The European Crowdfunding Association (ECN), the leading advocacy group for online capital formation in Europe, has published a report on blockchain – distributed ledger technology (DLT) and use cases in alternative finance. The report adds a new acronym “BDLT” thus representing the combination of the two commonly used terms for the technology.
More specifically, ECN targets the following verticals:
- BDLT for online payment and identity services
- BDLT for peer-to-peer investing and investment services
- BDLT for financial democratization
The examples in the report include security tokens, cryptocurrencies, platforms and more. The authors state that while it is too early to provide concrete recommendations to policymakers and crowdfunding industry stakeholders, they seek to raise awareness for further observation.
Overall, ECN believes that BDLT will have a positive impact on online capital formation:
“Blockchain and DLTs, in general, can drive change in the financial services by introducing transparency, simplification and efficiency. The key benefits of these new technologies are related to their ability to create trust in a distributed system, increase efficiency in real-time or near real-time reporting of transactions, and support high resilience.”
Regarding the rise, and subsequent fall, of the initial coin offering (ICO) sector, ECN says the results are sobering. This is due to the rate of fraud and the lack of success of many of the ICOs. The report also notes that listing a crypto on an exchange can cost from $1 million to $3 million – a significant disincentive.
But the initially robust nature of the ICO market displayed a technology that can “enhance workflow and management of financi[al] services.”
Regarding the emerging security token offering sector or STOs, the main advantages of BDLT are:
“… increased efficiency, by simplifying the process of issuing and reducing clearing and settlement time. This will lead to a reduction of costs for financial services, both for investors and issuers, and might not only influence clearing and settlement but also trading and exchanges themselves. Some banks and exchanges are already experimenting with blockchain technology and e.g. exploring how to “make digital central bank money available for the trading and settlement of tokenized assets between financial market participants. For now, the technology is not sufficiently stable and scalable to be broadly adopted. On top, regulatory challenges and compliance with securities law still need to evolve.”
The report then segments out various live and in the wild BDLT projects. These include:
- BDLT for payments and identity: Dash, Fractal and Blinking
- BDLT for peer to peer and investment services: Conda, Realmarket, Stokr and Finexity
- BDLT for financial democratization: Goteo and Blockbonds
The blockchain and DLT industry remains in its infancy. “Pioneering the blockchain sector is challenging,” notes ECN.
Additionally, the regulatory environment in the EU is not clear. Regulated platforms must initially go to the member state regulator for approval. Hope remains for harmonized rules across the EU. Education and advocacy need to be pursued the knowledge of the opportunities and risks remains limited. Widespread adoption will take time.
This a great snapshot report and a must-read for industry insiders and policymakers.