At the moment we seem to be talking about securities passes in the public chain scenario, but this trend seems to be changing rapidly. Some startups are working on building a cryptographic securities platform for the licensing chain. These types of solutions are clearly designed to enable the infrastructure of banks and institutional investors to use securities passes while reducing the risks associated with the public chain. While the value proposition of the license chain for securities passes may seem clear in the short term, we need to consider some very interesting economic and technical perspectives in terms of long-term viability. This article will present some ideas about the licensing model in the securities industry.
The licensing chain model seems to respond to the requirements of large institutional investors to participate in the ecosystem. In the view of large financial institutions, the current public chain risk clearly exceeds the benefits of universalization, creating obstacles to the adoption of this new financial instrument. At first glance, the licensing chain seems to eliminate the risks of the public chain while allowing institutions to take advantage of the benefits of encrypted securities. However, when you consider the possible developments in the securities exchange ecosystem, the value proposition becomes more ambiguous.
Local Maximum problem
When considering the license chain of the securities pass, the author found a very useful metaphor, which is called the local maximum problem in mathematics. Given a particular problem and timeline, the local maximum is the process of finding the optimal solution for a set of adjacent solutions at a given moment. However, considering a sufficiently large timeline, the ultimate goal of the solution is how to find the global maximum or optimal solution over the entire range of candidate solutions. In general, finding a local maximum will hinder the optimization of the solution, so that the global maximum solution cannot be found.
The friction between the local and global maxima is difficult to see at first, because it is human nature to divide each big problem into a series of small problems. However, when it comes to the technology market, the best solution in the short term is not the same as the long-term best solution. Usually the local maximum problem can be described as "climbing Mount Everest in dense fog in the case of amnesia". You can't see the global solution from a distance, and you can't assess progress in the short term.
For securities passes, the license chain model can be seen as the biggest local problem . While the value proposition of the licensing chain model clearly addresses the direct concerns of large institutions in adopting cryptographic securities, it may lead to counterproductive effects in the long run. More specifically, the global maximum of the securities pass industry is the runtime of creating effective jobs for large institutions and retail investors, all of which are local maxima issues. This view is very important and requires a more in-depth analysis.
Advantages and Disadvantages of the Securities Pass License Chain Model
The debate between the public chain and the licensing chain can trigger the most intense reaction in the securities pass community. However, looking at this issue from a pragmatic perspective, we can list some solid arguments for both parties.
Some clear points to support the securities clearance chain include:
· Privacy : The lack of privacy model in the public chain is a major challenge for the large-scale adoption of securities certificates. The license chain provides native privacy features that can be hosted within the customer network.
• Scalability : Although the securities pass has not yet shown a large volume of transactions, early adopters still believe that the scalability of the Ethereum blockchain is a major challenge. The license chain provides scalability and network growth models that can be tailored to specific customer needs.
The licensing model also poses a challenge to early adopters of securities pass:
• Tradeability : By definition, the license chain model limits the securities pass to a small number of large institutional investors, thereby limiting the potential tradability of these assets.
Fragmentation : Imagine a financial ecosystem in which assets are issued on heterogeneous and incompatible blockchains. Adopting a licensing chain architecture will increase the fragmentation of the securities pass ecosystem by an order of magnitude.
Interoperability with exchanges : The securities exchanges are at a very early stage, but no one doubts that they will be a very important building block in the ecosystem to achieve liquidity and tradability. The licensing chain model essentially assumes that liquidity will be limited to small investor groups. In order to connect to the Securities Exchange, the licensing chain architecture will require customized integration efforts, adding another layer of complexity to its value proposition.
· Lack of agreement : Most of the cryptographic financial protocols we use in the public chain require a large network to take effect. In this sense, the license chain model does not have clear intellectual property available.
Limited Programmability : By definition, the license chain model of Securities Pass does not focus on the programmability of cryptographic securities. Since the author believes that programmability is the greatest benefit of the entire securities pass ecosystem, this is the main limitation of the license chain model.
The author believes that the primary challenge for startups to establish a license chain platform for Securities Pass is that it is very difficult for the network to grow organically in this restricted ecosystem . Even companies with nearly unlimited resources like IBM are working hard to build a large alliance network for the Hyperledger solution. Building a strong blockchain network requires a combination of several factors, including a significant number of participants, the right incentives, a scalable consensus model, and the participants' active efforts to promote ecosystem development . If not, any blockchain network is nothing more than a beautified version of the ledger.
For securities passes, small networks mean limited network effects, which offset many of the benefits of the securities pass. In addition, the lack of network effects limits the adoption of relevant protocols and makes the network vulnerable to a variety of attacks.
Two Alternative Models of License Chain Architecture in Securities Pass
As with any local maximum problem, balancing the license chain is important for the pros and cons of securities passes. We know the limitations of the public chain, and based on previous analysis, we know the risks of the simple blockchain model. Trying to think in the longer term, the author has some ideas worth exploring in this regard:
Securities Pass License Side Chain and Public Chain
An interesting idea to achieve a certain degree of balance between the public and licensing chains in the securities pass is to use a securities pass permitting sidechain model linked to the public chain. In this architecture, organizations can still enjoy the scalability and privacy of the license chain, while relying on the public chain to expand the entry to retail investors and achieve interoperability with exchanges and other agreements.
a built-in privacy securities pass network
We can also consider a single securities pass network where large financial institutions act as verifiers and compliance performers, but retail investors can also participate. In this model, privacy will be performed as the first type of object, and access rights to different parts of the network will be specific to specific participants. This idea implicitly requires you to believe that the securities pass requires a new blockchain network, which is also a hot topic in the community.
The licensing chain is likely to become a relevant element of the securities exchange ecosystem in the near future. Well-funded startups and large financial institutions have taken steps in this regard. Although the short-term benefits are obvious, the development of the securities pass industry may challenge these models in the near future. Achieving a well-functioning model in the licensing and public blockchain architecture is one of the survival challenges of the securities pass ecosystem.