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FUTUREW3B, how the Blockchain changes the capital market

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FUTUREW3B, how the Blockchain changes the capital market

Thus the Blockchain changes the capital market

Will the Blockchain and its applications for the creation of secondary markets serve to make financial markets more democratic? The theme was analyzed by a number of experts in a meeting organized by the Think Tank FUTUREW3B. For the promoter, Professor Stefano Armando Ceci of the IULM University of Milan “Blockchain is truly enabling opportunities for the creation of new markets (primary and secondary) of goods and services and producing innovations and modifications in traditional markets. The question of whether or not Blockchain technology represents the tool for democratizing access to capital management is, and remains open and, to date, we cannot tell whether the applications will respond to the original promises, those of Satoshi’s white paper Nakamoto of 2008. It will be very interesting to follow its developments and continue to deepen and Futurew3b will continue the discussion with the main experts and stakeholders in the sector to tell its evolution and propose good practices and appropriate policies in legislative and government offices”.

Second Stephen Rossi of the Blockchain Competence Center of PwC Italia the world moves quickly. “Compared to the years 2014-2016, in which initiatives were born without a clear regulatory perimeter to support them, today in Europe we are in a position to become one of the most advanced and attractive areas for those who want to enable new business streams thanks to Blockchain technology. The Digital Finance Package will be an enabler in this sense”.

“With the blockchain, new secondary markets are born that can bring liquidity and efficiency to the country system. With the research paper “Blockchain & new markets” a very in-depth examination was made, also on a legal and regulatory level, of the various aspects that affect this topic to trace the Italian strategy for the evolution of the web3″ said the Honorable Giulio Centemero.

Focus on legal, technological, economic and financial aspects

Experts have highlighted the multiple aspects that determine the relationship between Blockchain systems and new markets, with an all-round examination. The debate focused, for the first time in Italy, on the question linked to Blockchain technology as a tool for the democratization of access to capital management and the birth of new secondary markets.

The lawyer Annapaola Negri-Clementipartner of the Pavesio and Associates Law Firm with Negri-Clementi explained that “to incorporate the paradigm shift that derives from distributed ledger technology (DLT) it is appropriate that the regulatory activity is accompanied by the phase of experimentation and dialogue between institutions, policy makers, Supervisory Authorities , stakeholders. In this context, it plays a crucial role
financial education (as also indicated in the Capital Decree, also in consideration of the retail recipients of innovative and/or tokenized products) and technological education in relation to the functioning of DLTs and smart contracts, to which the theme is connected, increasingly current, of the digital divide.”

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Focus decreto Fintech

He also added: “The Fintech Decree, the Capital Decree, the Equity Crowdfunding Reform go towards increasing the range of possibilities for companies to access the capital market (as indicated by the MEF’s Green Paper on competitiveness). In fact, the token economy could allow companies to finance themselves with an alternative method even without listing and further to the use of the banking system.

“In the light of the new regulations on crypto-assets and digital securities, new dedicated and specialized markets could arise for the exchange of Security or Utility Tokens, operating in an unlimited temporal and geographical context. DLT could bring greater transparency on the operations carried out in compliance with a security linked to cryptographic solutions. The native digital certification of transactions and the non-repudiation of recorded information could be a factor in the development of these markets, as the participant can “enjoy” the “trust” offered by new technologies. There availability of new technologies it could favor the emergence of new operators released from the legacy of traditional solutions and therefore favor greater competition. However, new technologies could pose a problem of control and governance on the operation, role and responsibility of application or service providers” he underlined.

“The question would then arise as to whether to allocate a safeguard to protect the consumer and the digital ecosystem to the current and traditional subjects (Central Banks, Market Supervisory Authorities), even if the players could have operational characteristics different from the traditional ones. Finally, in the absence of the requirement of interoperability between the new infrastructures, there would be the risk of maintaining a fragmentation of the markets. The scalability of distributed ledger technologies is therefore a derivative of the interoperability between them” he concluded.

The new models overcome the limitation of the centralized system

“Research in the field of digital identities has produced new models that would make it possible to overcome the many limitations of centralized systems such as SPID, based on identity providers, and to enable new applications” said Professor Francesco Bruschi Director of the Blockchain & Distributed Leadger Observatory of the Milan Polytechnic.

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“In these models, the entities issue signed certificates, which are received and kept by the subjects to whom they refer and who are then able to exhibit them if necessary, without the necessary assistance of a third party. This mechanism, in addition to reducing infrastructure costs and avoid privacy problems at the root, produces identities that can be used to connect the decentralized dimension of digital assets on blockchain and tokens with that of needs and protection. These identity protocols are sometimes called “self sovereign”, because they satisfy a series of ideal properties linked to the possibility of the subject/individual/citizen to dispose of them in an autonomous and interoperable way. Far from being just an academic curiosity, the “self sovereign” identity is at the center of community attention in Europe, and the new versions of the regulation on identity (eIDAS) provide for its inclusion and use.” he concluded.

Opportunities, but also risks

For the professor Mark Giorgino, Full Professor of Financial Markets and Institutions and Financial Risk Management at the Politecnico di Milano, “the implementation of the blockchain in the secondary financial market certainly offers many opportunities, but it is important to adequately evaluate and address the associated risks. regulation, IT security, scalability, privacy and operational error handling are all critical aspects to consider to ensure a secure and efficient transition to using blockchain in this context.”

Giorgino believes that: “In this path between the description of DLT and blockchain technologies, operating parameters of secondary financial markets, benefits, risks and applications of these technologies in these contexts, one can think that the potential is enormous and that the markets are destined to transform heavily and quickly and intermediaries to find it difficult to confirm their role. Certainly the evolutionary dynamics are important and sometimes even invasive. This, however, is confronted with an evolution in the role of intermediaries who can only remain central within the life of the secondary financial markets”.

The role of intermediaries does not cease

Furthermore, “although blockchain has the potential to reduce the need for intermediaries, there are several essential functions that can be performed by such actors. The possibility of providing liquidity, ensuring that there is sufficient supply and demand, the guarantee of compliance given the experience of subjects institutionally subject to regulation (e.g. KYC, AML, …), the custody of digital assets, in order to avoid risk of loss or theft, access to the market, especially for investors who may not be familiar with using the blockchain on their own, consultancy or additional services, perhaps through market analysis, investment recommendations and other services to help investors make informed decisions are just examples of how the role of financial intermediaries is destined to evolve for those who will have the ability to do so and will be able to deal with technology proactively . It is the entire financial industry that must evolve because above all in this way evolution can be virtuous and represent an opportunity to improve the efficiency and liquidity profiles of the secondary financial markets” she concluded.

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Watch out for market concentration

According to the professor Mario Agostino Maggionifull professor of Economic Policy at the Catholic University of the Sacred Heart
Heart of Milan “the promise of democratization of many digital technologies inherent in the disintermediation characteristic of these systems does not take into account the dynamics of market concentration which derive from the simultaneous presence of economies of scale on the supply and demand side. An error, which has been made many times and which is repeated many times in the history of technology, is to mistake the condition of the initial phase of the “life cycle” of a product/service, characterized by the almost absence of entry barriers , by the presence of many subjects, by the conditions of very strong competition/contestability, due to a characteristic of that technology“.

Furthermore, “without claiming to be able to formulate and summarize in a few lines a definitive judgment on such a multifaceted and constantly evolving subject, it seems to me useful to conclude these pages with a series of recommendations. The first concerns the need for a systematic collection and provision of data on these experiences in order to be able to empirically verify their advantages and limitations, pros and cons. The second concerns the need for the parallel growth of supervision (suptech) and regulation (regtech) technologies that accompany the development of any techno/financial innovation. The third concerns the urgency of elaborating an internationally comprehensive coordinated policy strategy for the understanding, accompaniment, support and monitoring of these tools and the underlying technologies,” she concluded.

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