Wall Street 2.0

Emerging technologies such as artificial intelligence, big data, and blockchain are revolutionizing the traditional investment banking world. Investment banking is seeing its historical profit centers eroded by technology and regulations. Core processes are being automated or commoditized. As innovation progress, it is only a matter of time when the old wall street gets a new look, a Wall Street 2.0 if you will. 

Progressive Investment Banking

The biggest players in asset management, firms like Vanguard with total assets under management (AUM) comes close to the total AUM at the top banks.

Across equity research, sales & trading, technology is replacing humans to fight poor performances and new regulations. Banks have figured out they can do more with less. Powerful tech-companies are leveraging their influence, size, and brand to extra lower fees the investment banks. As a result, tech companies are fueling the world’s biggest IPOs, 

From 2000 till 2017, investment banks saw 43% less revenue from underwriting IPOs. IPOs once accounted for around 25% of investment bank revenues, decreasing to about 15% in recent years.

In 2012, when Facebook went public in the stock fell 15% in its first few days on the market. Reports from the Wall Street Journal showed that Morgan Stanley, Goldman Sachs, and the company’s other underwriters made $175M in fees.

Some accused investment banks of mispricing stocks. Allegedly, the banks are deliberately underpricing new stocks in order to engineer a “pop” on their first day of trading. This benefited not only the banks but also the institutional investors that the bank brought into the stock. For example, the dotcom company eToys filed suit against Goldman Sachs (its underwriter) for having the firm convinced it to open up its listing at $20. The stock price jumped in the first day of trading more than 4x, but months later the company collapsed. 

Building a new Wall Street with Alternatives

Many firms now are exploring alternatives to the IPO, like the direct public offering (DPO). The emerging Crypto market offers initial coin offering (ICO), security token offering (STO), initial exchange offering (IEO). These alternatives leverage from Blockchains-enabled tokenization of assets. Therefore, allowing fractional sales to a broader investment crowd. Perhaps large companies are choosing not to go public at all.

For example, Telegram, a messaging app giant with over 200mil monthly active users, was without a doubt targeted by Wall Street investment banks for potential IPO. Instead, the firm raised whopping $1.7 billion from two cryptocurrency sales (ICO) in March. As a result, Telegram had access to IPO-sized, non-dilutive capital with few strings attached, and with far less hassle than publicly-traded companies face!

Tokenization can also be a solution for distressed financing. For example, Eastman Kodak (NYSE: KODK), a public company that was raising covenant-free capital via an ICO. Kodak’s stock price was as low as $3.10 in January 2018, implying that the company has lost access to traditional financing markets before it announced plans for an ICO. 

Wall Street 2.0 - Comparison between IPO and ICO

Simplicity and Convenience

Cryptocurrencies can disrupt the traditional wall street with its tokenized solutions. Market listings are also disrupted. Technology companies are looking to cut the cost of going public and simplify the listing process by creating alternative exchanges. This includes the Investor’s Exchange (IEX, and the Long Term Stock Exchange (LTSE), or TZERO (for Security token, Cryptocurrencies). These tech companies target high exchange access and listing fees charged by major exchanges like Nasdaq and the New York Stock Exchange (NYSE).

Security token issuing (Coincierge, Securitize, Moonwhale) and trading (Open Finance, Sprinkle Exchange, Moonwhale) portals are creating the new Wall Street with Blockchain-based distributed ledger platforms. The platforms are targeting capital markets and opt to fuse traditional finance with the benefits of crypto token economy and the tech aspect of the asset/ equity sale. As such, it empowers the issuer to be completely compliant with a fraction of the cost of traditional IPOs.

Coin offerings long-term future as a mean of fundraising is still uncertain. Instead of going public, or raising equity financing, companies now issue their own cryptocurrency. Thus, avoiding the need for bankers at all. In 2017, startups raised $5.6B from ICOs worldwide for very early-stage companies. The idea of selling digital shares in a company directly to consumers using Blockchain technology offers an alternative to the public stock market.

Furthermore, many institutional investors, hedge funds and family offices are entering the sector. Pension funds and mutual funds are also starting to dip their toes in as well.

Cryptocurrency capital markets - which are less than 3 years old - are challenging the supremacy of traditional investment banks for raising new capital.

Accelerating Startups

Today, funds like the $100B SoftBank Vision Fund have been pouring hundreds of millions into companies that may have otherwise looked to raise cash in the public markets. Incubators and Accelerators like XCEL ASIA will set the foundation to a Wall Street 2.0. They guide startups through all rounds necessary to realize their projects. The approach of staying private does offer startups far less scrutiny from regulators and freedom from the pressure on quarterly results that public companies are subject to. 

XCEL ASIA unique approach leading Hard Tech venture builder and investor in Asia, covering most rounds a firm would need to successfully build their business, with its Xcelerators (Pre-Seed) and the VC and Digital Fund (Seed to Series A equity investing) in follow-on and new deals.

The rising demand for Security Token Solutions

Moonwhale Blockchain Ventures Inc works directly with the founders on the entire STO lifecycle. The process starts from business development, financial modeling, token economy, advisory on SEC and other legal STO requirements, industry partnerships, to token issuance and secondary market listings. Moonwhale focuses primarily on the US market, offering alternative growth-financing for SMEs, MNCs and Listed Companies to drive expansion or new venture building.

Additionally, Moonwhale develops a platform to securely and conveniently connect supply and demand. Investors will be presented with vetted projects incl. due- diligence reports and will be able to manage their investments through our platform. Moonwhale also offers companies strategic advice on STO process & structure, as well as token issuance incl. lifecycle management and secondary market on-boarding for their projects. 

Wall Street 2.0 - Steps involved in project fundraising and investment
Sources: CB Insights, Seeking Alpha, Forbes, Crowdfund Insider, Moonwhale

Disclaimer: This article above is purely for educational purposes. Therefore, it should not be used as financial advice or an indication that Moonwhale supports the aforementioned companies.

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Looking for an STO Consultant?

Moonwhale Blockchain Ventures Inc. position ourselves to provide STO solutions, helping businesses with our STO Financing service. Based in the USA, Moonwhale will assist you as STO advisors in One-Stop-Shop solution for your security token offering:

  • Token Economics
  • Token Creation & Issuances
  • Marketing Materials
  • Private Sale Fund Raising
  • Public Sale Fundraising
  • Secondary Market Trading

Please feel free to contact us.

Enjoy our article on a new Wall Street? Read more on STO, here is our What Are Security Token Offerings? or Tokenizing Commercial Real Estate.

About The Author:

Danny Christ is the CEO & Co-Founder of Moonwhale Blockchain Ventures Inc.

Based in Kuala Lumpur, Danny has over 20 years of IT, Operations and Supply Chain experience across Germany (home), US, Singapore, Indonesia, Thailand, Malaysia, Vietnam, and the Philippines. He managed IT projects (ERP, CRM, POS, BI) and regional expansion (franchise, M&A) for various SMEs in the Consumer Industry. His career rose to Vice President of a 3500 employees organization.