Blockchain and Alternative Investments

The fundamental value proposition of Blockchain technology is that it promises to remove the middleman from a transaction; by utilizing the power of a decentralized network of nodes which allow every transaction to be confirmed by all users of the network, Blockchain can guarantee security and transparency in every transaction. This can replace the need for middlemen like banks which normally guarantee the trust between two parties engaged in a transaction. The potential for this technology to disrupt existing financial systems is tremendous, and indeed it has already had a large impact on the financial world. Importantly, Blockchain has demonstrated the potential for inducing profound change in the alternative investment world, specifically through the power of tokenization and its ability to increase the liquidity and accessibility of alternative assets. 

A significant hurdle for the continued growth of the alternative investment world is the ease of accessibility for investors to gain exposure to alternative products. LYNK MARKETS has demonstrated an impressive value-add in solving this issue with our unique securitization solutions and Lynk•Port, our alternative investment marketplace. Our securitization solution helps fund managers access previously inaccessible capital from investors all over the world, and it allows investors to leverage the KYC and AML paperwork that they have already filed with their bank or broker to easily access a plethora of diverse investment strategies to bolster their portfolios. At LYNK MARKETS, we are constantly innovating upon our solutions to continue to offer our clients the most cutting-edge fundraising and investment solutions; that’s why we are offering our readers today an insight into how Blockchain might impact our business at LYNK as well as the alternative investment world as in general. 

The primary way Blockchain has and will continue to redefine the alternative investment process is through tokenization. Tokenization is the process of converting physical and digital assets into blockchain-based tokens. This process enables fractional ownership, allowing investors to purchase smaller, more affordable shares of high-value assets, thereby democratizing access to alternative investments. For instance, a real estate property or a rare piece of art can be tokenized, and investors can buy tokens representing a fraction of the asset, making it easier to diversify their portfolios with a variety of asset classes. Tokenization also significantly enhances liquidity, as these tokens can be traded on secondary markets, providing investors with the flexibility to buy and sell their holdings more easily compared to traditional alternative investments, which are often illiquid and difficult to exit. Moreover, by utilizing blockchain technology, tokenization ensures that all transactions are secure, transparent, and efficiently executed, reducing the need for intermediaries and lowering transaction costs. This increased accessibility and liquidity, combined with the inherent security and transparency of blockchain, positions tokenization as a revolutionary force in the alternative investment world, opening new avenues for both investors and fund managers.

Tokenization provides major benefits for security, transparency, and efficiency of transactions within the alternate investment ecosystem. Since tokenization involves the recording of every asset on the Blockchain, and the Blockchain is a fully transparent and immutable public ledger, it is essentially impossible for bad actors to commit fraud without others noticing. Every transaction recorded on the blockchain is encrypted and linked to the previous one, creating a chain of blocks that is virtually tamper-proof. This ensures that transaction records are secure and cannot be altered or deleted, significantly reducing the risk of fraud. Additionally, Blockchain employs smart contracts, which are self-executing contracts with the terms directly written into code. These smart contracts automatically enforce the agreed-upon rules and execute transactions without the need for intermediaries, further enhancing security by minimizing the potential for human error or manipulation. This level of security is particularly crucial in the alternative investment space, where large investments are common, and the integrity of transactions must be guaranteed. In terms of efficiency, Blockchain provides clear value for the alternative investment space by eliminating the need for intermediaries and reducing administrative overhead. Traditional investment processes often involve multiple intermediaries, such as banks, brokers, and clearinghouses, which can slow down transactions and increase costs. Blockchain streamlines these processes by enabling peer-to-peer transactions that are validated and recorded on the decentralized ledger in real time. This can reduce transaction times from days or even weeks to mere minutes, enhancing the overall speed and efficiency of investment activities. Additionally, the automated execution of smart contracts further reduces administrative burdens and lowers transaction costs, making the entire investment process more cost-effective and accessible to a broader range of investors. While these hyper-efficient transactions have not yet become a reality outside of decentralized finance (DeFi), at LYNK MARKETS we’re positioning ourselves to offer tokenization solutions as investors become more comfortable with using Blockchain and demand increases.  

Recently, LYNK MARKETS securitization program issued a series of notes which were tokenized through a regulated exchange. This approach provides investors with the opportunity to access the later-life mortgage market in the UK and related mortgage-backed investment opportunities by purchasing tokens, effectively bridging traditional finance with the digital asset market. The tokenization facilitates enhanced distribution and liquidity and broadens access to high-quality investment opportunities. The tokenized notes are listed on the SDAX Platform (Singapore). This offering initiative demonstrates LYNK MARKETS commitment to maximizing the advantages of blockchain to enhance our products and solutions.

By Alexander Liptak

07/2024