Why Equity belongs on a Blockchain
The last couple of years in the blockchain universe have been a whirlwind. 2017 was “the year of the ICO”. The price of a Bitcoin soared along with just about any other crypto asset that made it to an exchange. Blockchain enthusiasts rejoiced as money freely flowed into the blockchain ecosystem and the fun would seemingly never end. Then 2018 saw it all come crashing back down to Earth. As regulators have made their stance on this new market clear, investors have been in search of assets that have real underlying value.
So here we are in early 2019 and the big question is: what’s next in the world of crypto? Although I’d love to see wider adoption and price recovery of Bitcoin and other cryptocurrencies, the underlying technology (blockchain) is already primed to disrupt many industries. Whether the price of Bitcoin goes up, down, or stays the same, there is no reason why we shouldn’t harness this technology to make other advancements within the financial ecosystem. Which brings me to the subject of the post: equity. Equity in high-growth companies has and will continue to be the key to wealth creation. But times are changing. Some of the most promising companies (ex Uber and AIrbnb) are opting to stay private longer, despite some prolific valuations as there is an abundance of capital in the private markets. Cost and regulation are keeping the stock of these companies out of the public domain. With so few having the opportunity to invest in these companies, we’re at risk of widening the wealth gap further.
Moving equity to the blockchain
Moving equity to the blockchain can solve some of the biggest problems with equity today, particularly in private companies. With so much on the line, it’s only logical to invest in making sure that the systems for issuing, managing, and facilitating the transfer of equity are state-of-the-art.
Here are some of the reasons why equity belongs on a blockchain in no particular order:
Liquidity
The ICO craze of 2017 taught us something: There is a healthy potential primary and secondary market for crypto assets. I’ve previously written that most ICO tokens are headed to zero. This isn’t a function of the technology. It’s a function of ignoring regulation. Creating investment-grade crypto assets can result in liquidity at the earliest stages of a company. This gives investors, early employees, and founders more financial flexibility from the onset. It also gives more people a chance to become a shareholder in the most promising companies.
It can open up access to a wider range of investors/shareholders in early stage companies
We are already seeing this happen with new laws put into place like Reg CF (Regulation Crowdfunding). Companies like StartEngine, WeFunder, and Republic are making it possible for anyone to make investments into promising startups, not just the very wealthy or institutional money. If equity becomes tokenized and securities in private companies become a liquid asset class, we will continue to see an increase in the number of people attracted to this asset class.
More sources of capital = fairer terms for founders
With Crowdfunding and Tokenized Equity coming into the picture, I’ve heard some people say “This is the end of Venture Capital!”. Let me start by saying this isn’t going to happen. Venture Capital isn’t going anywhere. Many VCs bring a lot more to the table than just capital there will continue to be a place for VC money in this revamped ecosystem. However, I do think by opening up access to this asset class, it will force VCs to be more competitive, resulting in a more level playing field and fairer terms for founders. For a long time, VCs have been able to dictate their terms as they see fit, a luxury of being the only game in town when it comes to early-stage capital.
Digital equity = faster, cheaper transactions
Why does the term “stock certificate” even exist in 2019? It’s kind of silly that something as important as company ownership is still being handled by manual entry and paper records. Moving record of ownership to a blockchain completely digitizes the process, resulting in more quick and efficient transactions and fewer costly mistakes.
Eliminate unnecessary middlemen
The current financial ecosystem is littered with intermediaries — brokers, agents, traders, bankers, advisors…the list goes on. Many of whom perform functions that could easily be replaced by technology and all of whom skim money off the top of various transactions, thereby reducing what could be in the hands of shareholders. Moving equity to the blockchain could mean the end of Transfer Agents, clearinghouses, and other middlemen that quite frankly are no longer needed.
We’re on a mission to change things
We are focused on building the future of finance. You can read more about our mission here. Although our eventual goal is to disrupt finance in various areas, we’ve decided to start with an area we are particularly passionate about — equity. As you might have gathered, we’d like to see equity moved to the blockchain (we’ve chosen to build on Stellar) which we believe will unlock tremendous value for both Issuers and Shareholders alike. Please get in touch if you’re interested in exploring tokenizing the equity in your company or if you’re interested in partnering to help us build a more cost-efficient, transparent, and accessible financial ecosystem.
Originally published at www.pieslice.com.
