Though Blockchain Tech Improves Efficiency Of Securitized Trades It May Introduce Risk

Though Blockchain Tech Improves Efficiency Of Securitized Trades It May Introduce Risk

Credit reporting agency Moody’s released a report titled Structured Finance – Global Blockchain Improves Operation Efficiency for Securitizations, Amid Risks.” The report delves into blockchain uses in the securitization industry, which includes debt issuance and the establishment of new instruments that can be traded.

According to Moody’s Senior Analyst at Moody’s, blockchain usage in the securitization realm is at its “very early stage,” but nonetheless, financial institutions, including banks, are looking at how it can be used. With usage, new risks may be introduced as well, such as over-reliance on few developers or development studios. He states, “New key transaction parties will be introduced to the process, namely, the entities that serve as developer, provider, and operator of a blockchain.” These entities may be identity or closely liked with the originator. They also could be independent third-party service provides.

Moreover, there seem to be too few smart contracts relative to token issuance, and even though anyone with a template may be able to process the interaction, there are considerations such as security to take into account. According to the Moody’s report, there may be risks that “may also assume a systemic component” where there are multiple securitizations relying on one dev study.

As a result, decentralization – even at the dev level, could be the answer. With decentralization, not all components may be affected one there is a failure with one. Ethereum seems to have successfully adopted this approach – it has a number of development teams, multiple clients, and even though the projects have the same goal, the development process is ultimately separate. The differences among the teams can be related to the language, the smart contracts, and the like.

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