Wall Street, Meet Block 368396, the Future of Finance

 

by Matthew Leising - August 4, 2015 — 5:22 PM EDT (Bloomberg)

When Justin Brownhill wants to check up on one of his latest investments through SenaHill Partners LP, he only needs to check the ledger underpinning bitcoin. The address: block 368396.

That’s the new digital home for the equity stake his firm made in Symbiont, a startup using bitcoin’s underlying blockchain software to make it quicker and easier to prove ownership of assets or transfer them between buyers and sellers.

Putting its money where its mouth is, Symbiont on Tuesday morning digitized and published several of its equity investments to the blockchain, which drives the bitcoin digital currency. That means the stakes will forever be part of that public record, allowing dividend payments or stock-option conversions to happen automatically.

“I woke up this morning and thought, ‘This is a historic moment,’” Brownhill, a managing partner at New York-based SenaHill, said in an interview after the Symbiont presentation on Tuesday. The merchant bank has investments in over a dozen other private companies. “Our job now is to go and espouse the benefits to all our portfolio companies,” he said.

Wall Street is becoming enamored with the potentially transformational way blockchain could overhaul how derivatives, bonds, loans and other asset classes work, dramatically simplifying the process of tracking ownership and accelerating the transfer of assets from one person to another.

Smart Securities

Symbiont’s innovation is creating what it calls smart securities. The company is now practicing what it preaches: its founders’ stakes as well as shares and options granted to employees have been converted into encrypted code that lives in the bitcoin blockchain -- the same ledger where any purchases and sales of the digital currency are recorded. Symbiont customers can do likewise to track changes in ownership interests.

“Today is the day crypto joins Wall Street,” Symbiont Chief Executive Officer Mark Smith said to the room full of investors, bankers and reporters in New York. Representatives of JPMorgan Chase & Co., Morgan Stanley and other financial institutions were among the audience members.

Symbiont’s not alone in trying to bring the blockchain to Wall Street. Other firms investigating finance-related uses of blockchain include Digital Asset Holdings LLC, headed by former JPMorgan Chase & Co. banker Blythe Masters; Nasdaq OMX Group Inc.; Ripple Labs; and the New York Stock Exchange.

In June, Symbiont raised $1.25 million from a group of investors including former NYSE chief Duncan Niederauer; former Citadel LLC executive Matt Andresen; two co-founders of high-frequency trading firm Getco LLC, Dan Tierney and Stephen Schuler; and SenaHill.

Nasdaq’s Plan

Niederauer said digitizing private equity transactions would bring transparency to the process of issuing shares and tracking who owns what. His old rival Nasdaq agrees, and hopes to use blockchain to help shareholders of privately held companies track their stakes beginning in the fourth quarter.

“Having the issuance and cap tables done the way we saw this morning will be very useful to investors,” Niederauer said in an interview. He said any concern about bitcoin -- which has been linked to drug dealers and other shady transactions -- is misguided when thinking about how blockchain can be used for finance.

“People’s first reaction to bitcoin is it sounds a bit edgy and dangerous,” he said. But the applications that can be developed for the blockchain are where the real interest is, he added. “That was my main interest in investing in the company.”