For those who believe that blockchain for markets is years away, there are some examples that are here and now.
OpenFinance Network launched a blockchain-based clearing and settlement platform this month aimed at token-based securities in the alternative investment space. What OFN is aiming for is to improve the trading, clearing and settlement for alternative assets that are clunky, fragmented, opaque and frustratingly slow for transactions.
The Chicago-based firm comes from the team that built CFX Markets, an online platform that has been focused largely on the private Real Estate Investment Trust market. By creating a trading and clearing platform for a paper-driven and antiquated market, they learned how to implement a clearing system using blockchain.
Jordan Fishfeld, co-founder and general counsel at OFN, said the team recognized a problem that CFX had been addressing and is applying it to other markets.
“We built the validation platform, clearing and settlement infrastructure and the securities ledgering process all within our solution,” Fishfeld said. “So it generally makes it easier for an investor to prove who they say they are, confirm that they own the asset they say they own and transfer that asset or security.”
While that seems like a rather simple process of digitizing paperwork, there are numerous markets with an absurd amount of in-person, legal and processing involved. CFX first addressed private REIT transactions, which require someone to physically travel to one city after another collecting signatures from the real estate title company, the custodian firm, buyers and sellers and perhaps more for other legal documentation. Several weeks and thousands of air miles may be required for just one transaction, which leaves a fair amount of price risk open for both buyers and sellers until the deal is closed. CFX’s platform has narrowed the transaction process from six to eight weeks to two to four weeks, with hopes of speeding that up further as more key players get on board. It also operates as a centralized platform so participants can more easily buy and sell these assets, which bundle all of the required paperwork and signatures.
OFN, which operates separately from CFX, is now taking applications from prospective companies that want to issue tokens on the assets for their shareholders. It also is open to companies that already have paper-based certificates and is helping them transition to a token-based model that would then benefit from its blockchain clearing and settlement platform. Fishfeld says the target for OFN is not to offer trading and clearing on bitcoin or initial coin offerings, but rather the trading and processing of a token-based security.
The firm, technically is a broker-dealer under FINRA oversight, is not aiming its technology at liquid, listed markets like futures or equities. Digital Asset Holdings has been working with the Australia Securities Exchange to do just that. But OFN does see tremendous potential for those markets that could use a modern approach to trading, clearing and settlement.
“People are really excited,” he said of potential clients. “Things like the digital signature and digital investor passports are necessary tools for a lot of these participants. They are spending an unbelievable amount of time dealing with those problems, KYC (know your customer) and background checks on investors.”
Can blockchain solve these problems? OFN believes so.