December 31, 2015
Today Nasdaq announced in an official statement that its blockchain ledger technology, Linq, was able to successfully complete and record a private securities transaction - the first of its kind using blockchain technology. Blockchain startup Chain documented the issuance of shares to a private investor using Nasdaq's blockchain-enabled technology.
This blockchain-based transaction by Chain signifies a ‘proof of concept’ and a major step forward in use of blockchain technology, as Nasdaq states. In September 2015, Nasdaq along with Visa, Citi and others invested $30 million in Chain.
The issuer of private securities was able to digitally represent a record of ownership using Nasdaq Linq. Needless to say, it significantly cut the settlement time and made any paper stock certificates redundant. Moreover, Linq enables issuers and investors to complete and execute subscription documents online.
Nasdaq's use of blockchain technology is also a step towards efficiently expediting trade settlement for transactions in public markets. As the company states, blockchain technology has the potential to assist in expediting trade clearing and settlement: from the current equity market standards of three days to as little as ten minutes, which can reduce a settlement risk exposure by over 99%, thus dramatically lowering capital costs and systemic risk. In addition, blockchain use is expected to drastically reduce the risk and the administrative burden for issuers that are facing a mostly manual and multi-step process today.
Bob Greifeld, CEO of Nasdaq commented in the statement, "We believe this successful transaction marks a major advance in the global financial sector and represents a seminal moment in the application of blockchain technology. Through this initial application of blockchain technology, we begin a process that could revolutionize the core of capital markets infrastructure systems. The implications for settlement and outdated administrative functions are profound."
Adam Ludwin, CEO of Chain, expressed his excitement over the registered transaction on blockchain, "No doubt this is a powerful milestone for Chain and our partnership with Nasdaq. We couldn't be happier with the results of the transaction. It was seamless and met our objective of drastically reduced manual ownership transfer."
Recently, Nasdaq has been actively exploring blockchain. Earlier in November, the company announced that it is exploring the application of its blockchain technology to proxy voting in Estonia. Nasdaq promised to announce its progress with enterprise-wide blockchain application initiatives next year.
Even though a massive player in the financial industry, Nasdaq is not the pioneer with blockchain use. The whole past year could be called a year of blockchain exploration as blockchain gained outstanding momentum. As previously covered by LTP on many occasions, blockchain use cases have gained huge traction not only in terms of funding but also in terms of bank and financial institution partnerships. Especially, the non-financial use cases have started to attract a host of startups to building a multitude of solutions that can leverage blockchain. To prevent falling behind, every major bank now has a dedicated team looking at the potential and new ways to explore blockchain. Lending companies are also actively looking at blockchain.
While this is clearly a major step forward for Nasdaq, there is ‘another fish in the sea’ that claimed to break the ground first - Blockchain startup Symbiont, which is building the first issuance and trading platform for smart securities on blockchain technology, as the company states. In August, Symbiont announced the issuance of its own smart security using bitcoin blockchain.
Overstock is another interesting example. The tØ platform by Overstock was launched in April 2014 to leverage blockchain for equity trades and settlement. In July 2015, Overstock announced the sale of a $5-million digital security in the form of a cryptobond to FNY Managed Accounts LLC, an affiliate of FNY Capital. The sale was intended to serve as an additional proof-of-concept of the safety and efficiency of exchanging financial instruments via a cryptographically secured public ledger.
Chain is the leading blockchain infrastructure provider to financial institutions and enterprises. Chain's platform enables the secure issuance and management of digital assets on a blockchain network. Chain's customers span the payments, banking, capital markets, telecom and energy markets. The company is based in San Francisco, CA and is funded by leading venture firms Khosla Ventures, RRE Ventures and Thrive Capital as well as strategic investors Visa, Citi, Nasdaq, Capital One, Fiserv and Orange.