Security Tokens Can Solve the Public Equities Conundrum Exposed by GameStop


By Jamie Finn, Co-Founder and President of Securitize

The GameStop saga resulted in a whirlwind of media coverage and head-scratching, and the upcoming House Financial Services Committee hearing on February 18th will further skin the cat and keep this discussion alive and well for further debate. There is no need for me to rehash a well-documented timeline of the issues that unfolded from hyper volatile trading in GameStop stock.  The most important outcome now is to heed lessons learned and make sure that investors, especially retail, are protected from a similar occurrence going forward and are never again prevented from trading.

Removing the need for a centralized clearinghouse — like the Depositary Trust & Clearing Corporation (DTCC) — which processes nearly $1.7 trillion of securities trades each day — is at the crux of the matter and should be a key part of this discussion among regulators and market structure participants and stakeholders.  Through blockchain-enabled security tokens, we are already creating a marketplace that leverages the unique advantages of decentralized blockchains for private markets and this should and can also represent the future for public markets. In fact, in a recent op-ed, DTCC CEO Michael Bodson made the case for  digitizing the $780 billion worth of physical stock certificates that still remain.

There are many lawmakers and regulators that also agree and more will follow suit as the noise dissipates and the true issues at the heart of the problem emerge.  Take Wyoming Senator Cynthia Lummis, for instance, whose tweet of January 28th certainly caught our attention: “At one point, there were 38% MORE outstanding claims to GameStop stock than stock that actually existed! Good news: we can fix this #blockchain.” Amen to that!   

Many others have weighed in as well and recognize that many of the issues are structural and expose antiquated stock trading systems and plumbing that were put in place decades ago.  Our mission is to bring private markets into the 21st century by digitizing the process across the lifecycle of an investment; and by using blockchain-driven smart contracts to create digital security tokens, we aim to make this almost $3 trillion* marketplace more transparent, efficient, liquid, and accessible, with near-instant clearing and settlement times.

Replacing cumbersome legacy systems will greatly benefit the end-user investor who will enjoy the benefits borne by decreased transaction costs and reduced friction. This is why we continue to execute on our aforementioned goal, which was boosted by the acquisition of an SEC-registered broker-dealer and Alternative Trading System (ATS) and formation of Securitize Markets.

If we can enhance the process and establish new standards and best practices by digitizing private markets, the same is achievable for public securities trading, which is still the primary investment option for retail investors, and an astoundingly 330 times more liquid than private markets.*

If we do not act and modernize our public market structure, the frailties exposed by GME trading will continue, with the US falling further behind other countries that are already working to tokenize public equities. This unfortunate and glacial response mentality currently dragging on the stock market in the US mirrors how we are also falling behind in the race to create Central Bank Digital Currencies (CBDC), where China and other nations are leading the charge.

Fully digitizing public securities to level the playing fields for all investors by eliminating unneeded and entrenched middlemen, should be a key focus right now and is an attainable longer-term goal.  The US has historically innovated with many technological breakthroughs, including spearheading the digitization of many other industries and sectors. Let us change the paradigm and thrust the world’s deepest capital markets ecosystem front and center — for the benefit of and protection of all investors. This will likely be met with staunch pushback from those entrenched parties’ content with the status quo, but we are confident that all the regulators and policymakers involved will meet this challenge head on. After all, the environment is already set up and ready for this digitization process, as are investors who want more control of and autonomy in trading their assets. It is the legacy systems and an antiquated mindset that needs to be re-tuned, rewired and left behind as we build a better future. 

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*According to the World Federation of Exchanges.