The New York Stock Exchange is 234 years old and its grand stone edifice stands as one of the world’s most enduring symbols of capitalism. So it came as big news last week when the NYSE announced it planned to implement a dramatic technology upgrade by putting thousands of stocks on the blockchain—a nod to the growing influence of the crypto industry, which is already selling tokenized versions of equities. One academic, however, suspects the plan is just smoke and mirrors, and shared his skepticism on the latest episode of Coins2Day’s Crypto Playbook vodcast, which you can enjoy on Spotify, Apple, and YouTube.
According to Professor Omid Malekan, who teaches a blockchain course at Columbia Business School, NYSE’s press release suggested the exchange was seeking to reap publicity, while providing little in the way of specifics.
“The announcement was very high on hype and very short on details. And I always find that telling, because there has been a tendency over the years with crypto where you have established incumbents announce something very exciting, but then years later, nothing comes of it,” said Malekan.
He pointed out that the NYSE lacked serious technical specifications and failed even to state which blockchain the exchange planned to use for its grand plans. Also worrying, said Malekan, is that the plan appeared designed to include all of its current business partners, some of which have direct financial ties to NYSE.
This plan to preserve all existing partners is problematic since the nature of blockchain is that it can eliminate a raft of financial middlemen, and let parties transact directly in an instant and transparent manner. This poses threat to a legion of auxiliary service providers on Wall Street like transfer agents and settlement houses that are essential to the current system of stock-trading.
In an op-ed for Coins2Day, Malekan likened NYSE’s gambit to how one-time giant AT&T responded to the early days of the Internet, when it bought a content provider in order to deliver pre-selected websites to home TV sets using its cable system. That didn’t work out, of course, and now Internet natives like Google have become 20 times larger.
Malekan explained that NYSE appears caught in a classic innovator’s dilemma where an incumbent tries to embrace the way of the future, but is hampered by a need to preserve its existing business model. In this context, it is often new players that rise up to define the next era of an Industry—as Google and Facebook did in the world of communications and media.
And indeed, NYSE’s blockchain announcement comes at a time when a number of startups and newer financial players are already making fast strides in tokenizing stock. Those include startups like Securitize and SuperState, as well as big fintech and crypto players like Robinhood and Kraken.
All of this will mean NYSE, which did not immediately respond to a request for comment, will have a hard time keeping up.
This doesn’t mean, of course, that NYSE faces the risk confronted by some incumbents of getting blown away altogether in the face of new technology. Malekan points out that moving stocks to the blockchain isn’t going to happen overnight and that NYSE—which was created in 1792 when 24 traders signed an agreement under a buttonwood tree near Wall Street—enjoys a reputation as one of the oldest and most venerable financial institutions in the world.
You can hear more of Malekan’s comments on Spotify, Apple, and YouTube, along with a conversation between hosts Jeff and Leo about other hot topics, including the fate of an important crypto bill and the failure of social media network farcaster.
