With the maturing of the blockchain technology space, we are witnessing an increasing number of platforms designed to help traditional markets reduce, decentralize and exploit distributed registries.
VNX Exchange is now launching a European digital goods market aimed at bringing liquidity to the $ 620 billion global venture capital industry. He recently added Dominique Valschaerts, former CEO of the Brussels Stock Exchange, to his board of directors.
By creating a compliant and secure market, VNX aims to reduce barriers for regular investors and unlock venture capital as a broader base of global investors.
"VNX is a financial market (conceptually similar to a classic stock exchange) that will link different categories of customers (supply side and demand side)", founder and CEO Alexander Tkachenko told me. "The supply side is represented by inventory providers: VC funds, startup accelerators and other types of venture investors who issue digital tokens on the VNX platform, linked to future income from their investment portfolios."
The VNX platform requires millennial financial practice and updates it with blockchain technology.
"These VC tokens are essentially tokenized financial instruments (such as a bond, or a futures contract) that will pay token holders a portion of the future revenues of the VC portfolio is tokenised and sold on the VNX platform," Tkachenko said. . "These tokens will be listed and traded on the VNX platform."
The VC sector can be difficult to enter, so VNX's mission is to make it more inclusive for entrepreneurs and investors. By hedging their investments and making them tradable on a liquid secondary market, VC fund managers will be able to significantly reduce capital blocked for their existing investors and attract a much broader investor base.
So how does it work in practice?
The inventory vendor (for example, a VC fund manager) sends a VNX listing application. The company, together with designated third-party service providers, then evaluates the investment portfolio of the VC fund. This includes legal due diligence, asset evaluation and more.
After evaluating the VC, the terms of the listing are defined, the start date of the construction of the initial book is announced and the liquidity providers are invited to participate in the initial offer of the VC token. Only up to 50% of a certain fund or investment portfolio is permitted for sale on the VNX platform, to ensure that the inventory provider has an acquired interest in continuing to manage its investments and make profits on them.
liquidity providers submit their investment offers and at the end of the auction the order backlog is closed, payments are settled and the tokens are distributed to the liquidity providers. At the same time, the inventory vendor receives the proceeds from the token sales.
After the end of the auction and the initial distribution of tokens, tokens are added to the VNX list and made available for trading on the VNX market. In this way, VC tokens are introduced to the public for free trading, where anyone can buy and sell these tokens based on market prices.
Whilst the VCs sell their holdings in portfolio companies and receive profits, they share part of these profits with all token holders.
"The VNX platform operates as a market that allows VCs to obtain additional liquidity in return for a share of future profits," said Tkachenko. "This, in turn, improves the speed of capital and the investment economy in VC, reducing the capital lock-in from 12-14 years to just 2-3 years, making the a more attractive venture investment as an asset class, opening it to a much broader level of global investor base. "
So, how does blockchain technology and tokenization help in this particular case of financial use?
"We do not see the blockchain as the key essence of our product and rather treat it as one of the technological levels in our platform that seems to be the most relevant and up-to-date solution for some of the problems we are trying to solve", called Tkachenko. "In the case of VNX, we believe that the use of blockchain technology and resource tokenisation offers many additional benefits compared to how traditional capital markets operate, such as reduced reliance on intermediaries such as equity deposits, clearing houses, agents transfer, custody providers, etc.
There are other reasons why blockchain technology assists with this type of VC funding.
"Offers a significant level of automation for multiple steps in the value chain; [for example,] Paying income for VC token holders can be fully automated through smart contracts and blockchain portfolios, "said Tkachenko." We also see it helping with greater security and transparency, thanks to the immutable ledger distributed at the base. of each blockchain, fractional property, which allows the purchase of high value assets to a minimum and improved governance and compliance that can be automated through smart contracts. "
So, what's going to happen for VNX?
" Our main goal, as we build our platform, is to open VC as an asset class to a broader investor base, "Tkachenko said. To achieve this goal, we understand that it is essential to offer our customers a level of security, reliability and usability that not only matches but exceeds that of existing market platforms, both traditional and new. This means that our marketplace should be properly regulated and built with the highest level of security and trust. "
Part of the roadmap includes the assurance of regulatory compliance in all territories that VNX wants to provide.
" Our main objective now is "Develop all the infrastructure of the platform and the structures that will enable us to respect the current regulatory framework to eventually become a fully regulated exchange in the EU, "said Tkachenko. "Our ambition is to become the first fully compliant market in the EU for trading VC funds. We are currently in the process of filing a license application in Luxembourg in the CSSF (Commission de Surveillance du Secteur Financier, the regulation of local financial markets), collaborating with a team of lawyers and consultants led by Luc Frieden, former Luxembourg Minister of Finance and Minister of Justice. "
VNX is finalizing the next version of its trading platform after completing the tests and the evaluation of our first MVP version released in February 2018. This second version of the platform is scheduled for private beta by the end of 2018. The entire product will be launched in 2019 after receiving all the necessary regulatory approvals.
VNX's ambitions do not stop with regulatory compliance and technical releases.
"Another strategic goal for VNX is to create a robust ecosystem," said Tkachenko. "We have a partnership with the University of Luxembourg, the main European blockchain competence center, and we are signing partnership agreements with several key players in the blockchain ecosystem, as well as working closely with the early VCs to come to our platform in 2019. We have already secured a number of major players in the initial European investment space and expect to have at least $ 1 billion in venture capital portfolios in our quote pipeline when we go live in 2019 . "