This headline in the Australian Financial Review this week needs some explanation.
IMHO the ASX blockchain project is a doomed experiment for two reasons :
1. The ASX are trying the capture the cost and efficiencies of blockchain technology in a private setting. It’s an innovative but ill-advised move that lacks a boldness of vision.
The ASX blockchain project is like asking steam train engineers to pay for the construction of an electric train system. It is already becoming clear to market participants (custodians, share registries, brokers etc), who are being asked to pay for the implementation, that the project will eat their lunch and pass more market power to the already powerful ASX.
2. The future of exchanges is decentralised. Read more here.
Or if it is not decentralised they will at least be crypto native and the roles of the market participant will change. Putting a permissioned blockchain process in the middle of the existing process is like using the tools of a electrical engineer to make a steam train run more efficiently (forgive the train analogies). It’s marginally possible but really, why bother ? Just go with an electric train and junk the existing system.
An example of the way existing exchanges can morph towards this crypto native world is none other than the New York Stock Exchange and their Bakkt crypto product offerings. Although small at this stage the Bakkt offering opens the gate to the new world of cryptoassets of all types. I predict that in under 10 years from now all of the NYSE assets will trade on a platform/environment like Bakkt.
The ASX, IMHO, did not have the courage to fully embrace Bitcoin and crypto assets the way the NYSE has done. Instead they drank the ‘Blockchain not Bitcoin’ cordial from the 2014 period. Read here. What follows now is a period of 2-3 years of costs and people hours as the ASX double down on their approach. In the meantime crypto native exchanges (take a look at Binance who made a USD 1bn profit in under 2 years of operation) will be growing up all around them and eventually they will either drop their blockchain project and buy an Australian crypto exchange (if you can’t beat them join them) or continue on their steadfast way and bring about slow end to their current state of market supremacy.
As for the custodians and share registers? There are opportunities for them to change and catch the crypto wave but I suspect they will not have the agility required to do so…