Looking behind the curtain - the future of blockchain in capital markets
8 December 2015
We are getting saturated with the nearly messianic discussions and the descriptions like “Cambrian Explosion
” that surround discussions of the blockchain. And, yes the word blockchain already requires a footnote given the many meanings subscribed to it. But rising above the noise are some very strong and powerful concepts re-mapping our thinking of the reality of a distributed future for the capital markets. Much of this has been speculation based on enticing tidbits of the amazing changes that will be wrought in the capital markets by blockchain. Whether the future means billions of interlinked blockchains or one chain to bind them all, it seems the kimono is starting to open. The patent filed by Paul Walker (who sits on the board of the DTCC) and Phil Venables both of Goldman Sachs details a realistic vision of the future of securities processing in a cryptocurrency based world
. It is a clear demonstration of the world of tomorrow, and a distributed future for broad swaths of the capital markets. From the original patent which generated a press release last week and was originally filed in 2014:
…technology adapts and/or generates cryptographic wallet which holds a new cryptographic currency (CC) (i.e., an SETLcoin) and corresponding cryptographic protocol for exchanging securities between nodes on a peer-to-peer network. Rather that representing a single transferable, object an SETLcoin wallet holds multiple positionable items (e.g., a security item, such as a share), herein referred to as a Positional Item inside Cryptographic currency (PIC), and a position (i.e., a quantity of the PIC represented by an SETLcoin wallet). A PIC is an agreed upon reference used by the peer-to-peer network to refer to, e.g., a particular security. For example, "IBM" (the stock market symbol of the company by the same name) can also be a PIC used by the peer-to-peer network to refer to IBM stock. A PIC, in some embodiments, is determined (and invalidated) by an issuer. An issuer (e.g., a company, underwriter, municipality, government, etc.) can have multiple PICS to represent different types of securities. For example, IBM stocks can be represented by PIC "IBM-S" and IBM bonds by PIC "IBM-B". In some embodiments, PICS are issued (and destroyed) by highly authoritative entities. For example, dollars available on the SETLcoin network represented by, e.g., PIC "USD" may be authoritatively issued by, for example, the U.S. Treasury.
There are a number of very interesting points around the fact that it uses a cryptocurrency (the SETLcoin) layer that sits above the protocol or blockchain layer. It clearly envisions use cases within the primary or issuance market. It is a tantalizing data point, revealing a quickly developing and exciting space. Add to this private equities issued via Symbiont
earlier this year and now public shares to be issued by Overstock on the bitcoin blockchain,
and we get a clearer picture of the future of a primary block market. I look forward to discussing this in more detail. Please reach out with thoughts and comments.