We live in a high-tech world of finance, the state of which, as the crises of recent years have shown, determines the state of the global economy. In essence, the difference between the financial system of today and 100 years ago is the wide use of various electronic technologies: plastic cards and mobile phones have replaced cash, you don’t need to go to the bank or the stock exchange to take a loan or buy a security, you only need to tap into the appropriate application on your mobile phone with a few clicks.
Meanwhile, just like 100 years ago, stock exchanges trade in securities, banks raise funds from depositors and grant loans, investment companies finance new projects, and the central banks of various countries issue their own currency. It seems that this has always been the case and always will be.
Meanwhile, just like 100 years ago, stock exchanges trade in securities, banks raise funds from depositors and grant loans, investment companies finance new projects, and the central banks of various countries issue their own currency. It seems that this has always been the case and always will be.
The financial market today
Quicktoken platform as a driver of financial sector restructuring
15K
June 25
How new technologies influence the development of the financial market
The emergence and development of technologies such as blockchain and artificial intelligence will, in the very near future, lead to dramatic changes in the basic functioning of the traditional financial system. What new things can these technologies bring to the conservative financial world? Let us formulate two main advantages that these technologies bring to the financial sector.
The first is the ability to store any amount of data in a distributed, confidential manner, for example, account balances, credit histories of borrowers, etc. The point is that such data storage will be shared among all market participants (borrowers, depositors, and investors), not among one system participant (bank, stock exchange, or investment company) as it works today.
Secondly, it is the ability to automatically process and analyse large volumes of data and quickly get accurate answers to almost any questions, for example, whether to lend or not to lend to the borrower? And if it is granted, what percentage can be offered?
You must have already asked yourself the question: will we need, for example, banks in the future if everything concerning payments and loans will be stored by financial market participants, and the decision to grant credit will be made by artificial intelligence? The question is absolutely right and the answer is: banks will be needed, but with a changed financial business model. Let’s call them intermediary banks. And the existing model, where a bank attracts deposits and makes loans on their account, we will call the classical banking model.
The difference between the intermediary bank model and the classic bank model
The emergence and development of technologies such as blockchain and artificial intelligence will, in the very near future, lead to dramatic changes in the basic functioning of the traditional financial system. What new things can these technologies bring to the conservative financial world? Let us formulate two main advantages that these technologies bring to the financial sector.
The first is the ability to store any amount of data in a distributed, confidential manner, for example, account balances, credit histories of borrowers, etc. The point is that such data storage will be shared among all market participants (borrowers, depositors, and investors), not among one system participant (bank, stock exchange, or investment company) as it works today.
Secondly, it is the ability to automatically process and analyse large volumes of data and quickly get accurate answers to almost any questions, for example, whether to lend or not to lend to the borrower? And if it is granted, what percentage can be offered?
You must have already asked yourself the question: will we need, for example, banks in the future if everything concerning payments and loans will be stored by financial market participants, and the decision to grant credit will be made by artificial intelligence? The question is absolutely right and the answer is: banks will be needed, but with a changed financial business model. Let’s call them intermediary banks. And the existing model, where a bank attracts deposits and makes loans on their account, we will call the classical banking model.
The difference between the intermediary bank model and the classic bank model
How does the classical banking model work today? In simplified terms, it looks like this. Let us imagine a large bank. For example, it has shareholders’ equity of 1 billion dollars and attracts 9 billion dollars of deposits. We will assume that the average cost of borrowing is 5% per annum. This means that the bank’s annual cost of servicing the funds it has borrowed is $450 million. It is clear that the bank has other expenses, for example, for staff salaries or rent for the premises where the staff works. We would assume that these costs amount to $50 million per year.
As you have probably worked it out by now, the bank has 10 billion of funds, which it can invest in loans at 10% per annum, for example. The bank will then have annual income of $1 billion, of which it must pay $450 million in deposit costs and $50 million in expenses for the rent and wages of managers. As a result, the bank would make a 500 million profit for the year.
How does the intermediary bank model work? Consider the same bank with 10 billion in loans. Suppose the bank has the ability to sell all of its $10 billion in loans to its depositors who hold $9 billion and to new investors for $1.476 million. Where would this lead to? For one thing, after the loans are repaid all the old depositors as well as the new investors will get a return of 5% per annum. In other words, this is the same yield that they would get when they put their money in the bank under the classical model. On the other hand, with this sale of $10 billion in loans for $10.476 million, the bank earned $476 million in one lump sum.
Let us assume that the intermediary bank has the ability to replicate this operation once a quarter. It means to attract new depositors’ funds on deposits in the amount of 10 billion dollars, to issue loans for 10 billion dollars and immediately after the loans to sell the formed loan portfolio for 10.476 million dollars to depositors and new investors. It is not difficult to calculate that the income of the intermediary bank from such actions for a year is no longer 550 million dollars, as in the classical model, but more than 1.900 million dollars. If we assume that all intermediary bank activities are carried out by the same bank employees, and other expenses remain at the level of 50 million dollars, the profit of the intermediary bank amounts to 1.850 million dollars, which is more than three times higher than the profit of the classic bank.
As you have probably worked it out by now, the bank has 10 billion of funds, which it can invest in loans at 10% per annum, for example. The bank will then have annual income of $1 billion, of which it must pay $450 million in deposit costs and $50 million in expenses for the rent and wages of managers. As a result, the bank would make a 500 million profit for the year.
How does the intermediary bank model work? Consider the same bank with 10 billion in loans. Suppose the bank has the ability to sell all of its $10 billion in loans to its depositors who hold $9 billion and to new investors for $1.476 million. Where would this lead to? For one thing, after the loans are repaid all the old depositors as well as the new investors will get a return of 5% per annum. In other words, this is the same yield that they would get when they put their money in the bank under the classical model. On the other hand, with this sale of $10 billion in loans for $10.476 million, the bank earned $476 million in one lump sum.
Let us assume that the intermediary bank has the ability to replicate this operation once a quarter. It means to attract new depositors’ funds on deposits in the amount of 10 billion dollars, to issue loans for 10 billion dollars and immediately after the loans to sell the formed loan portfolio for 10.476 million dollars to depositors and new investors. It is not difficult to calculate that the income of the intermediary bank from such actions for a year is no longer 550 million dollars, as in the classical model, but more than 1.900 million dollars. If we assume that all intermediary bank activities are carried out by the same bank employees, and other expenses remain at the level of 50 million dollars, the profit of the intermediary bank amounts to 1.850 million dollars, which is more than three times higher than the profit of the classic bank.
What is the Quicktoken platform?
The previous article described an intermediary bank business model, which is more than three times more efficient than the classic bank model. However, what remains unclear is exactly how investor depositors buy the loan portfolio from the bank. How the risks of the depositors are guaranteed as they are now left “face to face” with the bank’s borrower. What happens if the loan is not paid back?
To answer these questions, it is necessary to describe the technology of the Quicktoken platform, which is precisely the mechanism that allows the intermediary bank to operate.
So, the actions of the platform consist of two main points:
First, the platform divides each loan issued by the bank into a large number of identical parts — tokens. All tokens are selected so that their price for the investor is minimal (e.g. $1) and the yield is the same — in our case 5% per annum.
Second, the platform “assembles” packages of tokens from tokens included in different loans. The number of such tokens is the same in all packages and equals e.g. 1000. In this case, it is obvious that the value of the package of tokens will be equal to $1000.
Schematically, the process of “assembling” token packages is shown in the figure.
(Пакет токенов — Token package
Токенизируемый кредит — Tokenizable credit
Токен –Token)
The previous article described an intermediary bank business model, which is more than three times more efficient than the classic bank model. However, what remains unclear is exactly how investor depositors buy the loan portfolio from the bank. How the risks of the depositors are guaranteed as they are now left “face to face” with the bank’s borrower. What happens if the loan is not paid back?
To answer these questions, it is necessary to describe the technology of the Quicktoken platform, which is precisely the mechanism that allows the intermediary bank to operate.
So, the actions of the platform consist of two main points:
First, the platform divides each loan issued by the bank into a large number of identical parts — tokens. All tokens are selected so that their price for the investor is minimal (e.g. $1) and the yield is the same — in our case 5% per annum.
Second, the platform “assembles” packages of tokens from tokens included in different loans. The number of such tokens is the same in all packages and equals e.g. 1000. In this case, it is obvious that the value of the package of tokens will be equal to $1000.
Schematically, the process of “assembling” token packages is shown in the figure.
(Пакет токенов — Token package
Токенизируемый кредит — Tokenizable credit
Токен –Token)
What have we got as a result? On the one hand, as a result of the described process, which we will call tokenization of the intermediary bank’s portfolio, we have a large number of equal value ($1,000) and yield (5% p.a.) packages of tokens that are sold to investors. As a result, the return on each package depends on the result of loan repayments from not one or ten borrowers, but from thousands of independent borrowers.
The perceptive reader might exclaim at this point: this is classic securitization, isn’t it? Exactly right! It is by including a large number of tokens from different loans in one package that the platform ensures that the results of one or even ten borrowers have little impact on the final yield of the token package. Clearly, all 1,000 borrowers cannot go bankrupt at once. This means that an investor who buys a block of tokens is well protected from losing his or her money.
The perceptive reader might exclaim at this point: this is classic securitization, isn’t it? Exactly right! It is by including a large number of tokens from different loans in one package that the platform ensures that the results of one or even ten borrowers have little impact on the final yield of the token package. Clearly, all 1,000 borrowers cannot go bankrupt at once. This means that an investor who buys a block of tokens is well protected from losing his or her money.
Another benefit that the platform gives investors is the following. As you know, deposits in banks are placed for a certain period of time. In our example it is one year and in the classical banking model the depositor cannot withdraw his funds before the deadline. In the case of the Quicktoken platform, any investor can put any of the purchased token packages on the platform, which the Quicktoken platform also provides. As a result, the investor can sell all or part of his token packages without waiting for the 1-year deadline (e.g. in two months) and receive maybe a lower than expected return of 5%, but at least 3%-4% per annum.
Why can we say that? Due to a large number of investors on the Quicktoken site, there will always be those who want to place their funds for a period of, say, 10 months and with a yield higher than 5%. “But after all, this is a standard exchange where packages of tokens are traded,” you will exclaim — and again you will be completely right! Indeed, it is an exchange, which means that the price of the packages will be determined by the supply and demand for the token packages. The only difference from a regular stock exchange or currency exchange is that the value of token bundles increases over time, which means that the risk of suffering a loss when selling them tends to be zero.
What opportunities does the Quicktoken platform offer?
So, we have described the Quicktoken platform technology for the intermediary bank and we now understand the benefits for the bank (which is the profit by multiplying the volume of lending that goes through the intermediary bank), and what benefits the investor depositors receive (which is the possibility of early return of invested funds with a minimal loss of return).
At this point, you may be wondering: can the Quicktoken platform mechanism be used for more than just the banking business? Again, the answer is: not only is it possible, but it is extremely useful.
Why can we say that? Due to a large number of investors on the Quicktoken site, there will always be those who want to place their funds for a period of, say, 10 months and with a yield higher than 5%. “But after all, this is a standard exchange where packages of tokens are traded,” you will exclaim — and again you will be completely right! Indeed, it is an exchange, which means that the price of the packages will be determined by the supply and demand for the token packages. The only difference from a regular stock exchange or currency exchange is that the value of token bundles increases over time, which means that the risk of suffering a loss when selling them tends to be zero.
What opportunities does the Quicktoken platform offer?
So, we have described the Quicktoken platform technology for the intermediary bank and we now understand the benefits for the bank (which is the profit by multiplying the volume of lending that goes through the intermediary bank), and what benefits the investor depositors receive (which is the possibility of early return of invested funds with a minimal loss of return).
At this point, you may be wondering: can the Quicktoken platform mechanism be used for more than just the banking business? Again, the answer is: not only is it possible, but it is extremely useful.
Judge for yourself. The bank in the previous example emerged only as a financial institution with many borrowers in arrears on their loans. However, there are many more such participants in the financial market. These include, for example, factoring companies which buy invoices from their clients and as a result owe them money to various companies which have issued such invoices in instalments. This also includes large retailers who offer instalment payments to their customers for purchased goods. It is also possible to apply the principles of the Quicktoken platform to reinsure customers of insurance companies, and the list is far from complete.
In simple words, any enterprise, bank or company that has debts from a large number of independent counterparties (customers, borrowers, etc.) can use the Quicktoken platform effectively and as a result increase their business volumes and profits manifold.
We believe that the platform will make the financial market more reliable and transparent for investors. As for companies that use the Quicktoken platform in their business, it will expand their business volume and make it easier to raise funds.
In simple words, any enterprise, bank or company that has debts from a large number of independent counterparties (customers, borrowers, etc.) can use the Quicktoken platform effectively and as a result increase their business volumes and profits manifold.
We believe that the platform will make the financial market more reliable and transparent for investors. As for companies that use the Quicktoken platform in their business, it will expand their business volume and make it easier to raise funds.
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