Finadium: Blockchain Securities Lending Marketplaces: Can They Succeed?

Interest in blockchain and Internet Coin Offerings (ICOs) is in the air, and market disruption is encouraging the idea that securities lending on the blockchain is a potential game changer. The securities lending market isn’t like other markets however, and there are structural and cultural obstacles that blockchain proponents must consider before declaring a path to victory.

In practice, blockchain securities lending markets are functionally proficient; they seem to do the things that they claim. This helps make the challenge of blockchain securities lending markets riveting to the industry: if these platforms can deliver on their objectives, why does the market not move to them as a better solution than the current model of beneficial owner -> agent lender -> prime broker -> hedge fund? This introduces the reality of how decision making works in the real world. It isn’t always rational or cooperative, and it prioritizes conservatism over the next new idea. This is a central challenge for any new innovation.

In this report, we consider the technological and business challenges of moving securities lending to the blockchain, including tZero as a test case. We evaluate whether a move to the blockchain would help solve current problems in the securities lending market or whether this is just a shift to a newer technology stack with equivalent functionality. We ask whether it is start-ups or incumbents that should be running blockchain securities lending platforms and what this means for the industry. We find that while there may be some genuine benefits to blockchain securities lending platforms, there are also tangible hurdles.

This report has been written for market participants in securities finance to better consider the implications of blockchain in this marketplace.

Finadium subscribers to our Securities Finance, Collateral and Derivatives; Investor Focus; and Fintech Capital Markets reports can log in here to access this report.

A direct link to the report for Finadium clients, when logged in, is http://finadium.com/finadium-report-desc/blockchain-securities-lending-marketplaces-2018/

For non-subscribers, more information is available here.

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