Offline Transactions in Capital Markets Could Reach 2 Billion
In the rapidly evolving world of global securities and financial trading, blockchain technology is emerging as a game-changer. With the increasing pressure for automation, asset diversity, and the need to cater to a growing number of participants, distributed ledger technology (DLT), led by blockchain, offers a promising solution [1].
Numerous projects have demonstrated the added value that blockchain technology can bring, and it has been developing strongly for over a decade, showing resilience and scalability [2]. This regulatory framework, such as MiCAR, eWpG, and the EU-DLT pilot regime, provides legal certainty for financial actors, opening up room for concrete applications [3].
One such application is the wpNex platform, a hybrid model that combines cloud-based clearing systems off-chain with market interaction on-chain, demonstrating its success [4]. On-chain transactions, agnostic by nature, allow for the representation of various financial instruments and assets, from simple token transactions to complex structured products [5].
The adoption of on-chain transactions in regulated capital markets offers several significant benefits. Firstly, it provides global market access and capital inflows, enabling retail and institutional investors worldwide to access global markets without complex intermediaries, currency exchange fees, or geographic barriers [1]. For instance, a retail investor in Nigeria can purchase Apple stocks directly on-chain, facilitating new capital inflows into crypto infrastructure and expanding market participation globally.
Secondly, on-chain securities offer faster, more transparent, and efficient trading. They provide 24/7 trading availability, faster settlement times compared to legacy systems, and transparent transaction records accessible in real-time [1][3]. These features improve liquidity and user experience by reducing delays, costs, and opacity inherent in traditional capital markets.
Thirdly, blockchain’s programmability enables improved recordkeeping and corporate governance. It allows for accurate, up-to-date shareholder records and eliminates issues such as over-voting or under-voting in corporate actions. It also streamlines dividend and tax reporting while improving regulatory compliance, enhancing trust and reducing administrative burdens for issuers and intermediaries [2].
Fourthly, tokenization allows for fractional ownership of assets, lowering entry barriers so that investors with smaller capital can participate. This democratization supports broader investor participation, including emerging markets and retail investors who previously faced restricted access [3].
Fifthly, on-chain securities are programmable assets that can interact within decentralized finance (DeFi) ecosystems, enabling innovative use cases such as using tokenized stocks as collateral for loans or yield farming. This creates new financial product opportunities and more efficient capital utilization [2][3].
Sixthly, on-chain stocks can keep capital within the crypto ecosystem even during bear markets in cryptocurrency, preventing liquidity evaporation and supporting continuous market activity, which benefits the broader financial infrastructure built on blockchain [1].
Lastly, by issuing securities and enabling trading on proprietary or dedicated blockchain layers, fintech firms and corporates can reduce reliance on legacy intermediaries, lowering the cost of capital and capturing trading spreads, custody fees, and infrastructural rents that would otherwise go to traditional financial institutions [5].
In summary, the reasons for adopting on-chain transactions in regulated capital markets focus on market accessibility, speed, transparency, cost efficiency, improved governance, broader investor inclusion, and innovative financial integration empowered by blockchain’s unique properties. These provide a compelling case for transforming traditional capital markets towards a more open, efficient, and programmable future [1][2][3][5].
The presence of a coherent regulatory framework, open protocols like Ethereum, Solana, and Layer-2 solutions, and the professionalization of the view on blockchain technology all contribute to the rapid innovations, scalability, and interoperability of on-chain transactions [6]. Digital money, such as wholesale CBDC and MiCAR-compliant Euro stablecoins, can now also be represented on-chain, enabling programmability and real-time settlement [7].
Blockchain-based transactions can unify the multitude of technical transactions in the financial market for actors worldwide on infrastructures [8]. Transparency of transaction data on public blockchain networks simplifies reconciliation processes, and public blockchain networks, such as those used in on-chain transactions, are inherently global, allowing for faster market access, new customer groups, and international scalability (subject to respective market regulations) [9].
The successful integration of On-Chain Transactions will not only be determined by the underlying technology but also by functioning ecosystems, suitable strategic partners, and products. Early investors and innovators can co-create standards and secure market shares [10].
- As the global securities market continues to evolve, integrating artificial-intelligence (AI) into on-chain transactions could lead to more efficient market analysis, predicting market trends, and automating trade decisions, thereby revolutionizing trading strategies.
- In the long run, the convergence of technology sectors such as finance, investing, and artificial-intelligence (AI) with blockchain technology could pave the way for the development of sophisticated intelligent systems, capable of managing and optimizing financial portfolios, potentially disrupting traditional wealth management models.
