The future of the banking industry is on the blockchain?

The future of the banking industry is on the blockchain?

This week, Societe Generale's move to issue a security token like bond seems meaningless. It is not so much a point-to-point transaction as a single point transaction.

But one element of the announcement suggests that this is actually an important step in the sometimes unmanageable relationship between financial institutions and cryptocurrency and blockchain technology. You see, the smart contract used by Industrial Bank to issue $112 million in bonds is not a private, licensed blockchain, but a public, unlicensed Ethereum blockchain.

Of course, this is a small step. However, let us remember that this French bank belongs to an industry, and its member institutions have repeatedly assumed that the unlicensed blockchain will not work for them.

Banks have put forward various arguments for why they are forced to use the privately licensed version of the technology: because they are obligated to understand your customers and other compliance rules that are not easy to enforce in an unauthorized environment; The competitive advantage requires a level of privacy that cannot be guaranteed in the transaction. Or because the probabilistic-based trade settlement confirmation criteria for public blockchains are inconsistent with what Wall Street lawyers call "finalty settlement."

However, this is the 19th largest bank in the world trying out the public blockchain model.

It is too early to say that Industrial Bank has not paid attention to the industry concerns of the unlicensed blockchain – this concern is more likely to be based on concerns about the threat of existing business models. But the move by the French bank may also mean that banks "cannot afford the devastating threats and opportunities brought about by non-licensed agreements such as Bitcoin or Ethereum."

Industrial Bank seems to be gambling, and the future development of digital finance will go hand in hand with the hegemony of the next generation of communication technology in the 1990s, lest it be thrown on the wrong side of history.

Open system winning bet

In the late 1990s, it became clear that public, open, interoperable intranets had defeated proprietary, closed, walled intranets such as Prodigy, AOL, and France's Minitel to define A new architecture for global information sharing. Since then, it has been widely believed that the openness of the Internet, the global system has proven to be superior, because it does not limit the size of the network or the breadth of potential connections, "unlicensed innovation" makes the global developer's talent pool size and Collective wisdom is unlimited.

We have reason to assume that although there is no guarantee that history will repeat itself in the future struggle of the financial system. Yes, the unique sensitivity and regulatory framework surrounding finance creates a substantial barrier to entry and protects existing institutions, and for these institutions, closed, walled garden methods protect their competitive position.

But in the end, money is just information. Communities will tend to use free and open systems.

Is this the wage of the Industrial Bank? Maybe. Although the deal is entirely internal, the bank did agree with other secured bonds, a type of bond that was securitized by a particular balance sheet asset. This means that everyone in the future, no matter who they are, will have the same ratings and exposures as any investor in the traditional bond issue of Industrial Bank. As the five-year period expires, banks have enough time to take more radical steps, and once approved by the regulator, they can look for external buyers in the secondary market.

Another important fact is that rating agency Moody's said that in this case, it believes that the use of blockchain technology is “positive credit”, in part because “the complexity of the issuance of guaranteed bonds and the number of intermediaries due to the use of traditional methods. Increased transparency and reduced the possibility of errors."

This positive assessment points to the general potential of securities token issuance (STO) as a way to more effectively issue, manage and trade traditional assets such as stocks, bonds, real estate and commodities.

Impending disruption

STO is not as radical as ICO. After the collapse of the crypto token market last year, investors lost interest, and regulators threatened to take action against many ICOs with unregistered securities.

And ICO issuers try to avoid securities registration requirements by describing their “utility tokens” as a complete, commodity-like component of the distributed network they are building – a product, not a speculative investment – ​​STO Simple and more direct. They represent Token claims for some form of real-world assets and deliberately treat them as security measures for compliance purposes.

Despite this, STO is still committed to causing great damage to the capital market and has a major impact on investment banks such as Industrial Bank.

STOs that serve smart contracts can allow automatic updating of stock registrations and caps for each transaction and allow for more direct communication between buyers and sellers through fewer intermediaries. In addition, if this is an unprivileged system – if there is no "licensed" current financial entity as the guardian of the private blockchain – nothing can stop the entrepreneurial service provider from having many traditional back-end activities (such as underwriting, Hosting and brokering) moved to the decentralized network, which is the core service currently provided by investment banks.

Of course, all of this requires the technology to be scalable enough, and regulators are satisfied with the encryption-based hosting solution it relies on. However, in the world of encryption and traditional finance, it is widely believed that we will succeed.

Seeking process control

So, the implied stance of Industrial Bank is that it tries to understand and control blockchain technology, and the technology itself threatens some of its business.

In doing so, people may bet that banks like it will adapt to the new model as they did in the 1990s, when online stock trading and electronic markets initially threatened Wall Street's dominance in the securities industry.

These systems have made market prices more transparent, greatly reducing the transaction commissions that investment banks may charge, but they have also contributed to the surge in trading volume and the tightening of profit margins. Finally, the most savvy banks invest in this new trading and matching technology and are responsible for their development, trying to maintain a dominant position in the capital markets.

The bank’s bankruptcy is likely to be something to celebrate in the future. But the reality is that the market will continue to value Wall Street's existing expertise and market-making capabilities for a period of time, even if it begins to require records, saves, transactions, matching and settlement functions by smart contracts, digital currencies and distributors. Sexual backend tasks.

STO's corporate issuers always need to find investors. They will also be keen to pass on the risks that investors can't find to those who are willing and able to take risks. They will pay a high price for these services. My guess is that this is where the bank will continue to be very active.

Those who experiment with the most radical, future-oriented blockchain versions and other disruptive technologies will be the most profitable. (madman coin)