April 14, 2023
There are clear applications of Distributed Ledger Technologies (DLT) for Alts & Private Markets
There are clear applications of Distributed Ledger Technologies (DLT) for Alts & Private Markets that can aid investors, managers, and their service providers who want to tap or exploit the long-term trends re-shaping the world of finance and investing (https://bit.ly/43xh2dT). The internet accelerated at least three trends, and now DLT is taking each to a new phase:
1) Transparency is coming to private and opaque assets
2) Intelligence is penetrating farther into illiquid markets and portfolios, and
3) Atomization is breaking up formerly monolithic intermediaries.
DLT itself at a crossroads, transitioning from being new and speculative to being established and practical as this year—Calendar 2023—we will see isolated DLT technologies knit together to create a new global financial system that will function nearly as efficiently as today’s public markets, thanks to better transparency for trust, intelligence for data, and atomization of services.
DLT is a powerful set of global networking and encryption technologies that do what the internet could not: selectively share unique data (and data sets), and offer proofs of validity. The claim to functions beyond browser and smartphone is what allows DLT to also be called Web3.
DLT should not be reduced to “what cryptos and NFTs use.” Like many new technologies, DLT initially became famous for something iconic, viral, albeit somewhat one dimensional, most notably cryptocurrencies and then NFT collectables. This is a pity for two reasons:
•While crypto tracks provenance (a token’s transaction history), they do not represent claims on dynamic future income as most securities do.
•While NFTs have value as collectables, they currently lack the rich data on provenance, physical condition, and expert opinion and need this oracle function that drives the enduring value of fine art.
DLT is very good for exactly the fintech, investing, and securities applications that cryptos and NFTs under-utilize, ie Claims on income & Data for valuation.
For at least 170 years the trend toward transparency has been transforming markets. Starting with public accounting and telegraph news in the 1850s, we have seen regular improvements in the information available to investors. This trend endures because markets get more efficient by making information perfect, complete, costless and instant.
Investable information evolved through ticker (1867) and teletype (1922), Bloomberg (1981) and CD-ROM (1984), until the Internet gave us https://bit.ly/404MYDj (1995) and https://bit.ly/3o5LM5k (1997) and the 2000s gave us websites for AML & KYC and social media for sentiment analysis.
For public markets, where an auditor’s reputation and the government’s subpoena power promote trust, AI of various forms can already drive trading and market-pricing. For private markets, AI alone cannot ensure that the data is true-enough and current-enough. To trust private data, we need blockchain. https://bit.ly/3o5LMCm