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How Can Blockchains Remove the ‘Pay to Trade’ Barrier in the Market?
Every day, blockchain technology is grabbing the headlines through new and exciting ventures, promising to make investors’ needs more simple, efficient, and profitable.
The problem with many of these ventures is the failure to deliver on many of these promises. Most importantly, the failure lies in the very structure of these blockchain platforms—most of them are not multi-asset blockchain-based.
A multi-asset blockchain-based system is a network that connects banks, cryptocurrency exchanges, and other regulated financial institutions so that users can have a one-stop shop for all of their asset management needs.
The time has come to spread awareness and begin to address the issues following this system failure by decentralizing the world of trading and introducing ventures and networks willing to tackle the challenges ahead.
THE TRADING MARKET WE KNOW TODAY
THERE’S A WIDE GAP IN “PAYING TO TRADE”
Oftentimes, the ability to manage all assets or trade stocks, commodities, futures, currencies, or contracts is limited in the sense that there is no centralized platform allowing an investor to manage and oversee these transactions.
“The whole purpose of blockchain is to create an even-level playing field,” said Nauman Anees, CEO of ThinkCoin, a multi-asset blockchain-based platform that offers this ability.
Anees told the Merkle that he believes the biggest gap in the industry is that consumers have to pay commissions and charges in order to trade. “This isn’t a concept that should be around anymore,” he explained. If you look at a lot of the large equity firms around, you can only go as low as €4.22/trade. By removing the concept completely, the investor is able to look at the spread, i.e., the difference between the bid price and asking price.
With blockchain technology, there shouldn’t be a requirement to “pay to trade.”
LACK OF TRUST AND INTEGRITY
Overall, trading is conducted with little transparency and a huge dependence on the word and promises of those prime brokers, banks and institutions, and other intermediaries.
The fundamental element in any transaction is regulation. Why? It comes back to the most basic principle we learned in our legislation or history classes—checks and balances. While many brokers are properly regulated, others may slip through the cracks—especially when it comes to engagements with other state jurisdictions. Every state, ideally, has its own rules and regulations. This could potentially present conflicts of interest. How do we know that, as investors, our interests are truly being protected?
By introducing the trading market into a blockchain space that utilizes a smart contract system with inherent rules and regulations, the chance of trust and integrity being abused is significantly reduced.
MANAGING CLIENT FUNDS
Things are all fine and good until our wallets are affected. In a broker-client relationship, clients are required to deposit their money with a broker, relying on him or her to hold it segregated and apart from his or her own, in a trust for the client. Again, while the rules and regulations vary by jurisdiction, some brokers fall through the cracks in terms of providing adequate protection to their clients.
Need an example? Refer back to the now-reformed, but infamous, Jordan Belfort, also known as the Wolf of Wall Street.
By utilizing a multi-asset network, all assets, funds included, are verified on the blockchain. Thus, clients no longer have to fret about how their funds are being managed and where they are being sent.
RESTRICTING THE PEER-TO-PEER COMMUNITY
Most of the market is dominated by brokers and other parties with whom investors are required to interact to get their accounts opened and active. But, what if we removed those intermediaries and complexities, and allowed investors/users to trade directly with one another? In other words, bring a peer-to-peer (P2P) community into the market. While brokers may be necessary to the market, we need to understand that its human component, at times, provides for error and abuse. By removing the need for a broker, blockchains will transform the way in which individuals trade and invest their funds.
LACK OF TRANSFERABILITY
Many contracts are structured in such a way that an investor’s ability to trade his or her positions with other users is strictly limited. Again, removing the intermediary (broker) allows for more flexibility and opens up the trade’s potential in the market.
HOW CAN WE DELIVER ON THESE PROMISES?
Utilizing a multi-asset blockchain-based trading network will address the industry’s issues mentioned above. Providing individuals and institutions with the ability to trade directly with one another, removing the complexity of intermediaries, will level the playing field, lowering costs and fees for all parties involved.
“If we can take the actual exchange products and put them on this blockchain exchange, there’s a massive opportunity to disrupt the sector,” said Anees.