{"id":601,"date":"2019-05-30T17:49:06","date_gmt":"2019-05-30T16:49:06","guid":{"rendered":"http:\/\/edeniau.org\/wp\/?p=601"},"modified":"2019-05-30T17:49:57","modified_gmt":"2019-05-30T16:49:57","slug":"distributed-ledger-technology-part-v","status":"publish","type":"post","link":"https:\/\/edeniau.org\/wp\/distributed-ledger-technology-part-v\/","title":{"rendered":"Distributed Ledger Technology (part V)"},"content":{"rendered":"\n

WELCOME TO THE TOKEN WORLD<\/strong><\/h1>\n\n\n\n

In 2016, a major report had been published on the changes that blockchain technology would bring to financial markets, reducing the need for reconciliations and bringing many billions of annual savings1<\/sup><\/a> to the financial industry.<\/p>\n\n\n\n

\nAt\nthe time, my opinion was that the Distributed Ledger Technology\nintroduced by the Bitcoin could be a fit for a public decentralised\nungoverned currency and that it would require several technological\nevolutions to become fit for the financial markets.
Firstly,\nthe scalability<\/strong> issue to process the volume,\nsecondly the confidentiality<\/strong> issue to keep\ntransactions private, and thirdly the regulation<\/strong> and governance<\/strong> issue\nto offer the same level of protection as current markets.<\/p>\n\n\n\n

\nSO\nMANY ICOS, SO LITTLE ECONOMIC IMPACT<\/strong><\/h3>\n\n\n\n

The past three years have seen the launch of thousands of cryptocurrencies, often through an Initial Coin Offering (ICO) process.<\/p>\n\n\n\n

\nAndy\nWharol said:<\/p>\n\n\n\n

\u201cin the future, everyone will be world-famous for fifteen minutes\u201d<\/em><\/p><\/blockquote>\n\n\n\n

\nIt\nis now possible to create a cryptocurrency in fifteen minutes2<\/sup><\/a>\nand possibly become famous. However, cryptocurrency issues have\ngenerated little interest from regulators because of their relative\nsmall size compared to the global economy. The global value of\ncryptocurrencies is les than two hundred billion euros3<\/sup><\/a>.\nJust taking the euro currency alone, its fiduciary4<\/sup><\/a> value\nis five times larger5<\/sup><\/a> and\nthe euro supply is about fifty times larger, and other large legal\ntenders like USD, GBP, CHF, and JPY and cryptocurrencies do not\ncurrently represent a systemic risk.<\/p>\n\n\n\n

\nFROM\nCOIN TO TOKEN<\/strong><\/h3>\n\n\n\n

\nInceptors\nof cryptocurrencies have tried to improve the technology to overcome\nthe three main issues just mentioned. \n<\/p>\n\n\n\n

\nIn\nfinancial services, most initiatives have, in various ways, reduced\ntheir scope to private, permissioned and partially\nrecentralised<\/strong> technology in order to progress in the digital\nrepresentation of assets. \n<\/p>\n\n\n\n

\nFinancial\nregulators are showing themselves to be pragmatic, authorising issues\non a case-by-case basis or on a sandbox basis.<\/p>\n\n\n\n

\nThe\ninterest has now shifted from coin to token. \n<\/p>\n\n\n\n

\nFrom\nan initially complex taxonomy of tokens, only three are kept in\nfocus: currencies6<\/sup><\/a>,\nutilities7<\/sup><\/a>and\nsecurities8<\/sup><\/a><\/strong>.\n\n<\/p>\n\n\n\n

\nFocusing\non securities, security tokens have a clear issuer, which is not the\ncase for the Bitcoin. This is why regulators want these issuers to\napply to tokens the existing regulations covering their\nunderlying assets<\/strong>. \n<\/p>\n\n\n\n

\nIn\nEurope, they are making a clear distinction between securities and\nfinancial instruments, because they are subject to different\nregulatory frameworks.<\/p>\n\n\n\n

\nThe\nbuzzword is Security Token Offering<\/strong> (STO). There are solutions\navailable today to issue and maintain a registry of holders for\nbonds, equities or funds. The next challenges will be the ability\nto manage corporate events and to organise efficient secondary\nmarkets.<\/strong><\/p>\n\n\n\n

\nINTO\nTHE TOKEN WORLD<\/strong><\/h3>\n\n\n\n

\nIn\nthe mind of operators, a digital representation of assets allows a\nbetter circulation of assets, what they call a greater\nvelocity<\/strong>, the capacity to exchange assets almost immediately. \n<\/p>\n\n\n\n

\nTaking\na real estate example, buying a property takes weeks. Buying tokens\nrepresenting shares of a company holding a property would take only\nminutes. \n<\/p>\n\n\n\n

\nFurthermore,\nif the token is properly designed, it could take little time\nto bundle<\/strong> this property with another one or, on the\ncontrary, to split it into parts<\/strong>, bare ownership and\nusufruct, or into fractions. In other words, securisation<\/strong> and\nstripping<\/strong> made easy.<\/p>\n\n\n\n

\nIn\nthese transactions, the trading, the settlement and subsequently the\nsafekeeping of the representation of the asset could be done at once.\nSuch immediate processing would require the use of a standard unit of\naccount linked to one of the main existing currencies, and this is\nthe reason why there is such enthusiasm for stable coins<\/strong>9<\/sup><\/a><\/strong> and\nwhether to use them in Exchanges or for Registries.<\/p>\n\n\n\n

\nThis\nis probably the reason why JP Morgan announced in february 2019 it\nwill issue its stable coin in June 2019. My understanding is the\nholder will face a JP Morgan risk. There are ways to launch stable\ncoins with a better credit risk. For instance, share or unit of a\nMoney Market Fund in the EU would have a better credit risk than any\ncommercial bank, even if they loose a bit of value because of the\ncurrent negative creditor interest at the European Central Bank10<\/sup><\/a>.<\/p>\n\n\n\n

\nBACK\nTO THE REAL WORLD<\/strong><\/h3>\n\n\n\n

\nIssuers\nand investors need to know and apply the requirements of all\napplicable laws, regulations and tax systems. This includes\nidentifying counterparties (KYC), checking the origin of funds (AML),\nmaking declarations of threshold crossings, checking foreign\nownership restriction, as well as reporting capital gains, or even\nwithholding tax. This applies to security tokens too.<\/p>\n\n\n\n

\nConsidering\nthe number of initiatives, these digital markets will stay fragmented\nfor several years before a cross-chain of integration is built or\nbefore a leading platform emerges. In the meantime, it seems\nnecessary to rely on trusted intermediaries to provide a single\ninterface for all these chains, convert cash to and from these\nchains, to safeguard the keys to access them or even hold the tokens\nthemselves.<\/p>\n\n\n\n

\nImagining\nthis world of digitisation is quite easy. Guaranteeing the reality of\nthe assets represented by the tokens, and possibly their condition of\nthese assets, understanding the rules or assessing the fairness of a\njoint ownership agreement, or applying taxeswould be additional\nservices required by counterparties.<\/p>\n\n\n\n

\nONE\nSTEP AT A TIME<\/strong><\/h3>\n\n\n\n

\nJust\nlike Artificial Intelligence, Distributed Ledger Technology is\nalready having an impact on the Financial industry. \n<\/p>\n\n\n\n

\nThe\ncurrent EU infrastructures with RM, MTF, OTF, CCP, T2S, CSD and\nTarget211<\/sup><\/a>\nhave a proven reliability record for issuing and exchanging safely\nsecurities leveraging regulated intermediaries. They may be capable\nto reduce their turn around time and list more assets than just\nsecurities.<\/p>\n\n\n\n

\nOn\nthe token side, providing that law, regulation and tax requirements\nare met, granting direct access to retail that are holding 30% of\nsecurities will first be an education issue but it might bring an\nincredible efficiency for other types of assets like non-listed\nsecurities or real estate.<\/p>\n\n\n\n

They always say time changes things,<\/em>
but you actually have to change them yourself12<\/sup><\/a><\/em> <\/p><\/blockquote>\n\n\n\n

\n\t1<\/a>.\n\tProfiles in Innovation Blockchain by Goldman Sachs in May 2016, p.\n\t5.<\/p>\n\n\n\n

\n\t2<\/a>.\n\t\u2018How to create your OWN cryptocurrency in 15 minutes\u2019,\n\thttps:\/\/www.youtube.com\/watch?v=d5EipPVafsA<\/a>\n\t\n\t<\/p>\n\n\n\n

\n\t3<\/a>.\n\t183 billion euro market capitalisation for all cryptocurrencies on\n\t10 May 2019 according to https:\/\/coinmarketcap.com\/fr\/all\/views\/all\/<\/a>\n\t\n\t<\/p>\n\n\n\n

\n\t4<\/a>.\n\tIn this context, fiduciary money means banknotes and coins.<\/p>\n\n\n\n

\n\t5<\/a>.\n\tBanknotes and coins represent \u20ac1,034 billion, and total euros in\n\tcirculation account for \u20ac11,618 billion<\/p>\n\n\n\n

\n\t6<\/a>.\n\tA token that is as a store value and as a medium of exchange, not\n\tissued by a central Bank.<\/p>\n\n\n\n

\n\t7<\/a>.\n\tA token linked to a network or to an issuer to fund a project and\n\tlater gives right to goods or services.<\/p>\n\n\n\n

\n\t8<\/a>.\n\tA token behaving like a security with holders regarded as owners.<\/p>\n\n\n\n

9<\/a>There\n\tare different definitions for stable coin. Here it means a unit\n\tpegged to a legal tender on which the credit risk is as almost as\n\tgood as the corresponding Central Bank risk and better than\n\tcommercial bank risk.<\/p>\n\n\n\n

10<\/a>ECB\n\tdeposit facility currently bears a 0,40% negative interest rate.<\/p>\n\n\n\n

11<\/a>\n\tRM: Regulated Market, MTF: multi Trading Facility, OTF: Other\n\tTrading Facility, CCP: central clearing counterparty, T2S: Target\n\t2-Securities, CSD: Central Securities Depositary, T2: Target 2<\/p>\n\n\n\n

12<\/a> Andy Warhol’s quote<\/p>\n","protected":false},"excerpt":{"rendered":"

WELCOME TO THE TOKEN WORLD In 2016, a major report had been published on the changes that blockchain technology would bring to financial markets, reducing the need for reconciliations and bringing many billions of annual savings1 to the financial industry. At the time, my opinion was that the Distributed Ledger Technology introduced by the Bitcoin … Lire la suite<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[25,105],"tags":[],"class_list":["post-601","post","type-post","status-publish","format-standard","hentry","category-anglais","category-dlt"],"_links":{"self":[{"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/posts\/601","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/comments?post=601"}],"version-history":[{"count":1,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/posts\/601\/revisions"}],"predecessor-version":[{"id":602,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/posts\/601\/revisions\/602"}],"wp:attachment":[{"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/media?parent=601"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/categories?post=601"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edeniau.org\/wp\/wp-json\/wp\/v2\/tags?post=601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}