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Wall Street 2.0 - Will Blockchain Revolutionize Global Finance?

By Jennifer Peve, DTCC Managing Director, Business Development & Co-Head, Office of Fintech Strategy | Jan 15, 2019

Turning User Feedback Into Improved Market Insights

At the recent Money 20/20 gathering in Las Vegas, panelists covered the critical and concrete ways that innovators in payments, commerce and financial services are revolutionizing the future of money and redefining the status quo.  We discussed the potentially disruptive role that new technologies and models of financing would play in the future of the financial services industry and took a pragmatic view of the shifting financial services landscape. 

On the “Wall Street 2.0 - Will Blockchain Revolutionize Global Finance?” panel, we helped make sense of blockchain technology, from Initial Coin Offerings (ICOs) (see sidebar) to security tokens and decentralized exchange, and took an informed look at the future of finance as enabled by emerging technologies.

Moderated by J. Dax Hansen, Partner, Perkins Coie, the panel session provided me the opportunity to share my perspective and hear insights from my industry colleagues Igor Denisov, Head of Strategy & Business Development, Polymath; Olga Feldmeier, CEO, Smart Valor; and Dan Morehead, Chairman, Bitstamp & CEO, Pantera Capital.

Reframing the Landscape

Technology innovations have been a catalyst for change in the financial services industry.  The panel discussion centered around fintech’s ability to create a significant shift in the way transactions are processed around the globe, cross-border challenges, the importance of standardization and the value of these advancements for clients and businesses.

Initial Coin Offering (ICO)

For traditional companies, there are a few ways of going about raising funds necessary for development and expansion. A company can start small and grow as its profits allow, remaining beholden only to company owners but having to wait for funds to build up. Alternately, companies can look to outside investors for early support, providing them a quick influx of cash but typically coming with the trade-off of giving away a portion of ownership stake. Another method sees companies go public, earning funds from individual investors by selling shares through an Initial Public Offering (IPO).

An Initial Coin Offering (ICO) is the cryptocurrency space's rough equivalent to an IPO in the mainstream investment world. ICOs act as fundraisers of sorts; a company looking to create a new coin, app, or service launches an ICO. Next, interested investors buy in to the offering, either with fiat currency or with preexisting digital tokens like ether. In exchange for their support, investors receive a new cryptocurrency token specific to the ICO. Investors hope that the token will perform exceptionally well into the future, providing them with a stellar return on investment. The company holding the ICO uses the investor funds as a means of furthering its goals, launching its product, or starting its digital currency. ICOs are used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.

As business models shift due to these innovations, the industry has to address a few questions: Where do these fintech advancements fit? What are their benefits? How do we fundamentally change how we transact with each other today and then use these innovative technologies to do that? Where does fintech not fit?

At DTCC, we acknowledge the disruptive nature of these technologies, and our goal is to explore their value to create more efficiencies while further reducing risk and cost for the industry.

Distributed Ledger Technology (DLT) has been an area of focus for DTCC for a few years now.  In October of this year, we announced the results of a benchmark study that DLT is capable of supporting average daily trading volumes of in the U.S. equity market of more than 100 million trades per day.

Related: DTCC Announces Study Results Demonstrating that DLT Can Support Trading Volumes in the US Equity Markets

We have also entered the testing phase of our ground-breaking project to re-platform our credit derivatives Trade Information Warehouse (TIW) on distributed ledger technology (DLT) and cloud, in partnership with MarkitSERV and 15 of the world’s leading banks.

Related: DTCC Enters Test Phase on Distributed Ledger Project for Credit Derivatives

In exploring this technology, we discovered that one of benefits it provides is data synchronization. By managing massive quantities of data in a much more efficient manner, it enables smoother business dealings and removes significant costs from the process. Also, having a single source of transaction data eliminates the prior system’s reconciliation stages. If you can envision organizations looking to one single source of transaction data, versus copying that transaction data in multiple data stores within their organization, eliminating that reconciliation is really powerful. 

It is imperative that financial services industry leaders understand what they are trying to achieve in terms solutions for their clients.  It can’t be technology for technology’s sake. In order to get the maximum value of fintech innovation, technology should be leveraged to remove redundant processes in systems, updating infrastructure and reducing risk and cost for the industry.

Exploring the Potential of ICOs

ICOs were also a focal point during the panel, with one of the panelists pointing out they have been around for a while, but recent surges, caused by global capital flowing into start-ups, have given observers undue expectations. Every country has its own regulations, which creates cross-border challenges.

While there is momentum in the ICO/tokens space, it cannot be built upon any further unless these exchanges take place under the proper regulatory frameworks, bringing in the same safety, stability and efficiency that the clients have today. Further, the industry has to solve the technology challenges first, which will enable it to maximize the value of technological innovations to scale.


 

Wall Street 2.0 - Will Blockchain Revolutionize Global Finance?

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