Blockchain is the answer to flaws in today's securities lending market that motivated several US pensions funds to sue their agent lenders for malpractice, according to Lendingblock founder Steve Swain.
Swain has argued that innovations such as Lendingblock, a cryptocurrency and crypto-asset lending platform, “creates a parallel where those problems can’t arise”.
The blockchain startup is currently looking to raise $10 million with an initial coin offering (ICO) ahead of its projected launch in the third quarter of the year.
Lendingblock's primary target users are securities lending participants interested in trading with crypto assets.
Before launching, Lendingblock will hold a pre-sale in late February, followed by a crowd sale in early March.
Swain added: “We are building the equivalent to securities lending but for crypto assets, rather than moving into the existing securities lending market.”
As part of the US class action lawsuit, the plaintiffs allege the existence of systematic suppression of free market development by the defendants, which include Morgan Stanley, J.P. Morgan, Bank of America, Credit Suisse, and UBS, between 2009 and 2016.
According to the complaint, the defendants formed a cabal in order to maintain high fees for their securities lending services by boycotting start-up lending platforms and threatening clients to do the same.
Blockchain advocates also point to issues with market transparency, price discovery, and accidental over-issue of securities, as key issues in the securities lending market that could be solved by the introduction of blockchain.
Lendingblock is one of several blockchain-powered lending platforms that are looking to disrupt the status quo of the securities lending market.
Patrick Byrne, the outspoken CEO of blockchain trading solution tZero, is also looking to utilise discontent among beneficial owners to undermine the current agent lender-beneficial owner dynamic by offering direct lending to lenders that traditionally relied on custodians.
Byrne also blamed the alleged over-supply of securities for lending by banks for rampant naked short selling prior to the financial crash.
Speaking at the Money20/20 financial technology conference in Las Vegas in October last year, Byrne said: “They [the pension funds] figured out that they have been looted to the tune of about 2 to 3 percent per year ... by that craziness in the system.”
Bryne claimed that Overstock’s blockchain portfolio company tZero will soon conduct a market raid on the war chest of lending revenue of prime brokers by offering pension funds a 80/20 earning split via a blockchain solution.
