01
by Hartej Sawhney
Read Article
Read Article
02
by Ben Whitby
Read Article
Read Article
This is part 2 of the blog series which covers What Layer 2 Networks can do for Institutional Digital Asset Management. You can read the part 1 here.
Long before electronic trading platforms existed, armies of back-office clerks would shuffle paper stock certificates around offices as investors bought and sold. This not only curtailed trading volume, but led to million-dollar mistakes from simple administrative errors.
Eventually, through dematerialization, shares transformed from paper certificates held in vaults to digital shares. This took the paperwork out of the picture and boosted efficiency. But—more often than not—electronic stocks were held under the name of the brokerage in what is known as street name securities registration.
Under this form of indirect ownership, asset owners lose direct property rights and must rely on the stockbroker to pass on benefits like asset yields and business updates. More dangerously, many financial firms now also use client assets as collateral in what is known as rehypothecation<...
Tokenization is already bringing blockchain to institutions, with financial giants like Nasdaq developing decentralized infrastructure for trading stocks and shares.But in the opposite way, security tokens could also eventually act as a bridge bringing institutions to the heart of blockchain: Cryptocurrency.
Though most security token startups are currently working with permissioned blockchains, the drawbacks of these networks—and the never-ending need for more liquidity and higher security—are likely to lead financial institutions to eventually seek out permissionless blockchains like Bitcoin and Ethereum.
The tokenization of equities is appealing for several reasons:
Secure ownership is preserved immutably on the blockchain ledger
Automated compliance can be achieved with smart contracts
Illiquid markets are opened up by letting investors divvy up stakes in hard-to-trade assets like collectible art, or individually buy up a few square meters each of a Tokyo apartment.
Back in December 2017, when bitcoin prices soared as buyers speculated that cryptocurrency was on the verge of widespread adoption, a flaw was revealed in the grand plan.
As the number of transactions peaked, so did transaction fees. To send bitcoin, people were paying an average fee of almost $55, and in some cases waiting several days for transactions to settle.
This bottleneck drew attention to the inherent drawback of decentralization: Just as it is easier for a single person to make a decision than it is for thousands to reach consensus, finding consensus over a decentralized network is slower and more difficult than with centralized systems.
This conundrum is at the heart of blockchain, and was neatly summarized by Ethereum creator Vitalik Buterin.
Buterin coined the term scalability trilemma in the early days of Ethereum to explain the 'impossible trinity' of choices blockchain developers are faced with: Scale, security or decentralization.
The structure of decentralized systems means developers can only optimize for two of these qualities.
A
A
by Anthony Foy
Read Article Read Article
A
A
by Anthony Foy
Read Article Read Article
A
A
by Anthony Foy
Read Article Read Article
A
A
A
A
A
A
A
by Anthony Foy
Read Article Read Article
A
A
by Ben Whitby
Read Article Read Article
A
A
A
A
A
A
by Brian Spector
Read Article Read Article Read Article Read Article
P
P
