Korean stock exchange launches Blockchain-based startup market

The only securities exchange in Korea, Korea Exchange (KRX), recently launched a blockchain-based marketplace where equity in startup companies can be traded, called the Korean Startup Market (KSM).

The exchange first announced that they were working on the  market in February, and leaked a few details during the 12th annual Korean FinTech Demo Day in October. At that event the exchange stated a commitment to upgrading their trading engine, along with plans to test it by adding non-listed securities.

There are already 37 startup companies listed on the KSM, 23 of which are listed in the crowdfunding division. Meanwhile, the KRX currently offers 2,107 stocks and securities, with a combined market capitalization of 1,475 trillion won (US$1.25 trillion).

“We are striving to advance our product by partnering with Samsung SDS, CISCO and others to apply blockchain to a wide range of industries in the future, beyond existing uses such as bonds, promissory notes and points within the financial sector.”
— – Won-Beom Kim, Blocko Inc. CEO

The KRX blockchain solution is provided by Blocko Inc., a well-funded Bitcoin and blockchain startup based in Seoul. KSM is using the company’s Coinstack technology, a proprietary blockchain development platform.

Blocko is a local startup which raised $1.3 million in July 2016, from Korean electronics giants Samsung and LG, along with Cisco, several large local banks, and the KRX. The company has risen to the forefront of the Korean blockchain industry by providing Coinstack to Korea’s JB Bank, Lottecard, KISA, Paygate and others.

Coinstack is a dual-level platform, based partially in the cloud and partially on-premise for enterprise and large business solutions. Blocko claims that it supports all types of business applications and protocols, and makes the Bitcoin blockchain’s immutability available to the business world. When a security is traded on the KSM, Coinstack will record the trade on bitcoin’s blockchain, while still using their own, faster blockchain for facilitating the trade itself.

While Blocko’s blockchain settlement platform is relatively new, the company offers an interesting selection of public-facing bitcoin services. They include a bitcoin cloud wallet, a free blockchain document timestamping service, a bank-grade personal authentication service, and a unique government “Public monitor” that leverages the transparency of the blockchain to keep track of government documents and promises.

“This is the first example of commercialization in which blockchain is applied to the Korean over-the-counter stock market.”
— – Kim

Competitors, blockchain supporting companies, and industry groups often make the argument that the relatively instant nature of blockchain transaction settlement is likely to overhaul the existing financial system, saving billions of dollars each year in regulatory upkeep, fees, and collateral.

Nasdaq’s CEO Bob Greifeld called the blockchainization of securities settlements “A natural digital evolution” that he’s personally excited about. “Once you cut the apron strings of need for the physical, the opportunities we can envision blockchain providing stand to benefit not only our clients, but the broader global capital markets.”

The international management consulting firm Oliver Wyman, and the FinTech investment group Santander InnoVentures, estimate that the cost of clearing, settling, and managing the post-trade processes, formerly required when dealing in securities, ranges from US$65 billion and US$80 billion a year globally.

“Our analysis suggests that distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.”
— – Santander InnoVentures and Oliver Wyman Consultancy

The Nasdaq private market exchange was the first to list startups on a blockchain, and Overstock’s t0 platform is a custom-created blockchain securities exchange, the very first to use any kind of blockchain settlement system. There is some contention as to which was the first to issue a security over a blockchain.

However, Australia’s ASX may become the first large exchange to fully replace their settlement system using a blockchain. The exchange announced that they have successfully tested out a blockchain-based alternative to their aging CHESS settlement system in August, and they may need to replace it as early as next year.

"We believe that distributed ledger technology has the potential to change the way our market operates end-to-end, reduce risk and costs for our clients, speed-up the settlement process for investors, and support new services for listed companies,” said Elmer Funke Kupper, ASX Managing Director and CEO. “It offers a unique opportunity for Australia to be a leader in the assessment of innovative market solutions.”