The benefits of digital securities
Digital securities are receiving a great deal of attention at the moment, but what is getting lost among the hyperbole and technical explanations is an objective, simple, view of their benefits. Let’s try and remedy this issue, looking at the five key benefits from the perspective of the natural resources sector.
We’ve written extensively about blockchain, the technology that has the potential to drive significant change across a myriad of industries. We’ve also discussed the benefits of PermianChain’s approach to the oil and gas sector. What we haven’t done is talk directly about the benefits of taking a tokenised approach to project funding through digital securities.
The blockchain has made it possible to create a secure and immutable representation of value that is relatively simple to transfer without needing to involve third parties such as brokers. Because of the way the technology has been developed, changes of ownership as well as ownership history are simple to track but very difficult to hack, which makes them perfect for a marketplace such as oil and gas.
In short, digital securities serve as a representation of a traditional financial security and can be traded simply, quickly and securely on an online marketplace. Like traditional securities, their market price fluctuates according to the underlying performance of a project or organisation managing it and the demand and supply of the asset.
There are five major benefits of digitising securities from the perspective of an organisation in the natural resources sector: simple administration, automated rewards, transparency, enhanced return distribution and non-expert management. The benefits apply equally whether you are downstream, mid-stream or up-stream.
1) Simple administration
Digitised securities let you offer investors the opportunity to support your company or project, but much of the activities that would traditionally be associated with back-office administration are automated, so you can focus your attention and resources on a project rather than filling in paperwork.
While digital securities are relatively simple to administer and data is recorded and shared with third parties automatically as appropriate, this does not mean that there is any compromise in the quality of the information.
2) Automate rewards
One of the major challenges that face traditional securities offerings is finding a way to discourage investors from selling their shares shortly after listing. If investors rush to buy but then quickly dump their shares, it takes the market some time to reach its equilibrium. This may not be helpful for a project that is trying to attract funding.
With a digital security it is possible to implement and automate a holding rewards for investors who hold onto their shares for a specified length of time. Offering this type of holding reward is different from imposing a holding period because the latter simply prolongs the date of potential insecurity. Investors are free to sell on if they chose, but they will potentially miss out enhanced returns.
Saudi Aramco is the latest in a long line of organisations that have been said to be investing the possibility of rewarding investors for their loyalty. Digital securities’ underlying technology makes it simple to automate reward programs.
Alongside the simplicity of administration and the ability to automate rewards, the relative transparency of managing a digital security sale on the blockchain makes it potentially very useful from a regulatory point of view.
There has been a significant focus by regulators within the financial services sector on ensuring transparency and improving global reporting in recent years, as we discussed in this article. It stands to reason that expectations in sectors such as oil and gas are likely to similarly raised.
Managing a security offering digitally will make regulatory reporting significantly easier and, in many cases, completely automated. Reducing the need for manual reporting will also mean that funds and administrative time can be focused on a project rather than regulations and bureaucracy.
4) Faster distribution of returns
The automated features of a digital securities offering means that funds can be distributed far more quickly and even automatically when specific market levels or dates are reached. Again, automating this process means that management teams and funds can remain focused on a specific project and regulators can be satisfied that a sale project has been managed correctly.
The main thing for investors though is that they are paid in a timely and appropriate manner. A well-managed digital securities strategy will give them the confidence that the main risk they face is the vagaries of the financial markets and how they interact with oil and gas, rather than having to wait for paperwork to be checked and approved before funds are distributed.
5) Non-expert management
The final point to make explicit has run throughout this article: using digital rather than traditional securities means that company leadership can focus on their business or project without having to get involved with the complicated minutiae of ensuring a globally compliant investment process .
Platforms such as the one that has been developed by the team at PermianChain automate the management of a digital securities project as far as possible, helping organisations in the oil and gas sector raise funds efficiently without having to hire in expensive experts or divert a significant proportion of the funds they raise to brokers or simple administration.
We are working to deliver a platform that offers all of the efficiencies of a digital securities strategy and is compliant with relevant regulations. Working with us lets firms enjoy simple administration, the ability to automated share management, transparency, quicker return distribution and the ability to manage the whole process without a significant level of financial services expertise.
If you would like to find out more, visit us at our website, permianchain.com
PermianChain is a proprietary technology platform that brings together the crypto-mining and oil and gas sectors. Using a permissioned access blockchain, PermianChain makes it possible to utilise stranded and wasted energy resources, unlocking liquidity and transforming the way that oil and gas projects are funded, produced, bought and sold. Established in 2018, PermianChain Technologies is a pioneer member of the Blockchain Research Institute (BRI) and start-up member of the Petroleum Technology Alliance Canada (PTAC).