by Mariana Nieto – C.C.O. – Co-Founder – Expedit Capital
“There is no innovation without risk, but the big risk is not innovating” – Xavier Marcet.
In the last decade, technological disruption has been very exciting. New technologies have transformed the way we carry out our daily lives and nowadays globalization is more and more in need of it. On the other hand, automation, criticized by many, but praised by others, is the deep yearning we experience when tasks overflow our schedule and time seems to be short. However, the use of technologies that automate and streamline our daily lives is being extrapolated to the business and financial spheres with greater intensity.
Innovation has arrived to solve problems, streamline processes on a continuous basis and bring new products and services to the market. According to Porter (1990) innovation is the key element that explains competitiveness, “Companies gain competitive advantage through innovations”. Would this reason explain the exponential rise of the FinTech market? Not entirely, but what we can say is that the financial sector is undergoing major transformations caused by the need for disintermediation in the value chain brought about by investment-based business models.
The digital transformation in the financial sphere has caused traditional players to start developing collaborative and open alliances with technology companies using disruptive technologies such as Blockchain and Tokenization. This phenomenon will be increasingly useful, both for financial markets and society. The question is: How stable and secure is it?
Let’s start by evaluating the properties of Blockchain technology, which can be defined as a shared digital ledger comprising a list of blocks connected and stored in a distributed, decentralized and cryptographically protected network, serving as an irreversible and incorruptible information repository. Recorded transactions, which can involve any kind of value, money, property or votes (Beck & Müller-Bloch, 2017, p.5390), cannot be retroactively modified without altering all subsequent blocks; in fact, new blocks are validated by peers in the Network, granting credibility and preventing malicious activities (Wright & De Filippi, 2015, pp. 8-9).
That said, Blockchain technology represents a solution to mitigate significant risks, eliminate human error and promote efficiency, leading to increased transparency, reliability and reducing the possibility of fraud granting it an unmodifiable character and with an immutable record.
The main advantage of this technology for the financial sector is that it can be used to manage the transfer of traditional assets such as stocks, bonds and even real estate, simply by correlating property rights with a token backed by a blockchain, and can be exchanged by anyone with an Internet connection in a matter of seconds.
This is where tokenization comes in, the process of abstractly representing a value in correspondence with the real asset. Its strongest advantage: Smart Contracts, which allow it to tokenize all types of assets, while reducing the costs of their transfer.
Asset Tokenization is becoming a key element in the digital economy and represents a new way to build new investment models. Like everything new, it has many supporters but also opponents. The lack of regulation is undoubtedly the main pain point. However, the world’s major powers are already starting regulatory sandboxes because they see Tokenization as a revolutionary, positive and enriching change for entrepreneurs and investors, since it allows access to a more globalized and democratic market. For example, in the case of SMEs and StartUps, tokenized assets are the best vehicle to obtain financing. According to Francisco Maroto, Blockchain leader at BBVA, “Tokens could be listed on an Exchange or Secondary Market and thus have immediate access to new alternative financing channels and many more investors”.
It is undeniable that we are facing a giant wave of innovation and evolution. Although tokenization has challenges ahead, it promises to bring greater transparency, increased efficiency, elimination of intermediaries, more open markets, reduced market manipulation, among other advantages. Technology is advancing much faster than the norm, but we cannot neglect the countless possibilities and solutions it brings with it. But are we prepared for this paradigm shift? It’s a question we can only answer as we go along, and at Expedit Capital we are sure it will revolutionize the way we exchange value and make smart investments.