Clique Fund Borrows $10 Million in Stock Using the Blockchain

On October 13, Clique Fund, a New York-based hedge fund, used bitcoin’s blockchain technology to borrow $10 million worth of stock.
According to Wired, Clique Fund used a new operation called TØ.com to borrow shares from the 30 stocks that constitute the Dow Jones Industrial Average (INDEXDJX:.DJI).

Stock market revolution?

The blockchain, which Wired describes as “the vast online ledger that underpins bitcoin,” is becoming increasingly important as diverse applications for public transaction system are recognized.
Indeed, the blockchain’s relevance to the stock market made headlines last May, when news hit that Nasdaq (NASDAQ:NDAQ), a diversified global financial technology, trading and information services provider, was experimenting with bitcoin technology to oversee trading between private companies. 
Because the blockchain can oversee the exchange not just of money, but of anything that holds value, there is hope that it will be able to improve the trading process, rendering it simpler and more transparent.

TØ.com makes an impact

TØ.com certainly draws upon that hope — its new system for issuing, buying, selling and borrowing stocks and bonds uses the blockchain. The trading platform was unveiled at the Nasdaq headquarters in August by Patrick Byrne, a blockchain enthusiast and CEO of online retailer Overstock.com (NASDAQ:OSTK).
The company, a subsidiary of Overstock.com, works as a public and private equities trading platform. Co-founder John Tabacco told Wired that the company has been facilitating stock loans for the past two weeks, with Clique Fund’s transaction being the largest. He told the publication, “we’re starting to get critical mass — institutional-sized trades.”

Blockchain benefits

TØ.com believes that blockchain technology can help the stock market by eliminating the middlemen typically involved in trades. Esssentially, prime brokers like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), and agent leaders like BNY Mellon (NYSE:BK) and State Street (NYSE:STT) currently control such trades, which can take up to three days.
TØ.com’s system could potentially replace these brokers and, in doing so, reduce the cost of making stock transactions. The system works by using the blockchain to attach digital tokens to each share. Then, traders can bid for the tokens, gaining the right to borrow shares; after that, they can use the blockchain to monitor their shares.

Long-term outlook

There stock market is huge, and as such it’s an important area for companies like Overstock.com and TØ.com to target. Overall, the global stock market is valued at $101 trillion in financial securities, and approximately $1.7 trillion of that is out on loan. In the US, $954 billion is out on loan.
Ultimately, Overstock.com and TØ.com are hoping to overhaul the public stock market by seeking SEC approval to publicly provide ways for companies to issue stock. Although that might seem like a lofty goal, the transaction with Clique Fund illustrates that the blockchain is already making an impact on the markets. It might not be long before bitcoin technology has radically transformed the even the most stalwart of financial institutions.
 

Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.