the For the financial crisis of 08 were mainly Asset-Backed Securities, or “ABS”. Already at the beginning of 2000 began with American banks, to join the real estate-backed bonds with a high probability of default with that of other bonds, and in opaque packages along tying up. The result is well known. Now, in 2019, to start the first ABS on a Token Basis. It will also come out this Time of the Bursting of a mortgage bubble?
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Just like the few of us out today and buying a CD, but the music in purely digital Form as MP3-file download, or directly in to Spotify to listen, the Medium value paper. From physical documents to digital tokens, ergo Security Token. Accordingly, each of the securities, which is today stored in the Form of a certificate in the case of Central securities depositories will be held in the future on a Blockchain. The more efficient the Medium, a property called verb and replace, replaces a less efficient Medium.
Security Token not only make the difference
Everything you can with current securities represent, can be called via the Security Token. The Medium is no indication of the quality of the underlying asset, so, for example, of the undertaking or of the property. The Security Token can result in the same bubbles and undesirable developments such as the Subprime mortgage bubble in 2008.
The first Asset-Backed Security Token (ABST) – this is the abbreviation we must accustom ourselves in the future – be just released. One such example is the Security Token Offering of the Crowdlitoken AG, the Token is modeled on an ABS – based on token real estate and loan receivables. Many of these small projects are planned in the next few months.
Still in its infancy: Tokenized properties
However, we are here at the very beginning of a wave of tokenized properties. The volume is short – term to medium-term as irrelevant for the market. The danger is that, within the next few years dangerous bubbles by ABST, the systemic risk, is expected to tend towards Zero. Although some projects will fail. However, these are the real estate and securities market completely cold. There is no shortage only to a comprehensive range of tokenized property, but it is complex securitisation structures of ABST missing. A market must arise first, before bubbles can form.
The ICO-bubble by the end of 2017 has taught us, however, how fast can it go. As it is, however, in the case of real estate to the real economy Assets, the risk of a rapid generation of Bubbles is significantly lower than in the case of Utility Token of Blockchain-service platforms.
If the dog is tokenized hut
In the process of transformation in the securities, securitisation needs to be differentiated, whether you are tokenised in new projects or already existing securities in the Token is transferred. Finally, the volume of existing real estate investments in the Token will be much larger than what is generated by new projects in the Token. Critical it could be, if the decline in transaction costs and in the future, lower barriers to entry bundling riskier bonds allows for even easier.
If in the next few years, more and more nonprofessional and semi-professional players in the market of tokenization, can be created by the development so far is not in question: in other words Assets a new junk market. The fact that it is in the future, facilitates extremely, token emit capitalized Assets, reduced the General market level and the risk profile will be turned to the Negative.
at the same time be so supported but also decentralisation trends in the real estate market. It’s a shift from centralized place and then organized actors, such as large real-estate Fund or housing societies such as Vonovia or Deutsche Wohnen, instead of lower small member actors. This has advantages, but also disadvantages.
The publication of a book: market vs. companies
The publication of a book can help us to understand the line of Conflict between decentralization and centrality better, and on the Tokenization. Suppose, therefore, has written a book that you would like to publish. So there are two possibilities: One chooses the path through a publishing house or you opt for the “self-publishing” – that is, independently of publishing of the book.
The way the publisher has the advantage that all of the Work for the publication of a book is necessary, in the ideal case, a professional player. This ensures that supposedly bad books come on the market. At the same time a publication a publisher can provide for a particularly high Reputation of the book.
When self-publishing, there is no such selection mechanism. Anyone can make, no matter how good or bad, his book the market. The decision of what is good or bad, will not leave in the first instance, a Central authority (the publisher), but the market. As a result, many books are published that do not have managed through the centrally-managed organizational structures of a company (publishing house). If an author has enough tools (network, Marketing, etc.), he can not enrich the self-publishing market, by increasing the substantial offer, but also even a bigger piece of the pie.
Both versions (market or business) in direct competition with each other. On the meta-level, but it is especially a conflict: Central vs. distributed. Blockchain and Tokenization can participate to a proficiency of individual actors independently in the decentralized market, without the detour via a Central entity.
What value paper-brochures and leaflets of drugs have in common to reduce
To complexity and to avoid Chaos, in the last decades, especially companies which are by their Central coordination of decentralized structures in many cases, superior. Exactly this Form of centralization has also been set up in the financial market, in the big investment houses the information in a centralized hierarchical process.
The Problem with this Central organization of information, that failure can cause decisions to greater damage and, secondly, that a particularly large asymmetry of information. In practice, this means that a few leaders in an investment Bank decisions that can have for many of the stakeholders have serious consequences.
to minimize this risk and the market risks, there is since many decades the prospectus obligations. Who gives a value of paper and also a ABS out, you must give out a prospectus with ausdifferen with suitable risk profile.
Also gave the toxic securities that led to the collapse of Lehman Brothers, it is publicly available brochures.
the crux of The matter: A prospectus is a bit like the package insert for drugs – only longer and more complex. Side effects or better said failure risks in high-risk bonds you sketched incomprehensible, in lengthy treatises. Nevertheless, the Problem remains that the quality/credit or impact/return of the drug or the bond remains uncertain. What happens after the issuance of the security depends solely on the distribution of information and processing. Prospectuses are the official Conscience well – “It was noted”. Systemic risks and financial you are not able to reduce bubbles. Since Security tokens fall under the Prospectus requirement, such as traditional securities, will change in this point, nothing.
Decentralized information distribution instead of the prospectus
not answered The question of whether the Blockchain technology can reduce the risk of financial bubbles, is in order. The key to success could lie in the decentralised distribution of information. So it is not the Token that will bring a change in the environment, but the Blockchain as a decentralized infrastructure. The Blockchain technology is designed as an infrastructure for the market, not companies. In contrast to business markets are organized on a decentralised basis. The information flow in Peer-to-Peer of the participants, and not, as in the case of a company by a hierarchically-organized bottle’s neck.
Under the collective term Decentralized Finance, short DeFi, not only Bitcoin transactions and Tokenization, but also Blockchain-Governance-concepts such as the Decentralized Autonomous Organisation, abbreviated DAO. DeFi changed the information dynamics in a market or Ecosystem. Monitoring and control functions are allocated on a decentralised basis to all participants, and not of a single Department in a company.
In a well-functioning market, it does not need any Central instance. By eliminating the Central instances of dynamic markets and flexible work. Now this is a totally theoretical assumption that could not prevail in practice. In the competitive relationship between the market (decentralized) and corporate (Central) not for nothing often company through a more practical coordination and provision of Goods and services against the market. This could change as a result of better tools (Blockchain protocols).
that’s Why financial bubbles can be contained by Blockchain
the better the information and the transaction technology, the more feasible the distributed execution of global transactions. It took so far for the values and property exchange, Central organized companies, ergo banks and CSDs, the Blockchain technology can provide for a Re-decentralization of the financial market. If the technology is workable and user friendly, it can lead to the aforementioned higher dynamics and flexibility, in particular in the flow of information. Ergo, the risk monitoring and real-time analysis can be done by many market participants and lead to better results than in the Central collection points by the company.
The Blockchain is reduced here as a decentralised infrastructure, the so-called Single Point of Failure. The misallocation of resources and developments can be identified – at least in theory – faster and mitigated before a more serious financial bubbles. The new market transparency can counteract – if the Chaos of decentralized structure is better resolved corruptions of the financial market before.
change through Decentralized Finance
The established financial markets and player structures will not change from today to tomorrow due to the Blockchain technology. Rather, it is about Creating tools and infrastructure, tokenization, and Blockchain – to be able to the financial market in the long term, re-align. A private DLT solution from the house of J. P. Morgan hardly counts. Also you just changed in the company, the degree of decentralization, but not in the market.
The realignment through Blockchain protocols promotes decentralized transactions between participants. The more capable the market and all market participants to make transactions, the less need for centralized are organized in line with the company, the thwart, in turn, information dynamics. This Re-decentralization can lead to a recovery of the financial market Ecosystem, what is financial bubbles, in turn, is less likely to be. The difference is that neither the Token nor the regulation, but a truly decentralized transaction structure, which allows a better distribution and coordination of information.
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