David Goone was ready to retire after guiding Intercontinental Exchange Inc. (ICE) through over twenty years of industry-defining growth, including the acquisition of (among others), the New York Stock Exchange (NYSE).
Then, he got an intriguing offer -- to become the new chief executive officer at tZERO, pioneering the adoption of blockchain technology for capital markets and a solutions provider for the efficient trading of private assets.
The prospect before his eyes was the opportunity to build a blockchain-friendly regulated automated trading system (ATS) providing continuous liquidity.
tZERO's current EVP and Chief Legal and Corporate Affairs Officer (and the former interim CEO who helped to recruit Goone) Alan Konevsky calls the company “...the infrastructure layer; the connective tissue between supply and demand, between legacy and digital, and between digital and digital.”
Many forward thinking investors today seek to incorporate real or philosophical elements of the crypto thesis into the securities issuance and trading environment - such as the instantaneous settlement of trades, relative independence of middlemen, lower transaction costs, transparency, automation, and portability of asset ownership, including the ability to hold assets in a personal wallet, and have interactivity/utility of instruments - to ultimately be independent of institutions.
Setting aside that, with increasing AML and other regulations, much of this is not really available in the crypto markets today, anyway; the securities ecosystem requires a particular focus on marrying legacy concepts and processes, with the promise of technology.
For example, says Goone, who was a member of the board of directors of the DTCC, the settlement cycle has been getting shorter with conventional securities.
While it is still longer than instantaneous, it is now closer to “tZERO” than the 't+5' (meaning five days to close a trade) scenario of the relatively recent past.
It took years for Wall Street, including NYSE and other exchanges, to go from t + 2 to recently launched t + 1.
There are ultimately two main reasons why people want to tokenize their securities in 2024 - One, is that the blockchain creates a single public and immutable database for assets - rather than one for you, one for your transfer agent, one for your broker-dealer, one for your custodian, and so on.
The second reason is 'smart contract automation', which is one of the more exciting aspects of blockchain technology and part and parcel of a wider push into increasing automation across all industries, including through the use of AI.
The marriage of digitally native single public database architecture with smart contract automation is probably the first time anyone endeavored to create public, accessible and open infrastructure for the exchange of value since the advent of paper money and coinage.
The ability to create each security, each item of value, as a piece of software that is forever programmed to act in certain ways and not to act in other ways, a relatively new market phenomenon, says Konevsky, allows automating compliance, transfer restrictions and other functions, while eliminating or reducing reliance on intermediaries otherwise needed to check documents and papers to ensure protocols have been followed.
This is particularly true for private assets - such as private equity and securitized real world assets (RWA) - and the broken secondary liquidity options for them.
Says Goone, “we realized there were a lot of types of assets we could tokenize and put on the blockchain, including turning assets in the sports, arts, and entertainment arenas into non-traditional securities.”
This enables people to buy shares of an athlete’s revenue or sports team or a piece of art or even a motion picture.
Or, as it turns out, a hotel.
About six years ago, the St. Regis Aspen Resort, led by Stephane De Baets, became a leading hotel to offer blockchain-enhanced securities. These shares have been actively and successfully trading on the alternative trading system operated by tZERO’s broker-dealer subsidiary. Many investors bought and held their shares, while others traded them more actively. One reason for this is that their shares entitle them to special dining or skiing experiences, and provide other benefits.
It’s like joining a private club but with residual financial rewards, perhaps dependent on the size of one’s share hold.
With traditional currencies and investments not tied to real-world assets (RWA) falling under heavy scrutiny of late, and often overly reliant on good or bad 'PR', toppling governments and the ebbs and flows of an antiquated marketplace, it's intriguing to look at alternatives that are 'next-gen' in 2024, however also offer traditional safety and investment security for any who enter the arena, like gold and real estate.
