The equity crowdfunding market is consolidating (see Part 1). That does not signal the end of disruptive innovation. The wild unregulated Crypto ICO world is colliding with the now more established equity crowdfunding market.
The Crypto ICO (Initial Coin Offering) world is bleeding edge and unregulated. ICOs were like the Napster phase of digital music – free and illegal replacing expensive and legal. The next phase will be like Spotify or iTunes – cheap and legal. The reason Crypto ICO is disruptive is because, like digital music, it is at least 10x more efficient due to “Concurrent Delivery Versus Payment ” which was first defined by BIS as long ago as 1992 and which which we described in this post as having two key points:
- Both assets and funds need concurrent settlement. Transfer has to be final & unconditional, without any time lag between the two (any time lag is ripe for fraud). This concurrency requirement is absolute. Just faster (e.g. Getting from T+3 to a few hours or even minutes) does not meet the concurrency requirement, because hours or minutes are eons to a fraudster.
- Must be on a gross (trade for trade) basis. Any attempt at netting creates delay and creates a multi-tier market infrastructure that will impede innovation. We have Real Time Gross Settlement (RTGS) today – between Central Banks. The disruptive change is RTGS between individuals and companies in a permissionless network (i.e the way that the Internet works).
What was a gleam in the futurist’s eye in 1992 is a bit of smart contract coding today.This is what makes the recent news of
Publicly Traded INX Crypto Exchange to Acquire Broker-Dealer Openfinance so interesting. This is these two worlds colliding.
Notice the words being used. INX is “publicly traded”. It is also regulated by the SEC. Yet it is traded on Ethereum like a token. INX is buying OpenFinance which is described as a “broker dealer” which is a term that anybody living in the regulated finance world is familiar with.
Tokens are interested because they can represent ”rewards” or “securities” or both and they are 10x more efficient due to Concurrent DVP.
Scale starts with consolidation and disciplined execution. Myth makes it a trade off of disciplined execution or innovation. The equity crowdfunding market is showing us that it is scaling through disciplined execution and innovation. Watch this space!
Next week’s Equity Crowdfunding Part 3: Artisanal VC collides with digital innovation
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