Vertalo hosted its Digital Assets and Securities Conference last month, bringing together traditional financial services professionals and digital asset innovators to foster connection, collaboration, and growth of the digital asset ecosystem. This landscape has seen tremendous evolution since the invention of Bitcoin.
For years after the Bitcoin blockchain was created, it was the sole cryptocurrency of note on a decentralized network. However, once Ethereum was developed, it introduced additional functionality. One core advantage was the ability to create many different digital assets, which led to the eye-opening realization that traditional assets could be digitized. This ushered in the genesis of digital asset securities. Issued using distributed ledger technology, digital asset securities are digital representations of traditional securities that meet Howey Test standards.
Vertalo’s conference showcased the continual innovation occurring in the digital asset securities market space. It also highlighted the growing adoption of digital asset securities by financial services incumbents that are leveraging blockchain’s efficiencies to enable a new era of finance. Here are 3 key takeaways from the event:
1. A greater institutional focus on digital asset securities is palpable. Traditional financial institutions recognize that blockchain and digital assets are technologies that could apply to their industry to improve the inefficiencies of traditional securities. From Franklin Templeton to State Street to the DTCC and NYSE, TradFi incumbents are increasingly engaged in discussion and collaboration with the blockchain community.
2. Collaboration will likely be the catalyst for exponential institutional growth. A notable shift is occurring in tandem with the adoption of digital assets: there is a transition from isolated projects to interconnected networks as traditional and crypto-native companies merge to form symbiotic relationships and develop products. Collaboration is beginning to take hold in the ecosystem as participants understand that synergy among providers “creates more shareholder value, reduces friction in capital formation, and improves secondary liquidity for private assets,” according to Dave Hendricks, CEO and Founder of Vertalo.
3. Opportunity is at a high as innovators explore compelling use cases. Fundamentally, blockchain implementation ushers in revolutionary change to a notoriously static industry. The technology can optimize front, middle, and back office financial services operations by introducing transparency, interoperability, and immediate settlement. The potential for innovation in digital asset securities is limitless, but a number of recent applications provide early case studies of how blockchain technology can transform investment products, collateral management, and payments. For example, Arca pioneered the blockchain transferred fund (BTF)—a pooled investment vehicle registered under the ‘40 Act that issues its shares on the blockchain as digital asset securities. It is one of the first instances of digitizing a traditional investment structure. Further, JP Morgan developed JPM Coin on their private blockchain to experiment with collateral settlement.
The overarching sentiment of the conference was that digital asset securities have entered the synergy stage of this technological revolution. As legacy TradFi institutions awaken to the benefits of leveraging blockchain, their collaboration with digitally native companies can help unlock the endless possibilities of tokenizing traditional securities. As a result, we expect a not-too-distant future where all traditional financial service products and frameworks will be digitized.
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