In June of 2018, London was witness to Europe’s largest Blockchain summit yet. A whole host of representatives from traditional finance were present. Over the course of that two day conference, a general consensus emerged that finance is headed for a blockchain revolution.
The reason is simple – blockchain technology’s inherent transparency, security and pseudo-anonymity makes it a perfect fit for streamlining – and improving – how traditional asset classes are created, traded and audited.
This is also a $600 trillion dollar industry worldwide. And the number of start-ups who are now looking to break into this market is growing by the day. One such entrant into arena is CDRX, whose project team is setting out to build a trading engine for tokenised traditional assets – an all-in-one platform where users can buy, sell and manage tokenised investment instruments such as equity, bonds and derivatives along with the usual services offered up standard crypto-currency platforms.
It should be understood that this is not a proposition that is not uniquely targeting Joe Public – but one that will be looking to lure established investment managers and asset custodians into its orbit through the provision of API-based services that will reduce friction and increase transparency for traditional front, middle and back office operations in the finance world.
The white-paper’s authors are clear on one point. Whilst they see enormous potential across the large range of traditional asset classes – equities, bonds and derivative instruments such as options and futures – the project team is not looking to bite off more than it can chew.
The initial focus of the new platform will be equities only. Whereas companies today currently issue share certificates, CDRX will perform a token issue instead that will be committed to the blockchain as opposed to a traditional share registry. Where dividends have previously been issued as paper cheques, they will now be tokenised and sent to holders’ wallets in a process managed by smart contracts. Where company voting has previously been organised through share-holder AGMs, it can now – if its directors choose to do so – perform such voting rounds at a higher frequency using cryptographically-secured anonymous voting mechanisms on the blockchain.
These new tokenized representations of equity instruments will be referred to as CDR’s – Crypto Depositary Receipts – from which the project derives its name which in turn takes its inspiration from ADR’s – American Depositary Receipts – the name given to instruments which allows companies from outside the US to trade on American exchanges. Other than in name, there is no overlap between the two.
The ultimate selling point of CDRs will be that they reduce transaction costs – from an average of $25 – to effectively nothing, as well as settlement risk, clearing times, paperwork and other administrative overheads. KYC (Know Your Client), AML (Anti Money Laundering) and CRS (Common Reporting Standards) will form part of the standard offering.
According to the project team, a number of road map elements are already in development. Work on the creation of the exchange itself began in June, whilst the ICO itself is planned for 19 November 2018 (pre-inscription will be available from November 5). Private investors are able to participate in the current pre-ICO period.
Major future milestones include:
Q1 2019: Exchange go-live and extension followed by later extension from equity into fixed income instruments.
Q2 2019: Index launch (although it is not clear if this is intended to complement an inhouse-managed tracker fund) and launch of OTC trading desk
Q3 2019: Creation of custodial services, and release of decentralised exchange alternative.
400 million tokens are to be placed up for sale. Token utility is aligned with the size of the token holdings of any one account. In general, the larger the holdings, the larger array of services and benefits that will accrue to account holders as per the below graphic.
The white-paper makes mention of a token buy-back program but – aside from the mention itself – no details are provided as to what that mechanism might involve. Speaking with a project rep via Telegram, we are told that fuller details will emerge at a later time but no specific time-frame has as yet been provided at the time of writing.
A 40% reserve is being applied for the team itself, vesting will apply over a ten year period, and vested tokens will be gradually released at a linear rate over that same period.
The team is composed of a number of traditional finance veterans hailing from established institutions such as Goldman Sachs, JP Morgan, Merrill Lynch, HSBC and UBS.
CEO David Ward has a background in quantitative programming and derivatives trading, and has served as head of trading for the Asia Pacific region for “one of the world’s top two commodity firms.”
CTO Matthew Spittle is a Computer Science graduate of Warwick University and boasts two decades of development within the fintech field, having served at American Express Bank, JP Morgan and Chartered.
The complete team profile can be found on the project’s website itself with links to each individual team member’s Linkedin profile.
As anyone with even a minimum of experience of having worked in fintech will tell you, the current technological infrastructure among institutional investors is riddled with inefficiencies. Legacy systems continue to dominate the investment arena when we know – particularly now with blockchain technology on the scene – that things can be done much better.
The CDRX proposition is one of a number of competitors entering into the field of tokenised securities. But that number remains relatively small in relation to the sheer size of the industry itself. In other words, there is an argument here for saying that any blockchain-based startup which is capable of delivering a reliable product to market, and which can perform the necessary outreach to gain even a tiny fraction of that market, will be well positioned to making a success of its own venture.
Judging from the project token’s economics, the native token will likely only take on value when and if institutional investors line up to accumulate the necessary tokens to gain access to the range of services and benefits outlined earlier. This aspect of the project’s potential could be very well gauged from the partnerships it achieves right at the beginning of the venture. One to watch.
Ratings Score Methodology: a weighted average across three scores: Concept (10% weight), Blockchain Fit (30% weight), Execution (60% weight).
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