Category: Private Markets

Do Stablecoins Bring Stability to Digital Assets?

Thursday March 14, 2024

Risk in the financial markets, whether the underlying assets are cryptocurrencies, tokens, digital securities, or traditional instruments, continues to be an ever-present challenge. Risk is related to stability. Most investors prefer stability to provide a reliable store of value. Let us see what that means and the ways in which stability can be achieved.

Understanding Volatility and Stability in Financial Markets

Stability is the absence of fluctuation in the price, value, or some other metric. Metrics that measure risk in terms of volatility compared to the general market or adjustment for various types of risk include standard deviation, beta, Sharpe ratio, Treynor ratio, etc. While all these have mathematical roots and technical nuances, the retail investors just see the sharp rise and fall in the prices of digital assets (or in their values, if the digital assets have fundamental metrics). Bitcoin, for example, plummeted from $61,283.80 on March 12, 2021, to $31,576.20 on July 16, 2021 (a four-month span), from $64,400 on Nov 12, 2021, to $16452.20 on Nov 25, 2022 (in a span of one year). As of this writing (March 14, 2024), its price is around $73308. This is the type of volatility that can wreak emotional havoc for investors.

Stability in tradable digital assets is important for investors’ peace of mind in order to avoid panics, market manipulations, and periods of reduced liquidity. For those digital assets that represent securities that have a value (and not just a price), stability is important to assure investors that the digital assets (or tokens) represent consistent value.

The Rise of Stablecoins

Stablecoins were an innovation in response to the wild price fluctuations seen in early cryptocurrencies such as Bitcoin and Ethereum. Tether (USDT), launched in 2014, was one of the first stablecoins. It maintained a 1:1 peg to the US dollar, which provided investors a reliable alternative to volatile price movement in cryptocurrencies. Since then, various stablecoins—such as USDC, DAI, and BUSD—have been launched. Each of these have different pegging mechanisms, ranging from the US dollar to a basket of currencies and commodities, and to algorithmic rebalancing to maintain the peg ratio.

While stablecoins seem to be innovation, they have borrowed the idea form traditional financial tools used to stabilize currencies and assets. For example, some central banks peg their national fiat currencies to a basket of other (hopefully stabler) currencies, or to a basket of commodities, or some such combination. Stablecoins ideally maintain reserves of the underlying base to ensure stability, somewhat like the fractional reserve banking, where banks hold reserves to cover deposits.

Stablecoins and Beyond: Exploring Applications

The principle of stablecoins can be applied to financial instruments beyond cryptocurrencies. One example is tokenized real-estate to represent fractional ownership of real-estate which, over a large and diversified portfolio of real-estate in multiple (ideally, uncorrelated) markets, is relatively stable over an extended period of time. Stability, of course, does not imply stagnation and does not preclude an appreciation in the value of the assets. The concept of stablecoins can be applied to supply chain finance as well. This helps with consistent and reliable cross-border payments and reduced currency exchange risk in global trade. The implementation of the principle of stablecoins in these and other use cases is specific to each use case and requires careful economic engineering. These mechanisms could include the techniques that are currently extant in stablecoins for cryptocurrencies, such as algorithms to maintain stability, collateralization, or pegging to a stable base.

Foundations for Stablecoin Functionality

Stablecoins, or other tokens designed to maintain stability, can only be successful when there is credible transparency, unrestricted liquidity, and regulatory compliance. These are the three legs of the stability stool.

Credible transparency includes full disclosure of the algorithm, the collateral, or the peg (of the stable base), as applicable. Moreover, there should be independent and third-party audits of the correctness of the technical implementation of the algorithm, the reserves, or the composition of the collateral (as, for example, the proportion of the components of the pegged basket).

Unrestricted liquidity implies that there are no artificial incentives to throttle liquidity of transactions. Examples of throttling include proof of work consensus, which is highly dependent on energy prices, and fluctuation in gas fees, which can ramp up significantly in times of low volume. Each of these throttling examples are perhaps unintended consequences of the economic incentives of operating the blockchain. Consider, by way of a contrary example, how public stock market trading is reasonably stable in transaction pricing and is independent of energy prices and volume. A similar independence in liquidity would support the argument for stability.

Regulatory compliance is the final leg of the stability tool. Stability is dependent on perception of risk. Risk, in turn, is lessened when the underlying assets and transaction involving those assets are conducted in a manner that is fully compliant with regulation. There is enough uncertainty and perception of risk from macro-economic factors; what the retail public does not need is additional unnecessary risk from non-economic factors such as non-compliance, fraud, and unverified parties to the transactions.

Final insights

Stablecoins are an important tool in the quest for stability. Their adoption will continue to grow with the maturity of the participants. The scandals and scams so far, and their continuation for some time, will weed out the gullible, the incautious, and the imprudent speculators. What remains is the ecosystem of informed investors. They will seek better transparency of risk, assurance of liquidity, and adherence to regulatory compliance. Even if every financial instrument or use case does not have an explicit stablecoin associate with it, the principle of stablecoins (namely, the quest for stability) may be incorporated into the tokens or digital securities. In this way, stablecoins or their principles forge a bridge between the volatile past and a more stable future for digital securities.

Blockchain and private capital markets

Thursday January 18, 2024

The private capital markets have long been complex and challenging to navigate.

However, the emergence of blockchain technology offers a potential solution to these issues.

In this blog post, we will explore key aspects of blockchain and private capital markets. Including a closer look at aspects such as transparency, democratization, and liquidity.

Blockchain technology has a lot of particularities, including the creation of an immutable and transparent record of all transactions, which enhances security, and reduces the risk of fraud.

In this guide, you’ll get a practical overview of the area and learn about different particularities involved in the processes.

The private capital markets in many ways are very similar to the public markets when you see all the participants involved.

Below is the list of all the participants for the public and private capital markets.

Regulators RIA
Lawyers IRA
Auditors Bank/Escrow
Broker-Dealers Payment Rails
Issuers Media
Investors Marketing
Shareholders Intermediaries

The private capital markets have typically been unclear, ineffective, and challenging for both investors and issuers to navigate. However, the emergence of blockchain technology offers a potential solution to these challenges.

 

 

Keep reading and learn more.

Building Trust and Security

Firstly, blockchain can provide increased transparency and security in the private capital markets.

By leveraging distributed ledger technology, blockchain can create an immutable and transparent record of all transactions in the market.

This means that investors and issuers can track ownership and transaction history, reducing the risk of fraud and enhancing the overall security of the market.

Improved transactions with Blockchain

Secondly, blockchain can improve the efficiency of transactions. Currently, private market transactions are often cumbersome and time-consuming, with significant delays between operations.

By using blockchain, investors and issuers can streamline the process by automating settlement and clearing processes.

This can significantly reduce the time and cost associated with this type of operation.

Empowering investors

Thirdly, blockchain can democratize access to private capital markets. Traditionally, only accredited investors were able to participate in private market investments due to regulatory requirements.

However, blockchain-based platforms can facilitate fractional ownership of private assets, allowing smaller investors to participate in these markets.

This can create a more inclusive and diverse investor base, potentially driving innovation and growth.

From Stuck to Sold: Blockchain Unlocks Liquidity in Private Markets

Lastly, blockchain can enhance the liquidity of private capital markets. Currently, private market investments are often illiquid and difficult to sell.

However, blockchain-based platforms can provide secondary trading markets for these assets, allowing investors to buy and sell private market investments more easily.

This can create a more liquid market and potentially attract more investors.

Blockchain’s Future in Private Capital

In conclusion, blockchain technology has the potential to revolutionize the private capital markets by providing increased transparency, efficiency, democratization, and liquidity. As the technology continues to evolve, we can expect to see more blockchain-based solutions emerge in this space, creating a more accessible and efficient ecosystem.

We cannot overlook the obvious which is that blockchain technology can transform the private markets. However, compliance acts as the key that unlocks the door to blockchain’s potential. For this to happen it must be 100% compliant otherwise there can be no use for it in the private capital markets.

How technology is transforming online capital formation?

Friday January 12, 2024

Technology in capital formation and its synonyms are topics that are receiving a lot of attention in these days. Not only because the technical advances and features transformed (and still transforming) the ways companies get capital to fund their business. Let’s talk more about it.

TABLE OF CONTENTS

What is the role of technology in capital formation?

It is no trade secret that technology has played a pivotal role in transforming everything – from business operations to consumer behavior. And capital formation is no exception to this rule. Capital formation is the net capital accumulation for an entity over an accounting period.

When you think of how technology supports the discovery or improvement of products and services or the process of creating the same, it becomes evident that it has close linkages with capital formation too. The correlation is that technology offers capital formation a boost.

On the other hand, economic progress also creates favorable conditions for the growth and consolidation of technology. As such, they form a win-win relationship that promotes overall development.

Technology’s impact on capital formation

Taking this into consideration, let’s delve into how technology is revolutionizing the process of raising capital online.

In the next topics, we will explore a practical framework regarding the different details that involve this subject.

On that note, here is a look at how technology is transforming online capital formation.

Artificial Intelligence

Artificial Intelligence, or AI, is a major catalyst in transforming online capital formation.  For starters, AI-powered engines can crunch high volumes of data to perform a 360-degree analysis of potential investment opportunities and personalize the results based on the investor’s goals.  Such AI-based data analysts can work with structured and unstructured data or identify patterns that human analysts could miss out on!

Similarly, AI frameworks can predict the estimated cost of capital and the corresponding revenue with nearly 100% accuracy. These predictions remain reliable as every variable is accounted for.

Automation

Just like AI, automation is disrupting online capital formation in more ways than one. In manufacturing, automation is the secret ingredient that injects efficiency into processes and increases production value.

For investors, it is the medium for seamless onboarding and document management. Pair it with deductive technology like AI/ML, and you will have a self-sustaining, automated platform to track and manage capital in real-time.

There’s just so much potential here.  By adopting automation the entire sector can operate with the assurance it is compliant with securities regulators and transparent with the entire ecosystem supporting online capital formation.

Digital securities

Digital securities or security tokens are blockchain-based financial instruments. They are the digitized form of traditional securities like stocks or bonds and are issued and traded on blockchain networks.

Despite such similarities, digital securities possess greater advantages than their traditional counterparts. They are far more transparent, efficient, and secure. At the same time, they also offer greater liquidity as they can be traded 24/7/365 on the global markets with great ease.

Digital Securities is important to have vibrant private capital markets.  Digital Securities allow the opportunity to instantly settle and validate where this process would take weeks and months.  

Digital Securities do need to be 100% compliant with the securities regulators if not then there is no value in placing any of the securities on a blockchain technology with the expectation that the investor will be able to transact.

Online Capital Formation Platforms

Online capital formation platforms are offering entrepreneurs the opportunity to connect with the global investor base. As such, it comes as no surprise that crowdfunding platforms have become insanely popular of late, especially since the entrepreneurial drive is currently at its peak.

 

In addition to granting entrepreneurs access to a larger pool of potential investors, crowdfunding platforms are also emerging as the medium for entrepreneurs to connect with experts. Thus, it is gradually eliminating any barriers for an excellent idea to gain wings.

Digital identity verification

Online capital formation hinges on digital identity verification to ensure that only credible investors gain access to the capital market. At the same time, it also helps establish the accreditation of investment opportunities.

As such, it can make use of specific identity markers to securely and reliably verify details.  There are millions of potential investors and if they do not have a passport that is fully compliant and verified by a regulated stakeholder, the friction these investors face will be the major barrier for online investing.

In conclusion

Within the sphere of online capital formation, technology stands as the essential backbone, seamlessly integrating transparency, security, efficiency, and accessibility.

Looking ahead, technology is poised to revolutionize online capital markets, democratizing access and reshaping the financial landscape. The synergy between innovation and online capital formation promises an interesting future. Where technology continues to empower investors, foster growth, and redefine financial possibilities.

 

What are the private capital markets in business

Wednesday January 10, 2024

Beyond the familiar world of financial headlines, a vast network of private companies fuels global growth. In this context, many people are researching the subject to understand What are the private capital markets in business.

Firstly, the private capital markets, operates under different rules and holds potential for investors and businesses alike. In today’s post, we’ll explore practical aspects regarding the inner workings of this hidden ecosystem, its challenges, and its future.

What are private capital markets in business

If you’re looking about What are private capital markets in business, there’s a simple way to explain it. Basically,  the private capital markets are a field of the financial system where investors provide funding to privately held companies, i.e. those not listed on public stock exchanges.

These companies can vary from start-ups to more established companies seeking to expand or restructure.

With its particularities and own regulations, the private capital markets are and dynamic ecosystem that plays an important role in the world economy. In the next section, we’ll talk more about this, contextualizing with public markets.

Public vs private markets

The financial world is broadly divided into two segments. Both segments contribute approximately 50% of the world’s GDP. That’s where the similarities end. These two segments are the public and private financial markets, and they are vastly different.

The public markets generate 95% of the noise and the news. They are generally very efficient, fluid, and well-served by technology. These are the financial institutions and companies that we read about and see daily on TV.  As of May, 2022, there are approximately 58,500 publicly listed companies on the planet. In all, these companies have a market capitalization of about $90 trillion. 

Public companies have been increasingly going private for over a decade, fueled by the costs of keeping a public profile and the requirements of Dodd-Frank and Basel III. A larger proportion of public capital is in the form of debt, with many companies implementing aggressive share buyback programs. This has also decreased the secondary market liquidity, while the illusion of liquidity is maintained by the approximately 70% of trades generated by algorithmic trading. The retail investor is increasingly underserverd in the public markets.

Compare all this with the approximately 285 million private companies, of which private equity invests barely $9 trillion. However, the trend is rapidly changing. Since 2009, more capital raising has been done by private companies than by public companies, sometimes by a factor of 2.

Insights on private capital markets

What is especially interesting about the rise of private markets is that the trend is changing despite the private markets not having any unifying central authority or even a regulatory consortium. Private markets are significantly underserved by technology. For many participants in the private markets, technology means moving from a physical Rolodex to an electronic one (mostly, a spreadsheet).

Traditional banks have evolved into institutions that make it easy to collect retail savings and funnel them into institutional investment firms or lending back to retail or SME customers. There has been no infrastructure for retail private investments or private capital raising over the last couple of hundred years. For this reason, the private markets remain fractured and fragmented. The participants include broker-dealers, CPAs, law firms, funding platforms, auditors, transfer agents, and various auxiliary service providers (such as for KYC screening, custody, escrow, payment processing, etc.). All of these participants exist to connect private companies seeking to raise capital with private retail investors.

Attitudinally, private market participants want to remain private. They want to retain their individual branding and serve their communities and niche markets. However, they see the potential for tapping into the wider retail market, even internationally. The challenge remains how to do it efficiently.

On the public side of the market, it is easy to conduct trades after the accounts have been set up with brokerages. Anyone with a smartphone can place a trade for a publicly listed company and get a trade confirmation within seconds (assuming high liquidity and that the markets are open). A similar trade with private shares takes several weeks.

Final thoughts

From all this, we can see that the private markets are on the rise and, with supportive forward-thinking legislation such as the JOBS Act, opening up participation by the retail investors in a much more direct way. Private markets are not only here to stay but increasingly becoming more democratized.

 

What is missing is an efficient infrastructure of trust. That is a topic for another blog.

Tokenization: Navigating the Friction between Reg A+, Web 3.0, and Today’s Transacting Landscape

Wednesday July 5, 2023

Web3 technology, which is based on blockchain and decentralized systems, introduces unique challenges when it comes to complying with regulatory frameworks like Regulation A+ (Reg A+). 

Reg A+ is a regulation that allows companies to raise up to $75 million* from the public through a streamlined process, similar to an initial public offering (IPO), but with certain exemptions.

One of the key requirements of Reg A+ is the need for an SEC-Registered Transfer Agent—a designated entity responsible for maintaining a book of records that tracks ownership and transfers of securities. The Transfer Agent ensures compliance with regulations, such as recording share ownership changes, processing transactions, and maintaining accurate official records.

However, Web3 was not designed with this requirement in mind.  The concept of a centralized Transfer Agent is difficult to reconcile with the decentralized nature of blockchain technology. Here are a few reasons why Web3 poses challenges for Reg A+ compliance:

  1. Custody and Ownership: In Web3, users typically control their assets and interact directly with decentralized applications using their digital wallets, and transactions need not go through a central intermediary to be validly recorded in the blockchain. This introduces complexities in determining ownership and custody of securities. The traditional role of a Transfer Agent, which maintains custody and records ownership in a centralized manner, is not easily replicated in a decentralized environment.
  2. Decentralized:  The main thesis of Web3 is that it operates 100% decentralized, in its operations and data management.  This is in complete conflict with how the regulations like RegA+ have been written by the securities regulators.
  3. Anonymity and Compliance: Web3 technologies often emphasize user privacy and pseudonymity, which can make it challenging to meet the regulatory requirements for identifying and verifying investors participating in a Reg A+ offering. Ensuring compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations becomes more complex in a decentralized and anonymous environment.
  4. Regulatory Oversight: Reg A+ requires regulatory oversight and reporting to ensure compliance. In a Web3 environment, where transactions occur directly between users without intermediaries, it becomes more difficult for regulatory bodies to monitor and enforce compliance effectively.

While Web3 technology faces challenges in directly implementing a Transfer Agent-like function for Reg A+ compliance, it’s worth noting that the technology is still evolving. It is just not here today, and bringing together governmental regulatory oversight and web3.0 looks to be a ways off.

Efforts are underway to address some of these challenges through the development of decentralized identity solutions, regulatory frameworks for digital assets, and the exploration of hybrid approaches that realize the benefits of Web3 while meeting compliance requirements.

Ultimately, striking a balance between the decentralized nature of Web3 and regulatory compliance will require further innovation, collaboration, and regulatory adaptations to accommodate the unique characteristics of blockchain-based systems. 

So for today if you wish to transact and tokenize your digital assets, and most importantly transact utilizing RegA+ you can; just not yet with web 3.0,  and digital wallets in a decentralized blockchain.  

KoreChain is the solution for today and ever-evolving for tomorrow.

 

The Demise of the Public Chains for Securities

Tuesday January 10, 2023

The Australian Stock Exchange (ASX) made a big splash recently announcing the cancellation of their blockchain project after spending—and writing off—$165 million. While this sounds disastrous for blockchain technology, it is actually a cautionary tale since the blockchain project of ASX is based on Ethereum.

We have been saying this for over three years: public blockchains for securities and derivatives is a bad idea. In fact, Vitalik Buterin, one of the principal developers of Ethereum, himself noted back on May 19, 2016 that “…the weaker argument, that for high-value assets the economic security margin of public blockchains is too low, is entirely correct and depending on the use case is a completely valid reason for financial institutions to explore private and consortium chains.”  He was alluding to various versions of the settlement finality problem that he describes in that blog. From the subsequent failures of the ICO and the STO initiatives, it appears that very few of those developers read Vitalik’s article or understood it.

In ASX’s case, it appears that their blockchain is based on VMWare’s DLT, which is itself built on Ethereum and apparently addresses the limitations of Ethereum. The VMWare blockchain team had to go through (and probably continue to go through) considerable engineering to extend Ethereum’s functionality to make it useful for enterprise chains. Enhancements include a privacy SDK, governance, and scalability. The amount of work necessary to make Ethereum play nicely with securities is a bit like trying to convert a Ferrari into a cruise ship. It can be done, but why not start with a decent boat instead?

There are two main reasons why public blockchains are not best suited for financial securities. The first reason stems from a massive confusion about the nature of non-payment financial instruments, such as securities, derivatives, and asset-backed digital securities (such as NFTs). These financial instruments (the securities) are not bearer instruments. Transactions involving them are subject to corporate law and securities law. While some of these laws may seem onerous, they are there for good reasons that evolved with several hundred years of experience. Mainly, these laws ensure that transactions are subject to the judicial doctrine of contract law. Entities (companies or individuals) who act as intermediaries in these transactions provide valuable services, chiefly that of assuming counterparty risk. For this reason, the participants in transactions involving non-bearer instruments are either the principals or intermediaries who have fiduciary responsibilities. To put it simply, an ostrich farmer in Kenya has no business validating a securities transaction between a seller in Kansas City, KS, and a buyer in Los Angeles, CA.

This is, or should be, a powerful deterrent for using unverified participants (as in a public blockchain) to validate securities-based transactions.

The second reason why public blockchains are unsuited for such financial transactions is due to technical limitations of public blockchains. Scalability, recourse, recovery, privacy, and safety become paramount. Can a public blockchain provide all that? Yes, but at what cost, when there are permissioned blockchains available for such a use case?

To put it another way, the first reason says,”Don’t let a drunk drive a Ferrari.” The second reason says, “Don’t try to modify a Ferrari into a cruise ship when there is a cruise ship readily available to use.”

At KoreChain, we come from a multi-decade background in the financial industry, as executives, entrepreneurs, and traders ourselves. We are painfully aware of the issues in the existing legacy technologies. We also realize that regulation can be onerous even when well-intentioned. Our concern was not to waste time re-engineering Ethereum or any other public chain for that matter, but instead to focus on solving the business problem. Addressing the friction in the private capital markets was more important than going on a technology goose chase and attempting to shoe-horn a public blockchain for a very different purpose.

For this reason, we built the KoreChain on a solid base of an enterprise-ready, industrial-strength permissioned blockchain. We focused on the business architecture and design of the blockchain application.

None of this is a polemic against Ethereum itself, which is an ambitious technology that brought awareness to the power of smart contracts. It’s just not the right tool for this particular job.

Chaos in the Private Markets

Thursday January 5, 2023

Innovation typically follows a standard evolutionary path: it starts with excitement, goes on to fever-pitch inflated expectations, then drops down into the trough of disillusionment; if anything is left standing, it goes on to plateau out into competitive jockeying, innovation by pivoting, and then into the boring plateau of productivity and commoditization. Gartner, the technology research and advisory firm, formalized this as the Gartner Hype Cycle.

The crypto markets went through the excitement during the 2009-2017 period, culminating in some feverish inflated expectations (everything on the blockchain) in the next few years. 2022 may be remembered as the trough of disillusionment with the collapse of FTX, the most notorious of all crypto scams.

FTX, the world’s largest cryptocurrency exchange, went from $32B to a freezing 32° F, ushering in a crypto winter. What is worse, if that is possible, are the people—many who should know better—who compared SBF to J. P. Morgan and Warren Buffet. Clearly, the concept of making money by first creating value is an alien concept to these people.

Other high-profile scams, scandals, and “bugs” include Celsius ($4.7B), $2B in various bugs (Nomad, Wormhole, and so on), Day of Defeat, Orfano (which tricked the BBC into covering it not once but twice!), and Quadriga (where the founder apparently died in India).

Buried under the noise of the cryptocurrency chaos is the more serious situation of conflating crypto with digital assets and believing cryptocurrency (and related smart contracts) to be the only financial instrument. Assuming that a small percentage of the ICO scams of 2016-2018 era were motivated by genuine business models, they contributed to the chaos by completely misunderstanding what constitutes a securities instrument and the role of the regulators. 

Compounding the problem was the confusion over smart contracts which were supposed to power these financial instruments. Smart contracts are neither smart nor legal contracts; they are closer to simple stored procedures in traditional databases.

How to come out of this turbulence and chaos into clear and sunny skies? While the efforts to catch the crooks will continue for some time, the immediate fallout is the suspicion of the technology that powers the crypto world. There is confusion around risk, recovery, settlement, and finality of transactions. These problems are not new to blockchain; they were faced by merchants and financial institutions for about half a millennium. Many of the regulations and financial processes today are the result of considerable experimentation on how to protect all the parties involved in financial transactions. The fact that these regulations and processes are onerous and cause friction is no reason to throw them away and move to entirely untested, technology-based solutions. The cure is worse than the disease.

The process of recovery from the chaos starts with a clear understanding of the technology of blockchain, its legitimate use cases, the various types of financial instruments, and methods for managing risk.

That’s a subject for another blog.

What are the Private Capital Markets?

Thursday December 15, 2022

What are the Private Capital Markets?

The private capital market is a vast market of investment opportunities and deals that often goes unnoticed compared to their much more visible public counterparts. While the private markets may not be as apparent to most, they offer an incredible array of opportunities for those willing and able to do the due diligence and research required to take advantage of them.

 

Growth in Private Capital Markets

The private capital markets, while seemingly more exclusive and less accessible than the public markets, are, in fact, a much larger market than their public counterparts. Private companies far outnumber publicly listed companies, with approximately 450 million private companies compared to only 100,000 publicly listed companies across the globe. This discrepancy results from fewer regulations and reporting requirements that come with private companies compared to public markets, meaning that many investors are willing to take on greater risk to gain greater returns.

In 2021, private US companies raised an estimated $3.9 trillion through private capital markets while only raising $1.2 trillion through publicly traded markets in the US. This clearly indicates the impressive potential within the private capital markets. Not to mention, the size of these markets is expected to double by 2027.

 

Who are the Participants in Private Capital Markets?

The private capital markets involve many participants and stakeholders with unique roles to play. With various regulations, laws, and rules that apply to the other participants, knowing who they are and their roles are essential when engaging in private capital markets. These include:

Broker-Dealers: Broker-dealers act as intermediaries between buyers and sellers of securities, typically on behalf of investors. They generally are licensed, regulated, and subject to oversight by governing bodies such as the Securities Exchange Commission (SEC) and FINRA.

Registered Funding Platforms: These platforms provide access to private capital markets for issuers and investors. Typically a platform registered with the SEC or other financial regulators, these platforms allow for securities transactions in the private capital markets.

Lawyers: Lawyers provide legal advice and expertise to the participants involved in the private capital markets, helping to ensure that all parties understand their rights and obligations regarding these markets.

Auditors: These are third-party accountants responsible for verifying companies’ financial statements in the private capital markets. As such, auditors provide an essential service when it comes to confidently engaging in these markets.

Transfer Agents: These companies act as intermediaries between buyers and sellers of securities while ensuring that the transfer of assets is done correctly and according to all applicable regulations.

Banks: Banks are licensed financial institutions that can hold companies’ funds while raising capital with broker-dealers or registered funding platforms.

Investors and Shareholders: These individuals or entities provide the funds for private investments in exchange for a share of the company, either through an equity stake or a debt instrument.

As the private capital markets continue to grow in importance and prominence, it is essential for those looking to participate in these markets to understand their roles, regulations, and best practices. By doing so, the market is compliant, secure, and prosperous. With increasingly accessible technology making significant advancements in allowing investors access to this market, the private capital markets are sure to only become more popular and accessible in the near future.

See the numbers?
We are going to own
this market.

Private Companies

$4.5 trillion

Public Companies

$2.1 trillion

You’re probably wondering: how we are going to do it?

  • KoreChain's Revolution: Reshape the $4.5 trillion fundraising industry with our private, permissioned Hyperledger Fabric blockchain.
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