Securities Cash

It’s The Real Forking Thing

Last night I had the pleasure of meeting with a number of long-time Blockchain investors in various projects I’ve started in the past. One of the individuals is a financial professional. For around half an hour or so last night, both of us talked about how little interconnection there still was between Blockchain and the wider financial markets.

That discussion got me to thinking more broadly about how we might be able to open up Blockchain utility among financial professionals without having to hard-sell Bitcoin all the time, and using some of the ideas I have been formulating lately with respect to innovative new forking methods on Blockchain.

In this post, I want to discuss how we might achieve such a synergy relatively quickly and easily by forking securities contracts into digital currency form (not as forked securities, but as forked digital currencies derived from securities holdings).

In the previous blog post I discussed complex blockchain forks that were configured by means of software programming to bias long-term holders of coins of the blockchains being forked. This rationale is actually consistent with the method by which coins are distributed among Bitcoin miners, where coin age features as the deciding factor in determining which miner’s wallet to distribute new coins to first.

In determining what a viable utility would be for such a forked asset, I determined that, as per the latest Zurcoin White Paper, this new age-biased forked coin could simply serve as a store of value for blockchain investors. Since the holders being given the largest share of coins are inherently the most disciplined and patient (or non-existent, due to lost wallets) investors, I maintained that the newly-forked coins would have a much more robust storage of value quality about them than other previous forks.

In this post I want to discuss the idea of forking an asset that lies outside the blockchain (mostly). That is, securities. One of the big dilemmas with blockchain investing is that almost everyone is in it for fast money. That’s changing a bit, but not a lot. Blockchain remains by and large some of the most short-term, impatient and momentum-driven investment playgrounds as a result of the huge volatility in digital currency assets historically, and so far at least, presently too. Therefore, any blockchain that is forked, even one that is ultimately skewered towards long-term holders, is probably distributing digital currency assets to a much less predictable segment of the population than for, say, securities investors.

Taking the long-term holder bias observation into account, it is actually remarkably easy to imagine a scenario wherein a fork of multiple securities at once resulted in a blockchain coin that was distributed to those securities’ holders. Securities are generally identified by a trifecta of codes and symbols part from their ticker tape codes (which are used only by the exchange trading them). These are known as ISIN, CUSIP and SEDOL codes.

Generally, ISINs have the most in common with blockchain asset identification tags, so it may be easiest in this initial instance to use the ISIN as the denominator of choice. Then again, CUSIPs are much more direct identifiers of specifics related to the asset holder, so it may also be preferential to use the CUSIP instead. This would be a decision that would have to be taken later at some consideration by a software engineer and would also likely involve the compatibility of systems that each identification tag exists and works on.

Example of 3 securities in Dow Jones 30 with ISIN, CUSIP and SEDOL

Either way, let’s say we wanted to take the entire shareholding population of the Dow Jones Industrial Average 30 stocks. We would identify each stock by its ISIN and program an external oracle to recognize these specific ISINs and translate them into a single (or even multiple individual) asset(s) in blockchain-based digital currency form. In terms of holding periods, the unique identifier code combined with the holder’s brokerage account number in IBAN format should suffice as a mechanism for identifying the holding period of each asset to date: simply run a search as for any Blockchain as to wallet address and asset identification code.

We can now configure the IBAN with a specific decentralized on-chain wallet address and the asset identification tag with the creation of whatever on-chain asset. We can build the sorts of calculations I mentioned in my previous post on complex forks into the external oracle, too, so that distribution numbers of coins were already pre-factored into the asset creation instruction process. Once the fork was deployed, each account holder (or if they chose to designate a regulate broker, then the broker) would find in their wallet a different number of coins, depending what stock they had held and for how long.

What would be the specific advantage or utility of such an asset, you might ask? Well, for one, it would be a vastly superior store of value than almost any digital currency asset even put into existence up until the present day. That’s because most recipients would likely be major financial institutions, hedge funds, pension funds and the like.

In other words, most of the biggest coin holders on the chain would be institutional investors who had no immediate need to sell. But there is another aspect of this that is in some way self-reinforcing in this way, too. That aspect is that such institutional holders would almost certainly not sell for a very long period of time. The reason for this is that, most likely, a fund manager would be scared to lose out on the additional alpha that holding such an asset created for their portfolio.

Alpha is the life-blood of hedge fund longevity — lose market outperformance relative to your peers for more than 2 years running and you are usually dead. Because the asset manager hadn’t paid for the coins in the first place, which are essentially a free call option of sorts, they almost certainly would see no reason to sell the asset over the short term.

In fact, most financiers would likely use such coins for the purpose in which they were intended at point of creation — simply as collateral to issue bonds and other fixed income investments against. They would subsequently use the cashflows derived from such financings to buy more income investments.

In this way, the coin would likely function as an extremely high-performance storage of value, and attract a great many buyers, both retail and institutional, from around the world. Further, because most of the largest holders are institutions, it is not hard to envisage such an asset becoming a sort of standard “Wall Street Digital Asset”, which was regularly accepted for payments and used as collateral for innovative financing.

Whatever the end result, such an idea surely holds promise for the potential future utility of the Zurcoin blockchain going forward.

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