Central securities depositories (CSDs) are perhaps among some of the most surprising adopters of blockchain technology.

Not that long ago, these middlemen, which today hold onto corporate stocks and bonds to simplify the trading process, were a favorite target of blockchain disruptors. Now, they are among some of the most avid explorers of the technology.

But rather than build distributed ledger technology into their core services, perhaps helping pave the way for their own disintermediation, CSDs have instead identified a use case on the periphery of their services as most ripe for innovation.

Called proxy voting, the term denotes the process by which stockholders cast votes at a corporate annual general meeting (AGM), without actually attending the meeting. But the system of using qualified representatives to vote on behalf of a corporate or individual stockholder not only results in extreme delays, it creates a layer of uncertainty preventing voters from having the assurance their vote has been counted.

As a result, CSDs and other proxy voting technology developers have used a diverse set of blockchains to build products designed to remove middlemen, accelerate votes and give voters 100 percent confidence their vote was counted — and counted properly.

But as CoinDesk discovered in a wide-ranging series of interviews with those builders, actually selling such potentially revolutionary blockchain solutions isn’t always as easy as building them.

Reveling in the opaque

Among a number of obstacles confronted by CSD executives interviewed by CoinDesk, one particularly illustrative obstacle is that not everyone actually wants more transparency.

Russia’s National Securities Depository (NSD) has completed a previously unannounced blockchain proxy-voting solution using Hyperledger Fabric and the privacy technology called zk-snarks, originally developed for the zcash cryptocurrency.

Built in partnership with New York-based DataArt, the solution promises to instantly and reliably count complicated stockholder votes while ensuring the identities of the voters remain protected. But so far, no one seems to want it, according to the head of NSD decentralized solutions, Alexander Yakovlev.

“There are no Russian companies interested in running this kind of general meeting at the moment,” said Yakovlev, adding:

“Because actually, no one in Russia wants to have the general meeting in something like a transparent and true way.”

Yakovlev didn’t speculate about the reason behind this reluctance, other than to say that stock issuers want “more control” over their general meetings than blockchain afforded. But the difficult sell points to a bigger issue that creating a more transparent way to do business isn’t always an attractive proposition.

Facing such widespread disinterest, Yakovlev has turned his attention to shopping the solution in other countries and even among those hosting initial coin offerings, or ICOs, that could perhaps use the technology to let token holders vote.

“In my mind, our case is to provide something like annual general meetings for ICO tokens for example, or other foreign listed companies that are interested in technology and not in secreting all of the processes,” he said.

Refining the sales pitch

Another CSD that has actually been working closely with the NSD is South Africa’s Strate, which initially faced its own difficulties finding users.

After building its own proof-of-concept using Chain’s open-source blockchain platform, Strate announced in November it had partnered with Nasdaq to build a production-ready version.

Similar to the NSD, Strate had difficulty finding adopters when shopping the product to the actual issuers of the stocks, according to Strate managing executive, Tanya Knowles.

Knowles said that even the word “blockchain” itself was a hindrance to some potential users, who were skeptical of the new technology. After a number of meetings with stock issuers, though, Knowles said it became apparent that they weren’t interested in undertaking the blockchain upgrade for something they only used once a year at an annual meeting.

But those same issuers encouraged her to take the tool to the issuing agents that act on behalf of the stock purchasers and other relevant counterparties, which is when Strate’s blockchain platform finally found traction.

Since tweaking their sales pitch, Knowles said Strate have obtained letters of intent from six out of the eight custodian banks in South Africa, five or six local asset managers and a number of issuers, including one “large” issuing agent.

“Full member adoption” could be seen as soon as Q2 of 2018, he said.

“As soon as we started speaking downstream from Strate to the custodians, the asset managers, and the brokers that market has just been incredibly interested,” Knowles said. “Because they’re the ones who are literally collecting and collating manual proxy forms.”

Beyond CSDs

As Strate’s work with Nasdaq makes clear, it’s not just CSDs working on blockchain proxy voting solutions.

Since making one of the largest blockchain industry acquisitions last year, financial industry tech giant Broadridge has developed proxy voting solutions for companies around the globe.

Broadridge vice-president of corporate strategy, Horacio Barakat, says several of their customers have agreed to use the blockchain voting to run in parallel with their traditional voting system during their next annual general meeting. “The idea is at this stage to have those meetings be shadowed,” he said.

As recently as this month the American Stock Transfer & Trust Company, LLC (AST), announced the completion of its own proxy voting solution based on Hyperledger Fabric and plans to switch over its existing clients later this year.

And the secret to finding these early adopters is identifying the most innovative individuals within a CSD, according to Nasdaq vice-president of enterprise architecture, Alex Zinder.

In addition to the work with Strate, the U.S. stock exchange that doubles as a financial technology software developer has a bird’s-eye view of the industry by helping partners in Estonia and elsewhere build blockchain solutions

“For us, it’s about finding the right partners, finding the right groups within those organizations to lead innovative projects as we’ve done here with Strate,” he said. “And to be able to deliver on those processes and start to commercialize those offerings.”

A non-starter

But not every CSD is actually pursuing the blockchain proxy voting use case.

Marketplace organizer Deutsche Börse Group, which oversees Germany’s Clearstream CSD based in Frankfurt, identified the blockchain proxy use case early in its research before turning its attention to other projects it determined had more value in the short term.

Specifically, Deutsche Börse turned its attention to the “three pillars” of its blockchain gameplan: a project with Germany’s central bank to bring securities to a blockchain, a collateralized token called Collco, and a blockchain project with the Liquidity Alliance, called LA Ledger.

The deputy head of Deutsche Borse’s media relations, Heiner Seidel, explained the decision to pass on blockchain proxy voting:

“Yes, there is a certain value to applying DLT to proxy voting, in some areas, but unfortunately, the whole business case was not convincing to us.”

A lack of political will?

The technical and financial reasons why a CSD might decide not to implement a blockchain proxy voting solution are myriad, according to the former CEO of Strate, Monica Singer. But her biggest concern is of a more political nature.

This August, Singer left Strate after 20 years to take up her work with blockchain full-time, quickly being hired by blockchain startup ConsenSys.

Singer says that while the blockchain technology will “streamline back office costs” many issuers who pay a yearly fee for the services don’t realize how much could be saved, and are happy to continue with the status quo.

To overcome this obstacle, Singer advocates for selling blockchain services directly to fund managers and asset managers “that take governance in the companies they invest in a serious light,” she said.

But in the end, Singer argues that widespread adoption might not result from market drivers alone. Rather, she argues the increased transparency could be the result of work undertaken by those who write the laws.

She concluded:

“Now that we know that there is a tool that enables transparent voting with an immutable record and complete audit trail why is there no political will to implement this in all countries? That should be a bigger debate to be had as even the most developed countries in the world are having a challenge in this space.”

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