Aarati Rai
FIN 510- Spring 2022
Research Brief Title: Blockchain in Capital Market
Introduction to Capital Market
Capital markets are places where new securities are issued and traded. Capital markets are
spaces in which various entities trade different financial instruments. Capital markets help to
channel the saving and investments between other suppliers. Mainly, banks and investors are
ready to make the investment, whereas individuals, businesses, and governments are looking for
capital investment. These markets are composed of the suppliers and users of funds and include
households, pension and retirement funds, life insurance companies, and nonprofits that
generate excess cash.
The capital market can be categorized into two main areas such as primary and secondary
markets. The primary markets are where investors invest in the new securities issued by an issuer
(for example, a corporation) to raise capital. The issuer uses the capital collected from primary
markets to finance the activities, including building new plants and factories, to acquire and pay
their employees. Secondary capital markets are where the investor invests in the already issued
securities. Secondary capital markets do not raise money directly from issuers, but they make it
easier for investors to do their transactions in the primary capital markets. It helps the investor
buy newly issued securities, and if they get reasonable amounts, they can sell the holding share
quickly in the secondary market. The investor can also choose the holding of the company share
they want to add to their portfolio.
Impact of fintech on Capital market
The processes involved in making trades possible in the financial markets have become
increasingly laborious and time-consuming, with a checkered history of asset ownership stored
in a paper-based system. The financial services industry has a heavy intermediary model that is
antiquated, outdated, and inappropriate for today's needs. Blockchain can be a great solution to
all these issues as it:
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Reduces the use of (and reliance on) existing processes
Reduces costs (of settlement, regulatory charges, etc.)
Transactions and networks within the internal infrastructure can be made more
accessible by reducing friction
Increases data input and storage efficiency
Regulators must manage the Risk of regulatory reputation, i.e., how they manage their ability to
legislate the use of technology and how such decisions impact industry confidence. According to
Accenture 5% of Risk, managers are fully capable of assessing the risks associated with Blockchain
within their organization. The Global Block Chain Business Council (GBBC) also surveyed
institutional investors and found that 63% of respondents believe Senior Business Executives
have a poor understanding of blockchain technology.
However, Industries have a vital insight that it is challenging to assume what elements of the
capital markets processes may not be compatible with the migration process and how long it will
take to migrate. The potential impact of Blockchain on capital markets is undeniable. Answers to
Aarati Rai
FIN 510- Spring 2022
the question of how Blockchain impacts the capital market and how the capital market uses
Blockchain is through efficient and fast processes that all the industry can accept. There is a high
requirement for better education regarding Blockchain and a thorough understanding of current
procedures to see what can be implemented.
Blockchain-related technologies by traditional and challenger firms
Many firms have used Blockchain as they have the potential to bring a lot to the table. Blockchain
has been used by banking sectors, supply chain, healthcare, insurance, travel agencies,
government, and almost everyone. For instance, BBVA and Red Electrical Corporation have
completed a €150m loan using blockchain technology, and BBVA is using the Open Timestamps
protocol that uses Bitcoin to power the system.
Paxos uses the Blockchain in the trading using ledger technology where the company can settle
a trade instantly, make an automatic payment process, and helps eliminate the third parties
associated with the trading. There is a specific industry impact also because of PAX stable coins,
which have been approved by the New York Department of Financial Services and hold liquidity
ability as the alternative to cash. These coins are used to settle the financial transaction and offer
a transparent ledger for accountings.
In addition to many other companies using the Blockchain in their trading, it is one of the largest
cryptocurrency trading platforms. Coinbase provides highly demanded cryptocurrencies such as
Bitcoin, Litecoin, and Ethereum trading for an individual. Also, they have their stable coin (USD
Coins), which can be used for a 1:1 match with the dollar of Unites stated. The industry impact
of Coinbase is that they have more than 20 million customers who are trading in the blockchainbased digital assets, which is more than trading of more than $150 billion.
Expectation for the capital market of fintech in the future
The bank has become an integral part of the financial world. The changing regulatory
environment and the data explosion have enabled fintech companies to capture market share in
traditional banking activities, including payments, loans, investments, and financial services
planning. Companies with no baking infrastructure asset base have made significant forays in
their business. Banks that can associate with and support fintech innovates are getting a
competitive advantage over their competitors.
There is a high need for Fintech in the capital market. The demand is driven by market
participants who want to explore alternative business models and technological advancements.
The access to alternative models and acceptance is combined with the meaningful change in the
company's ability to access capital. The future of FinTech is more focused on creating better
markets and security services, a more important financial hub, and the whole capital market
value chain. Fintech disruptors are making new models or concepts for investment, trading,
settlement, and custody to create robust infrastructure. Many fintech disruptors have already
created technological solutions in other parts of financial services in the capital market area of
finance. Some players are in the process of creating a more effective solution for addressing
critical pain points in the post-trading, infrastructure, and access capital.
Aarati Rai
FIN 510- Spring 2022
Bibliography
“How Can Blockchain Impact Capital Markets?” Shield, 4 May 2022,
https://www.shieldfc.com/resources/blog/how-can-blockchain-impact-capital-markets/.
Summary of the article: This article contains about what gaps are in the capital markets that Blockchain
currently solvers question is for decision-makers and market leaders to decide. There are mentioned
solutions that can act as a starting guide.
“List of Top 50 Companies Using Blockchain Technology.” 101 Blockchains, 31 May 2021,
https://101blockchains.com/companies-using-blockchain-technology/.
Summary of the article: This article contains a list of 50 companies that are using Blockchain technology.
The Blockchain has the potential to serve companies in positive ways. The article discusses the use of
Blockchain in different sectors such as Healthcare, Supply chain, Government, Insurance, Banks, and many
more.
Daley, S. (n.d.). Bullish on Blockchain: 12 Companies Using Distributed Ledger Technology to
transform financial trading. Built In. Retrieved June 10, 2022, from
https://builtin.com/blockchain/trading-finance-investments
Summary of the article: The Article contains the 12 companies that are using the Blockchain for financial
trading and the impact of this on the industry. In addition, it addresses that Blockchain holds enormous
future potential in the financial trading world.
Perspectives - Caia. https://caia.org/sites/default/files/10_aiar_vol-5_issue-3_future-of-fintech.pdf.
Summary of the article: The financial market infrastructure provider in the future will have leveraged its
leadership in market structure, trading, clearing, and regulation to guide the creation of safe and efficient
capital markets for the 21st century and beyond.
Aarati Rai
FIN 510- Spring 2022
Appendix
Exhibit 1
Exhibit 2