Cryptocurrencies and blockchain technology have brought about a paradigm shift in the financial sector. Financial advisors must navigate this new environment by being aware of the changing governance frameworks that support cryptocurrency and the market’s technical components. Blockchain technology is decentralized by nature. Blockchain shares control among its users, unlike traditional financial systems with centralized authorities.
The benefits of democratized decision-making and shareholder engagement
The following are a few benefits of this decentralization for advisers and their clients:
1. Increased Trust and Transparency
Verifiable by the public, transactions on a blockchain remain unchangeable. This allows advisors to show customers how legitimate their investment ideas are and gives them a clear picture of their assets.
2. Enhanced Accountability
Voting tokens are frequently used in decentralized governance. Token holders can vote on proposals affecting the underlying protocol or project. This encourages participants—including advisers who hold tokens on behalf of clients—to feel a sense of accountability and ownership.
3. Streamlined Operations
Smart contracts, which are self-executing codes on a blockchain, can automate many manual processes related to conventional financial instruments. This can free up advisors’ time to concentrate on giving customers tailored investment advice and strengthening their bonds with them.
4. Security and Compliance
Blockchain’s cryptographic underpinnings protect against illegal access and data breaches. Advisors and their clients may feel more at ease with this increased security. Furthermore, the immutable nature of blockchain transactions can facilitate compliance with data privacy rules.
Also read: Samson Mow predicts That Due to Extraordinary Demand, Bitcoin will Reach $1 Million This Year
Challenges and Considerations
Blockchain governance has several advantages, but it also has drawbacks. Advisors must keep up with these developments to ensure they are operating in the best interests of their clients, as regulatory frameworks pertaining to crypto assets are still changing. Moreover, delayed decision-making and hazy accountability lines might occasionally result from the decentralized governance of blockchain technology.
The Advisor’s Function
Financial advisors can be tremendously helpful when assisting customers in navigating the intricacies of blockchain governance. Advisors can benefit from learning the advantages and difficulties of decentralized systems and keeping up with the latest advancements.
1. Inform clients
Advisors can help clients comprehend the benefits of blockchain governance and how it may affect their investment portfolios.
2. Choose wise investments
Advisors can evaluate the governance models of different blockchain projects to find ones that fit their clients’ risk profiles and financial objectives.
3. Engage in governance
When suitable, advisors can represent clients in on-chain governance procedures, ensuring their opinions are considered when determining the direction of these initiatives.
Numerous established players in the trading and brokerage industry are starting or growing blockchain-based initiatives
Despite the bear market for cryptocurrency, blockchain technology has seen considerable adoption and interest in the brokerage and trading industry, similar to banking and payments. Brokerage businesses seek to eliminate intermediaries and increase efficiency by implementing tokenized versions of investment products and blockchain technology. There have been numerous instances of major financial services companies announcing the start or growth of blockchain initiatives relating to brokerages in the past 12 months.
Citi, Franklin Templeton, HSBC, J.P. Morgan, Societe Generale, WisdomTree, and UBS are examples. The fact that DTCC, the biggest clearing and settlement company globally, acquired the blockchain startup Securrency in December 2023 is a sign of the disruptive potential blockchain offers to brokerage and trading.
Notably, the CEO of BlackRockBLK -0.4%, the biggest asset manager in the world, has stated in public several times how blockchain technology will affect the asset management sector. In March 2024, BlackRock introduced a tokenized money market fund, raising $160 million in its first week of operation.
Compared to the banking and payments use cases mentioned above, more companies are pursuing their initiatives, even if there are some examples of consortiums and cooperative blockchain projects/initiatives in the brokerage market (for instance). This distinction arises because brokerage and trading services based on blockchain technology can be provided to customers with fewer counterparties than those required by banking and payment services.
Also read: Experts Indicate That The Price of XRP is About To Explode; These are The Goals
