Catapulting Capital Markets into the 21st Century
By Mels Dees

Oct 01, 2021

How Dusk Network’s privacy-preserving public blockchain protocol aims to solve this trillion-dollar market’s frictions and inefficiencies

It’s all about the..

Many of the institutions responsible for capital markets today have built their business models around solving market inefficiencies. At first, their activities added a lot of value to the world of finance, but since then they’ve become a disincentive to innovate. Think administrative costs, corporate actions, listing products, and maintenance. Dusk Network aims to revolutionize how all of this is done by using tokens to streamline the issuance, trading, and management of financial instruments. Pushing forward to eliminate the markets’ inefficiencies, and the middlemen gatekeeping their solutions. Essentially to optimize and cut costs.

💡Most companies in the world aren't tradable on exchanges, meaning that for the average joe it's very difficult to invest in them. This is unfair as especially rapidly developing companies can make for very interesting investments.

The cost of tapping into liquidity

Capital markets are expensive and involve various types of costs, for companies and shareholders alike. For instance, a venture capitalist that is looking to purchase shares of a company that isn’t publicly tradable faces steep brokerage costs to identify a party that is selling. On the flipside, listed companies that have IPO’d spend a lot of money on corporate actions, such as shareholder voting.

Of course, brokers benefit from doing their part in the value chain, e.g. matching buyers to sellers, and vice versa. Why on earth would they want a system that allows shareholders, and prospective buyers, to be able to find each other through private messaging, and close deals, on-chain? They’re going to be left out!

So, when looking at our current financial infrastructure from a high-level perspective, it's easy to point out that a lot of costs (both in terms of time value and monetary value) stem from illiquidity and a fragmented privatized infrastructure.

💡 You could find a detailed example about existing broker costs in the private equity market in Blockdata’s spotlight about Dusk Network, How open-source blockchain technology could transform capital markets.

(1) Open Source and Public Blockchain Protocol

Spoiler alert: to catapult capital markets into the 21st century we would need precisely two ingredients, the first one being an open-source and public infrastructure, as opposed to the closed-off private networks that exist today. On an open network, it becomes much easier to connect buyers and sellers, as all relevant information would be widely available. If you are interested in buying a share from company A, all you need to do is check their whitelist*, and communicate accordingly. Brokers are no longer required to make a deal.

*A whitelist is a list of anyone who is eligible to own and trade a company’s stock.

Instead of many capital market silos, a public blockchain would also ship the benefits that costs of corporate actions would be a fraction of the cost today. Company A could easily issue additional shares on the platform or hold a shareholder voting. The whitelist is always up-to-date and communication lines are clear and present.

Then why isn’t the private infrastructure already replaced by a public blockchain if it seems that easy? In comes regulation. The capital market is a highly regulated market and demands certain levels of privacy. It would be an undesirable outcome if all shareholders of company A would be known publicly. And if you are signaling your willingness to buy more shares, the market would pick this up and could react to it. To be able to benefit from public networks we need a second ingredient that protects people’s privacy and avoids market manipulation.

(2) Innovative Privacy-Preserving Technology

Here at Dusk Network, we specialize in the implementation of Zero-Knowledge Proofs (or ZKP in short) to bring forth the much-needed privacy to the open-source public blockchain. Thanks to ZKP, buyers and sellers are able to engage with each other: They can communicate, close a deal, and trade, without leaking sensitive on-chain information such as their wallet balance in the process. It is this piece of technology that enables them to preserve the confidential information pertaining to their identity, balance, and trading history, while at the same time benefiting from all the good stuff that comes from an open market infrastructure. Companies, on the other hand, have real-time access to their shareholder registry, and could easily communicate with all of them.

To summarize, thanks to ZKP, companies can manage their corporate actions in real-time, while investors see their identity and trading strategies protected.

💡 New to the topic of zero knowledge? We have collected introductory information in our ZKProofs series: A Hackernoon Compendium.

A Privacy-Preserving Public Blockchain Protocol

Dusk Network is a layer-1 blockchain that is built to provide a highly scalable and open alternative to the capital markets that exist today. Dusk Network comes with all of the benefits of an open-source public blockchain protocol and caters to the requirements of the trillion-dollar capital markets.

With Dusk Network, the cost of transactions can drop to near zero as settlement time is reduced from 2 days to approximately 15 seconds. In addition, counterparty risk would become practically non-existent as every settlement takes place directly on the platform, and buyers and sellers severely reduce their time spent on finding the right partner. Our pilots have found that the cost of executing standard corporate actions can be reduced by more than 90%. Also, ETFs that are held by thousands of eligible voters could organize a voting round for tens of dollars, instead of tens of thousands.

For us, the result would be a fairer market with improved liquidity and less inequality. High time to catapult the capital market into the 21st century.

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