Innovation sets institutional funds in motion
Advantages of the blockchain
1. Reducing costs
One of the main benefits provided by the blockchain technology is that it helps to bring down the cost of fundraising. This is especially relevant for small companies. The blockchain has made it possible for any project to issue its own tokens and for any investor in any part of the world to participate in the product’s development.
2. Eliminating lawyers and the paperwork
In the past, in order to conduct an IPO (Initial Public Offering), a company had to pass through many levels of hell acquiring licenses, hiring multiple lawyers and being bored under the heaps of paperwork. Issuing tokens on the blockchain helps to get rid of all these obstacles all at once.
3. Lower barriers for listing
Stock exchanges charged enormous sums of money for listing creating huge barriers for small and medium-sized companies. Cryptocurrency exchange platforms charge their fees for listing as well, but of these fees are way smaller than those on the traditional stock market. Also, it is much easier and cheaper to change the ownership of a crypto asset.
Disadvantages of the blockchain
However, despite all of these advantages, there are still some problems that prevent institutional investors from joining the blockchain technologies.
Not all there blockchain projects follow the rules such as anti money-laundering, know-your-customer, etc.
2. No need for transparency.
Some institutional investors value privacy above the transparency provided by the blockchain. They don't want any third parties to see all the details of their transactions.
Once a transaction is verified on the blockchain it cannot be undone. This is one of the greatest strengths and, at the same time, one of the greatest weaknesses of cryptocurrencies. If you send your funds to a wrong address, or your wallet gets hacked, or you lose your privacy keys you will never be able to retrieve your money. Unless there will be invented the way to undo a transaction on the blockchain, security tokens will hardly see institutional money.
In order to overcome these obstacles, there are several projects that are currently creating private blockchains. Thus, the Swiss stock market’s Swiss Digital Exchange (SDX) is now developing a pilot project aiming to tokenize the following groups of assets:
● Native tokens for SMEs
● Tokenization of existing securities n the SIX Swiss Exchange
● Tokenization of non-bankable assets
● Tokenization of cryptocurrencies, such as Bitcoin and Ethereum