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Smart Contracts May Replace Investment Banks
Now, we only need to write a smart contract on the Ethereum blockchain to initiate an ICO fundraising. Whenever someone sends money to the smart contract's address, the contract will issue a corresponding number of tokens to the investors as subscription certificates and then distribute dividends regularly. In simple terms, blockchain smart contracts can automate processes such as fundraising, stock allocation, and dividend distribution. Therefore, Wall Street has to face the impact of this technological wave.
Securities trading has always been a source of substantial returns for Wall Street. Investment banks act as indispensable intermediaries in the process of trading between corporations, government entities, and investors, mainly responsible for bond issuance or IPOs. However, the emergence of ICO fundraising methods may lead to the downfall of venture capitalists, and Wall Street's investment banks are at the forefront.
The main role of investment banks is to connect capital suppliers with demanders (investors). However, with the development of emerging technologies, the business of investment banks can be replaced by blockchain. The most profitable project for Wall Street is the issuance of corporate bonds. The traditional operation is as follows: a company authorizes an investment bank, and fund managers sell these assets and bond certificates. According to statistics, in 2017, companies worldwide issued bonds worth over $350 million in total, and investment banks could control the entire market by contacting fund managers. However, the success of ICOs has led to a decreased demand for such intermediary institutions, as companies can now connect directly with investors by issuing "smart bonds."
Smart Bond Issuance Workflow
The concept of issuing smart bonds involves companies using blockchain to create a smart contract. This contract operates similarly to bonds, with semi-annual interest payments and the principal repaid at maturity. Investors interested in participating in the Initial Bond Offering (IBO) only need to convert their funds into Ether (ETH) and send them to the address of the smart contract, specifying the minimum interest rate they are willing to accept. When the IBO ends, the smart contract will automatically create orders. Investors who accept the minimum interest rate will be prioritized in the orders, and investors with the lowest minimum investment amount need to set this amount on the order. However, all investors who do not meet the final order will automatically receive back the Ether they invested in the smart contract.
It is understood that investors will receive interest payments (interest) every six months as set in the original smart contract. If companies do not want to bear the price risk of Ether, they can pay directly with Ether and adjust the securities based on the exchange rate of Ether to fiat currency in the exchange. Therefore, before paying the bond, the smart contract will obtain the exchange rate of fiat currency to Ether from a data provider and pay the appropriate amount of ETH. Some smart bonds can also directly exchange interest payments and principal repayment with tokens supported by fiat currency and can be traded with reputable, audited financial institutions. When the bond matures, the smart contract will pay interest and principal or the equivalent amount in Ether or fiat currency.
The entire IBO process does not require additional manpower, and the only thing that needs to be done is to have engineers write smart contracts. It is believed that in the near future, such reviewed smart bond contracts will be launched on the market.
Smart Bonds Are Gaining Momentum
The purchase of traditional individual bonds generally requires between $5,000 and $200,000. This makes many investors hesitant to participate. However, the minimum investment amount for smart bonds can be as low as $10 per share, making the investment threshold relatively low compared to traditional bonds. It not only provides more options for retail investors but also allows small and medium-sized enterprises to choose new financing methods, such as issuing micro-bonds. These financing methods have almost zero costs.
The financial technology (Fintech) revolution driven by blockchain technology is on the horizon, and ICOs are just the beginning. The financial market and the system are on the path of transformation. |
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Post time 7-11-2023 06:40:51