On-chain IPOs Could Open Public Markets to Global Investors

The CEO of Coinbase, Brian Armstrong, believes that public listings in the future will look very different. He says that IPOs will slowly turn into becoming completely on-chain. While using blockchain technology instead of the traditional systems that are being used now.

According to Armstrong, IPO processes now are quite slow, with a higher cost and also very outdated. These problems are what have pushed a lot of companies to not go public as yet, or even avoid it completely.

Why Companies Are Staying Private Longer

Back in the day, companies went public very early after starting. In the 1980s, firms listed their shares after waiting for around five years. But today, a lot of companies stay private for almost 20 years.

Armstrong says that regulation is one of the key reasons for this change. Laws like the Sarbanes-Oxley Act increased reporting and more need for compliance. Even though these rules are put to keep the investors safe, they also make things more expensive and complex.

As a result of this, startups depend more on private funding. Thus putting a limit on how much early investment opportunities big institutions and venture capital firms have.

The High Cost of Traditional IPOs

Going public is also very expensive. On an average, just one IPO can cost around $300 million. These costs include the bank fees, all the legal work, audits and whatever rules are going on then. 

The process can also take a long time. Since some companies spend years getting ready before they try to enlist. This can be quite a setback for firms that are fast-growing, since it slows down innovation and expansion too. Which is why Armstrong believes that this system is not suitable for a digital economy anymore.

How On-Chain IPOs Could Help

On-chain IPOs could have an easier solution to this problem. Companies could issue the shares in the form of tokenized assets on a blockchain. So trading and settlement would happen directly on-chain. This model could reduce the need for any middlemen. Also shortening the settlement times from days to minutes, allowing investors from all over the world to participate more easily.

Smart contracts can also make some of the difficult compliance tasks automated. This would make the paperworks less while making sure that records are transparent and safe.

On-chain IPO Challenges Still Remain

Despite the promise, the experts still warn people. Since the current laws are not made for listings on the blockchain, regulators will have to adapt to the existing ones. Privacy and investor safety is also another issue to worry about. Still, Armstrong’s comments show that more and more people are believing in this potential.