The race to fix Wall St now includes ICE, parent of NYSE, which is embracing cryptocurrencies. This renders many of Wall St’s enterprise blockchain projects obsolete as ICE moves to natively-digital blockchain assets, a big positive. But investors should be wary of off-chain bitcoin substitutes.
This is the third of a three-part series exploring the building rivalry between cryptocurrencies and Wall Street. The first two parts are here and here, and an interim post about the ICE news is here.
A ten-ton gorilla just entered the room and it sent everyone scrambling. ICE, parent of the New York Stock Exchange, is entering the bitcoin/cryptocurrency business—both institutionally and for retail payments. ICE’s move throws a curve ball at the crypto industry and Wall Street incumbents alike. So now what? And what does this imply about Wall Street’s enterprise blockchain projects, now that a giant infrastructure player has embraced cryptocurrencies for trading, clearing and settling transactions?
In Part 2 of this series, I’d predicted that Wall Street would try to co-opt cryptocurrencies the only way it possibly could, which is to financialize them by creating layers of debt-based, off-chain claims against them—and two days later, that happened.
The killer app for blockchain on Wall Street was always to migrate over to natively-digital blockchain assets and away from assets owned indirectly (currently, the DTC owns nearly all securities in omnibus accounts and what’s in our brokerage accounts are IOUs owed to us by a chain of leveraged financial institutions, not real stocks and bonds). Plus, Wall Street’s ledger systems aren’t in sync. That’s how situations like Dole Food happen—where Wall Street’s ledgers created 33% more shares than actually existed. There’s no excuse for this, ever. The solution is to scrap the old structure and use natively-digital assets that are issued, traded and settled on a blockchain.
ICE broke the seal. Natively-digital blockchain assets are coming to Wall Street. That’s a very big deal.
ICE’s move renders many of Wall Street’s enterprise blockchain projects obsolete because most (though not all) such projects are trying to tokenize financial instruments already issued. ICE leaped over tokenization and went straight to natively-digital. A natively-digital blockchain asset is issued at its genesis moment on a blockchain, and consequently would never need to be tokenized. Moreover, most enterprise blockchains are using insecure base layers (“blockchain-inspired” systems). ICE is now embracing the real thing—a secure base layer, a true blockchain. It’s not possible to build secure applications on top of an insecure base layer, but it is possible to build secure (or insecure) applications on top of a secure base layer. ICE chose right by embracing true blockchains.