Thesis On Adoption

A typical retail investor cannot harness the resources required to buy a Manhattan high rise.

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When startups are acquired, reconciling the capitalization table to the underlying purchase agreements and option grants is costly. The story of Dole Foods is instructive: A 2015 court ruling required a payment to all shareholders.

There were 36M shares outstanding, but claims for payments were filed for 49M shares. The resolution boiled down to a reconciliation exercise to figure out who owned what and when.

The SEC recently adopted a shortened settlement cycle for most broker-dealer transactions to T 2.

The “2” is days, meaning the ownership doesn’t change hands for two days after trade execution.

Taken together, the features listed below form the foundation of the thesis that security tokens will see widespread adoption across numerous asset classes in the coming years. Eastern Time each weekday, with the exception of holidays. Teams all over the world are working on tokenizing assets and some observers suggest that this will accelerate the integration of global markets.

The first four are pretty straight-forward, and I’ve already written about liquidity and automated compliance in other posts, so I’ll review these six topics only briefly. After the closing bell on Friday, you can’t trade your stock again on major exchanges for over 65 hours. Any number of information events can and do happen during these breaks. stock market is too narrow because this is not solely a U. Around-the-clock trading hours will accommodate all time zones.With increased trading activity of fractional ownership, price discovery will be enhanced and markets will become more efficient for assets that have historically traded infrequently due to high unit costs.The first distinction to understand is the difference between execution and settlement.It moves us closer to being able to construct a true “market portfolio.”At scale, this also opens up new investment strategies.Long-short strategies have been used in stock markets for years and these will expand to any asset class with fractionalized ownership.The article linked above dives deeper into what aspects of this issue a blockchain can and can’t solve, but the conclusion is that the current system is “starting to show its age.”When all the ownership claims are tokenized, cap tables will be reconciled in real time by code.All the contractual features such as liquidation preferences, ratchets, and drag-along rights will be baked in to the securities allowing managers to easily run scenario analysis to calculate payoffs under different assumptions.Settlement is when ownership of the assets actually changes hands.Exchanges like NASDAQ and NYSE can asset transfers takes time.Settling transfers of LP and LLC interests can take even longer.A figure from Richard Brown’s 2014 article on securities settlement illustrates the complexity of settling a public equity trade: Trades for bitcoin or ether settle in minutes, not days, but there are a lot more parties involved in securities transactions — more than most investors appreciate.


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