How OFN is Solving the Inefficiencies in the Market
The OpenFinance Network (OFN) began as a response to the inefficiencies in the alternative asset market. Where public equities were seeing T+2, or 2 days to settle a trade, we were seeing T+8 weeks. This is caused by a broken and antiquated system of transferring assets. First you have to mail all these documents to get a listing agreement for a secondary market. Then the owner has to physically stamp these documents and mail them back. Only at this time can an asset be listed on a secondary market. When a buyer and seller match, these documents are signed and then again mailed to the transfer agent to sign. The transfer agent finally can allow the escrow agent to release funds, and the trade can finally settle. It becomes apparent very quickly why this industry is ripe for disruption.
CFX Markets, a venture backed company, started 4 years ago with the passage of the JOBS Act to facilitate democratization of investment, specifically in crowdfunded real estate. CFX Markets is a secondary market and broker-dealer that specializes in alts, such as REITS, Reg A, Reg D, Hedge Funds, and private equity. Additionally, we launched a traditional securities issuance platform a few months before the launch of OFN and we have had our hand in all parts of the securities life cycle for a while now.
The essence of blockchain, at its core, is perfect for the problems we are trying to tackle. Once we started building the platform, we realized how simply some things were solved, just by applying existing blockchain technology. In an industry that is still using snail mail and fax machines, blockchain looks like interstellar travel.
Blockchain decreases cost, decreases settlement time, and allows a uniform method of verifying ownership. The first component of the system, the Decentralized Securities Depository did not even exist in a centralized form. This is something that gave public equities markets its T+2 settlement time. By first introducing this mechanism, we were able to greatly improve our settlement times, and in our internal testing, saw sub 10 minute transfers. Our goal this year is T+0.
We cover all aspects of the transaction lifecycle. If you use the issuance platform, you have access to liquidity, on the trading platform. Clearing and settlement is handled via the decentralized securities depository, an industry first. No such centralized mechanism exists.
You can think of OFN as the android operating system. It comes with everything you need to make calls, texts, emails, etc. But if you have friends with an iphone, you still want to interact with them. So you both download whatsApp. For us, we see the network effect as being vital to the growth of this industry, so interoperability is key. If someone uses polymath, for instance, they can still trade using OFN and leverage our clearing and settlement system.
Here is an example of the full lifecycle if done completely on OFN:
- Step 1: Asset issuance — This is creating the token, and running verification on all investors, and then distributing the tokens to the right people.
- Step 2: Trading — This is buying and selling — binance, bitfinex, gdax etc.
- Step 3: Clearing — This is making sure the funds and tokens are in the right place. Since this is done in tandem with someone clicking the ‘buy’ button, settlement can begin immediately.
- Step 4. Settlement — This is having everyone involved sign off. In traditional settlement, this is buyer, seller, or brokers for each, custodians for each, and the transfer agents. This is done instantly with OFN.
We are excited for this year, and what we can accomplish given the regulatory landscape. Cryptos are here to stay and we are making sure that people have all the tools they need to create a strong ecosystem of tokenized securities.
For more information, check out our website www.openfinance.io or stay updated with our OpenFinance Network communications:
Website — www.openfinance.io/
Twitter — twitter.com/openfinanceio
Telegram —t.me/openfinancenetwork
Reddit — www.reddit.com/r/openfinance/
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Juan M. Hernandez is the Founder and CEO of OpenFinance Network, the trading platform for security tokens and other alternative assets. Juan is a serial entrepreneur, technologist, and polymath experienced in financial markets, exchanges, and blockchain technology. He holds a CS degree from Northwestern University and an MBA from the Kellogg Graduate School of Management.
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