Nasdaq has announced new trading platform Linq with its first demonstration at the Money 20/20 conference in Las Vegas last week. It’s a Blockchain-enabled platform. The debutant companies to be traded on it are Chain.com, ChangeTip, PeerNova, Synack, Tango and Vera. The platform can be integrated with ExactEquity, Nasdaq Private Market’s existing cloud-based capitalization table management and stock plan administration solution.
Reading between the lines, the initial scope of Linq seems quite limited.
“Blockchain-enabled” is promising but what does it actually mean? First of all, which Blockchain? And what does it enable? And how exactly? According to FT, Linq’s Blockchain is private and not connected to the Bitcoin Blockchain in any way. “Private” in this context means that records are distributed around the closed group of its members only, i.e. probably company members mentioned above and their current and former employees that hold stock.
What does it enable and how? The Linq trading platform is supposed to provide private companies with clear recording and tracking of shared ownership rights within the private marketplace before going public. The thing is that often for such companies these processes (“recording and tracking”) are chaotic, not well tracked and unstructured. Nasdaq Private Market says that Linq in combination with ExactEquity will better facilitate administration of ownership rights.
That way when you go to court to claim your pizza tech millions, you have more than a company secretary signature on a pizza box to argue your case for a 3 per cent holding. It might even prevent equity-based bonuses from being clawed back one day too?
According to Fredrik Voss, vice president and head of Blockchain strategy at Nasdaq, the “obvious benefit” of the distributed ledgers is “to create efficiency in back-office processes”. However, it seems that in the bundle Linq+ExactEquity, the latter has more to do with achieving this added efficiency to administrative processes. In fact, it’s ExactEquity that helps companies to manage the structure of their liabilities while Blockchain is responsible for distributing the records among members.
One good thing that Blockchain-enabled Linq does for private market participants is that it provides them with agreed state of things, the shared history of ownership, backed up by the network and fixed in the blockchain history. This eases dispute resolution procedures and ensures data integrity and freedom from corruption.
But is this “efficiency in back-office processes” objective ambitious enough for Blockchain-enabled platforms? Is this as far as we can get? What is revolutionary about creating efficiencies in back-office processes?
At best it’s a glorified filing system, which solves for “paper-shredding risk” by distributing copies of its files with trusted affiliates rather than accountants … What it doesn’t do to our mind is prevent a company from undermining the tradability of its shares in all the other usual ways.
Such management of ownership on a private Blockchain-based system is a form of legal entity identity management. And identity records and any system to take care of them are useless without identity consumer market (your passport is useless if there is no one who accepts it as a valid identification document). The current market for Linq-enabled legal identity tracking is limited to network members. And functions for which they can be authorised are limited to transferring the stock. At Consult Hyperion, we think that blockchain technology can offer much, much more: robustness, transparency and innovation together to transform the marketplace, not merely make it more efficient!
I think Linq is a good way to start exploring what the technology has to offer but I really hope that Blockchain opportunities will be soon realised in more interesting use cases. With liquidity and scale, integration with other markets and automation through smart contracts, Linq-like Blockchain-enabled platforms will start to reveal more revolutionary benefits.