Delware’s Equity Market now on Blockchain Technology
Last week, the state of Delaware passed amendments, allowing to give a true legal basis to companies wishing to issue and trade shares via a Blockchain based platform. It will be active by the end of July.
Apparently, this seems to be a small change. But in fact, companies and stock markets have been studying how to use Blockchain technology to help with issuing, executing and settling orders. However, they evolved in a legal vacuum, not knowing how the state would welcome and regulate innovations related to the Blockchain.
So for the first time, companies will be able to experiment with new processes, knowing that they will be on the “right side of the law”. This will most likely pave the way for a new trading model: securities issues,deposit banks, traders, shareholders, investment funds and trade in general will be integrated into the Blockchain.
This will result in a major change in the global economy through the Blockchain based platforms.
How Blockchain Technology will help?
Private funds used in most markets today have been developed and are still operating according to 17th century concepts. These are based on the issuance of papers, so the processes are complex, time consuming and costly. Indeed, each step of validation, securisation takes time and money through intermediaries (traders, bankers …).
This model presents a systemic risk due to limited access points and poses legal problems regarding ownership as well as the real value of securities that may be fairly opaque to many shareholders.
Moreover, this centralized “paper” system, even if it has been digitized, remains very vulnerable to fraud, embezzlement or security problems.
With a blockchain-based system, investors and issuers can interact directly with each other, without, theoretically, dealing with brokers, dealers, clearing houses and various players in the “traditional stock markets”. This results in a significant reduction in costs, as well as a much greater transparency and security.
In addition, remittances will be made in minutes or hours instead of days, thanks to Blockchain Technology.
Everything will be more transparent; Dividends as well as the splitting of “classical” shares could be automated, further reducing the costs and risks associated with errors.
Another advantage could be, for example, the automation of voting processes by shareholders , making them transparent and virtually inviolable.
There are, of course, disadvantages as well. This transparency which is an asset for many users of the Blockchain technology may not be desired by some investors not wanting to post their positions. In addition, with the particular operation of the Blockchain, if an error manages to slip into a block, its correction is very difficult.
State of Delaware and Blockchain Technology
The state of Delaware is the 49th largest in the United States and the 45th in terms of population, but it owns two-thirds of US companies listed on the stock exchange and 85% of IPOs. It has more legal entities than residents. This is due to flexible legislation, low commercial taxes and a reputation for being at the forefront of commercial and governmental innovation processes, and we are once again the perfect example.
It should be noted that a year ago the “Delaware Blockchain initiative” was launched, with the aim of incorporating Blockchain technology into public services, such as property title management, birth certificates or death certificates Professionals, complaints …
So we have the state with the highest concentration of companies that supports Vlockchain technology by giving it a legal basis. Even if the adoption of this technology will not happen in a few days, it will have a strong influence on other US states and the world.
The question then arises; Will traditional markets still exist in 10 years? What do you think? Comment your opinion.
* Ledgers: Equity portfolio, account register.