Trading and Settlement in Legacy Finance is the story of the Ferrari and the Donkey.
We measure trading in fractions of a second. That is the Ferrari. Then we climb out of that speed machine and get onto the old grey donkey to do settlement in days (T+1 or 2). All of that changes when we move to Real Time Settlement or to be more technically accurate – concurrent Delivery Versus Payment (DVP), which was defined by Bank of International Settlements (BIS) in 1992 (but had to wait for Satoshi Nakamoto to make it technically feasible in 2009).
I just witnessed a demo of Delivery Versus Payment in private capital market that took about 3 seconds. I call 3 seconds “human real time”, because it is enough time for a conversation along these lines; “I sent you the cash. Got it?” Yes”, I just put your shares into our cap table. See it? “Yes” “OK, all done”.
That would not be remarkable if we were talking about buying a simple consumer product. It would be a bit more remarkable if what I was seeing was real time settlement in public capital markets. We have been tracking real time settlement in public markets since 2015 and I know it to be a huge market opportunity, but also a market with many high profile competitors.
It is much more impressive if done in the private capital markets and that is what Ami showed to me. I knew that private capital markets grew a lot against public capital markets during the last bull market and that the processes were totally antiquated and cumbersome. In short, private capital markets are big and ripe for disruption.
Ami talked about private capital markets being twice as big as public markets. That is not what most people assume, which is that public markets are bigger.
The potential of disruption to private capital markets is one reason we have also been tracking the Security Token market.
I heard about Ownera from Sheldon Freedman who is our go to expert on Security Tokens. Sheldon told me that Ownera was impressive – I think he is right. Sheldon joined us on the interview.
Our interviewee, Ami Ben-David is Co-Founder CEO @ Ownera. Before Ownera, was formerly Co-Founder Managing Partner @ SPiCE VC, Securitize, Everything.me, Ki-Bi.
In short, Ami brings a lot of credibility to the table. He is worth paying attention to.
101 on Ownera
On their site, Ownera claims to be “The first institutional-grade global network for digital securities”. Their technology works across different blockchain networks.
Legacy market to Security Tokens, the Ownera pitch
I think the market has now gone more global, but the cost and time problem resonates from my experience.
I knew three things before talking to Ami:
- what he was describing was technically feasible; it was not totally simple but nor was it a moonshot.
- there is massive hunger on the issuer side of the market. This was why ICOs thrived, despite scammy behaviour and illegality (the Napster phase of the market).
- I knew that investors (the LPs putting money into VC funds for example) valued the liquidity potential of digitised private markets (despite what GPs like to tell LPs that locking up your capital is always a good thing).
Yes but, liquidity requires all the stakeholders in the market to be motivated. This is where what Ami revealed about their business plans are significant:
- Ownera are using what I call the Regulated Nodes Blockchain Revenue Model. Regulated Nodes are entities such as banks, asset managers and securities exchanges. This is what Facebook is doing with Libra and Microsoft is doing with Identity on the Blockchain. If the technology is open source and running on decentralized servers, innovation like this is needed at the business model level. You cannot simply license your software or offer a centralised cloud service.
- Ownera is using partnerships with Regulated Nodes to assuage the fear that investors might have about something as new as Blockchain and real time settlement.
- Ownera is using partnerships with Regulated Nodes to bring issuers and investors together even if an issuer comes through one Node and an investor comes through a different Node. They aspire to be a network protocol not another regulated service.
- Ownera is ensuring that the partners who operate Regulated Nodes have a sustainably profitable way of doing this. In short, that they will be motivated to work with Ownera.
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