Brian Armstrong, Coinbase CEO, thinks that in five years one billion people will be using crypto. Also, he claims that in the near future Coinbase could list hundreds of tokens, or even millions in the more distant future, with proper regulations.
What does the future have for stocks? Is it possible to modify the current model to suit the modern needs and the amplifying demand of investors? The current tech for stock trading hasn’t changed since 1980s. Of course, the tech now is better and faster, but under the surface it’s still the old outdated model. You have a broker or another agent, that executes orders on market, you have a depository, that keeps your stocks in safety and records your ownership in its book-entry form, also you have two parties: buyers and sellers, that interact via another middleman — a clearinghouse.
The most archaic part is the process of issuing and listing your stocks. You have to go through a very complicated process of Initial Public Offering (IPO) and exchange listing. If you list your stocks on New York Exchange, you can’t sell them in Asia, you have to list them on Hong Kong Exchange first. Thus the majority of stocks can’t make their way to big exchanges, or can’t be traded globally with ease. While it was pretty normal in the 80s, that’s not ok in the global environment that we’re living in currently. So, could blockchain help us in this case? Definitely!
Tokens are the evolution of stocks. Every stock can be tokenized and traded the same way as before, but cheaper and directly between buyer and seller. No need for clearinghouses, that act as a trusted third party to ensure the deal is settled. No need for depositories, because every owner of tokenized stocks can store them on his/her own blockchain address. It’s possible that there would be a need for custodians to store tokens for institutional investors, but retail investors can handle it on their own, thus cutting costs on depository safekeeping. Brokers would be needed only to match buyers and sellers or it could be done in a decentralized manner, cutting these costs too. Most importantly, these tokenized stocks could be traded globally, with no restrictions on one country/exchange.
What about regulations? Brian Armstrong talked about his vision of every company, every non-commercial fund or company issuing its own tokens and selling them on Coinbase. How is it possible?
When ICO boom happened, we saw that an unregulated environment is risky. In addition, governments won’t stay idle, looking at this decentralization they can’t control, we saw that they can effectively end it all, banning exchanges. It’s unknown if decentralized exchanges could change this situation since there is no any functional liquid decentralized exchange yet.
Hence the recipe is simple: keep it centralized, regulated, to prevent fraud, but keep it on blockchain to eliminate the necessity in third parties, and smart contracts can make it possible to comply with regulations, making a token a security. If you wish, you can find a bunch of services that allow issuing regulatory-compliant tokens and conduct a Security Token Offering (STO). The most distinctive feature of these tokens is that they can be sent only to authorized verified addresses, their smart contracts simply won't allow sending these tokens to addresses without KYC and AML verification.
Thus we can build a global trading system, where any company can issue its tokens, but the possibility of a fraud is diminished because every participant is verified and everything goes according to the laws. Isn't it the transparency that everyone was dreaming about? And it seems that it's inevitable. More and more STOs are conducted, Nasdaq and NYSE explore blockchain technologies, and it's possible that in 5-10 years all stocks will be tokenized. Is it a good thing? We let you decide.