scale well regardless if there is one list of ways to make money shareholder or a thousand shareholders. Paying dividends or handing out voting ballots to a large list of ways to make money number of people can be done in a single distributed list of ways to make money ledger transaction. Thus, there is less need for proxy structures. Decentralised finance, funding and collateral management

Decentralised finance (defi) is a term used to cover capital market activities happening list of ways to make money solely on a distributed ledger, usually in the form of smart contracts. Today, the most well-known examples are automated loan services where one gets a list of ways to make money loan against tokenised collaterals. There is no human interaction involved, everything happens automatically through the preset risk rules. Typical users for this kind of service are traders who list of ways to make money are leveraging their positions.

The efficiencies of decentralised finance raise from the explicit risk, rules and transparency. All pricing and risk management happens automatically, real time and public. A borrower cannot get an unfair deal. A lender cannot be exposed to fabricated collaterals. There is no way to build a credit position that list of ways to make money would be outside the system rules. Pricing smart contract based financial instruments is straightforward as there list of ways to make money is perfect transparency to the underlying assets and their performance.

TokenMarket is building an investment platform where retail and professional list of ways to make money investors can come to invest in the same high tech list of ways to make money ventures. We are tokenising issuance and building a regulated security token list of ways to make money exchange. We believe we are creating the future capital markets in list of ways to make money our bottom-up approach by setting up early-stage companies in a blockchain native manner. Investors get the benefits of scalable blockchain governance with the list of ways to make money investor protection of regulated securities.

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