CDRX- Bringing “Crypto Depository Receipts” (CDRs) to revolutionise the equity ownership and issuance model
Source: CDRX, (2018)
Hey guys/gals. So today I will be speaking about CDRX. Which is another exciting project. I have spent the last few days doing research on it, and now wish to share my research with you. You may note a trend occurring across these ICOs, well especially the ones I am talking about. We are beginning to see a shift away from mere utility token ICOs to financial tokens which deal will areas like securities and equities. I understand a lot of people are apprehensive about security token ICOs and I fully understand because I am one of them, especially since there is no clear structure of regulation in place for them and they can be considered risky. This uncertainty is shifting however, I feel regulators are softening their stance to crypto and are now left with the undeniable fact that this technology will be the future across many sectors.
You will see that I have covered a few of these projects now because I do believe this is the next step in the ICO sphere. Financial markets will shift to the blockchain, the only thing I am unsure about is the timeline. I am a huge believer that regulation needs to come to this space in full force to weed out all the manipulation that occurs. I fully believe these early adopter projects like CDRX will lead the charge in the area, which will give investors an extremely early seat at the table.
I strongly believe that the power of blockchain has stamped its mark on the world, sure we don’t have mass adoption yet but the revolution will occur. I like to invest in projects at the earliest stage possible. This space amazes me, we are still so early and the innovation which is occurring around us is staggering. AS with all my work, please don’t consider this investment advice, and if you enjoy this in-depth review of the CDRX whitepaper then please following up with your own research, I will leave plenty of links in the further reading section below.
What makes CDRX so unique?
Source: CDRX, (2018)
CDRX allows for what is called “Crypto Depository Receipts” (CDRs) which are “securitised tokens issued on a blockchain that holds a class of shares” (CDRX, 2018). For those of you who may find this confusing, they are basically the crypto equivalent to American Depository Receipts (ADRs), these are basically certificates offered by US banks who represent a number of shares in foreign stocks and which are traded on US exchanges (Investopedia, 2018). With ADRs, they are denominated in US dollars and the underlying security is actually held by a US financial institution overseas and all dividends are paid in US dollars, in short, they basically make it easier for Americans to buy overseas stock, the banks buy and hold the stock and issues an ADR which represents the underlying share; which can be either on a 1:1 ratio of a fraction of a share or multiple shares, according to Investopedia, (2018).
CDRX, (2018) state in their whitepaper that “CDRs will replace traditional equities democratising both ownership and execution” (CDRX, 2018). This means that investors like me and you can have full control over our shares with the added benefit of them being decentralised, I will discuss these benefits further in the article. I am not sure if any of you own any form of equity/share but I personally do, and this really excites me. The potential for all corporate actions to be minimised and the ability to automate dividend payments and voting processes is what drew me to the CDRX project. In the traditional sense, these are quite a time consuming and costly, not to mention the huge amount of administrative work required.
In the video below, CDRX gives a great simple example of how this works. If you cannot be bothered to read this article (I know they are long) at least check this video out. In the video, you will see that by selling a 100 dollar share it will end up costing you about 25 dollars via costs etc in the traditional sense, whereas with a CDR of the same value can be sold with just a 15c commission. Also, it can take days for the former to go through compared to a couple of hours on the latter. This is the power of blockchain technology in one simple example.
Source: CDRX, (2018)
The Potential of CDRX
Source: CDRX, (2018)
CDRX state this market is a 77.7 trillion-dollar market and further state that these CDRs will be the natural evolution of equity ownership. This is a point I strongly agree with. This will the natural evolution of this market, as I stated in my introduction. Tokenisation of assets is what will drive the next cryptocurrency boom I reckon, the efficiency blockchain can bring to the table cannot be denied any further. CDRX state that their approach will allow for both tokenisation of existing equity markets and new issuances, with the added advantage of having dividend payment and voting capability via the token itself. This is what is so extraordinary about this project.
Another interesting point is that to implement CDRs and cryptoshares, CDRX will create an exchange. What I like about this project is that they have an extremely well-experienced team, spanning a huge array of sectors across the financial world, who are combining this knowledge in order to create a platform which fully confirms to regulation. This is one thing that must be of paramount importance when dealing with securities because these tokens will essentially give ownership to an asset, so regulations must be followed strictly.
The whitepaper states they hope to eventually extend this service into bonds (92.5 trillion market) and derivatives (542 trillion market). So, it is easy to see why this project has such huge potential, this is an extremally ambitious project.
One of the biggest pain points I see in this space is the boom in utility token ICOs. We are still a while off mass adoption in my opinion, but we are witnessing many large companies investing in blockchain infrastructure. I am a huge believer than 90% of the cryptocurrencies we see today are nothing more than speculation, mere “utility tokens” which hold no value or give holders any rights. Most are just disguised for easy capital fundraising in my opinion. The advantage of this utility token boom is that they do not fall under the same stringent regulations as securities for the most part. I have tried to bring some of the best projects to your attention with my work, and the majority are utility tokens, even the CDRX token is a utility token (I will discuss later). It is vital to do some real in-depth research to avoid investing in poor projects. I am betting that the projects I review will be a part of that 10% which do well in the long term. CDRX is my opinion is in a completely different class because of what it offers.
CDRX suggests that there needs to be a “natural evolution of the equity assets class…allowing voting rights, dividends, and capital growth”. I whole heartily agree with this view. They further state that the “traditional share ownership “model suffers from high transaction costs, slow settlement times and high administrative costs. This inefficiency just makes the middlemen richer, which is why blockchain can combat this. CDRX, (2018) state that the top 5 US investment banks in 2017 had a total equities revenue of 27.6billion. This is a staggering statistic. This combined with lack of privacy just fuels the current problem in the space.
CDRX, (2018) also inform us that equity ownership is traditionally recorded on a central share register (owners name, number & class of shares and contact details). This central application is the centerpiece as to how the process of dividend distribution, voting rights and correspondence relating to corporate actions are conducted, all transactions have to be recorded in this share register. According to CDRX whitepaper, this all equates to the following inefficiencies:
Higher transaction costs: This is due to high admin and regulatory costs.
Slower settlement periods: This can be up to 2 days, which is considered quite fast in the industry.
Lots of paperwork: This all relates to the “man hours” required to do the work.
The high cost of office space/admin: The traditional methods of using asset managers requires them to have huge “office staff” who compile everything together.
Lack of privacy: This relates more to transparency in the industry. Regulations are centered around keeping it that way. One does not realise the time-consuming process of reporting all of this “transparency” to all stakeholders, according to the CDRX whitepaper.
Administration of the share register and corporate actions: As touched on above this process is very costly. CDRX, (2018) state that close to 1 million corporate actions occur a year which costs 10billion annually, the cost is spread across all participants. Furthermore, they talk about the fact that “traditional equities” cannot be split and need to be sold in individual units (min 1), this has the effect of pricing a lot of small investors out of the market when shares reach high prices.
Clearing and settlement risk: This area deals with the risks we face when we transact with people, which fail for numerous reasons such as bankruptcy, fraud etc…To combat this in the “traditional world”, CDRX, (2018) state that “Central Counterparty’s” are used, who are “expensive” intermediaries who underwrite and offset risk.
Overall CDRX state this entire centralised process is designed to make barriers to entry difficult for the average investor whilst vastly enriching middlemen. I agree 100% with this view.
Source: CDRX, (2018)
As can be seen, by the above image, CDRX have the solution to eliminate all the inefficiencies we discussed above. If we take the same points as above and apply the solution we get:
High Transaction Costs: As this platform utilises the Ethereum, ERC-20 standard, costs will be priced per transaction at a fraction of what they cost traditionally.
Slow settlement periods: Blockchain utilises “consensus protocols” (please check out my earlier work to understand this), to enable this to occur. Again, the ERC-20 standard will allow this to occur in a 30-minute period at worst case and at 2 minutes for high priority (60% higher cost), as stipulated by CDRX, (2018).
Paperwork. Blockchain, as described by CDRX, allows for Peer-Peer (P2P) transactions, which cuts out the middleman (paperwork, admin etc…). All of the data is then stored on a public ledger. The immutability advantage of this ledger will provide a fully transparent transaction record for regulators.
Cost of office space/Admin: Again, similar to the above description, What people tend to forget about blockchain, is that its consensus protocols mean that mistakes are next to impossible. I know I would prefer to have “a blockchain” record my data with smart contract technology” rather than Mike in the back room at 4:50pm on a Friday afternoon, wouldn’t you?
Lack of privacy: As I mentioned above the blockchain ledger will record everything in a fully transparent manner but with the added advantage of giving complete privacy to user’s as “wallet addresses” are the only means to link people to accounts. I do feel KYC/address linking is a much-needed requirement to comply with all regulations and allow only “cleared participants” to use the exchange. CDRX state in their whitepaper that they are working with regulators to ensure their exchange will fully comply with all regulations to enable full trading of CDRs and other crypto instruments. It is vital that the integrity of the financial industry is transferred over to the blockchain space.
Administration of the share register and corporate actions: CDRX position themselves as the solution to this, i.e. preventing the need for corporate actions. CDRX, (2018) state that “crypto coins” allow for fractional ownership which reduces the need for share (stock). CDRX also state that new issuances of CDRs will be vastly less expensive than current means in terms of admin costs. Smart contracts can handle all of this and allocate automatically to existing holders. Furthermore, smart contracts will allow automatic dividend payments and voting. As can be seen, the whole area of administrative costs can be eliminated. CDRX, (2018) state they envisage a reduction of 95% in corporate actions.
Clearing and settlement risk: The CDRX exchange will be just as secure in this manner, by offering real-time securitised token settlement via SWIFT, real-time settlement with currency backed tokens and settlement via 1 or more global regulated and approved CCPs (CDRX, 2018). I would love to find out more about this, which was not discussed in detail within the whitepaper.
Another point CDRX state in their whitepaper is the potential for cross blockchain interoperability: I have spoken about this numerous times in some projects I have covered on my blog. I personally believe that this feature is a vital requirement. However, CDRX seems to think that because this “process” is largely untested in the blockchain space it can be risky to expose securitised tokens to more means of “hacks etc…” I can see where they are coming from and believe that first regulation and safe structures need to be put in place before considering this option. I would like to see it implemented in the future though.
It is easy to conclude then, that they will simply take the advantages of the traditional system and get rid of all the problems I mentioned above in the pain point section. CDRX will ensure that all CDRs issued will be on a 1:1 basis with the securitised tokens held by a special trust/depository. They summarise that:
- CDRs will be “securitised against an underlying traditional equity issuance held in custody”.
- Cryptoshares will be issued directly in purely electronic form.
My take on their solution
Blockchain technology allows us to move away from the centralised way of working. Why do we need middlemen, who get a large percentage of any profits in costs? Blockchain technology is the solution to the problems listed above. Gone will be days that we need to rely on centralised processes, blockchain has been shown time and time again to be able to carry out these complex functions.
The advent of smart contracts, in my opinion, has fuelled the appeal of blockchain technology, allowing for automated processes/transactions to be carried out. The trustless nature of blockchain in the way consensus is carried out amongst participants is what makes this so appealing in this space. If you have read some of my previous work you will see the benefits of using smart contracts, one of the most appealing aspects is the fact they are “immutable” (Can’t be changed by issuers) unless an allocation is allowed in the underlying smart contract architecture. This is the future in my opinion, a vision I share with the CDRX team it would seem.
CDRX will make the whole process more efficient and cheaper than traditional methods. What I really love about this solution is that dividends will be issued via smart contracts embedded in the CDRs, which are underwritten by a dividend pool and tradable between parties. The CDRX platform will virtually eliminate the costs of transactions, speed up transfers and be fully transparent. They will target this change across the global financial market.
What I also found interesting in their whitepaper is that there seem to be some precedents in the US, with the Jobs Act allowing companies to raise up to 50million via CDRS/cryptoshares. This is a push in the right direction, and it would be wise to consider CDRX as a forerunner in the space. I strongly believe regulation will come sooner rather than later in the space, and allow companies like CDRX to offer their service on a wider basis.
Their platform (Exchange)
The image above shows just how the exchange will operate. As stated in the whitepaper this exchange is due to be launched before the end of the year. Please consider also that this will start with a non-securitised token exchange first (Say, 2018), which does not fall under the same scrutiny for regulatory approval. This is vital to drum up liquidity, a vital component of any exchange. This exchange will be designed in a way to allow for the eventuality of securitised tokens. Participants will, therefore, be able to easily convert existing equity issuances to CDRs and also issue new CDRs/Cryptoshares, as stated in the whitepaper.
I feel this exchange will be designed to compete with some of the top exchanges out there. I feel that CDRX have a competitive advantage as a first mover. I believe they will be able to compete with any new entrants quite easily. First mover advantage in the crypto space is vital. This platform will also allow for traditional cryptocurrencies to be traded alongside these tokens, which is vital in my opinion to gain the volume needed to make an exchange a success.
The Token will be used similarly as other exchange tokens on the market today; for transaction costs with the additional advantage of powering smart contracts embedded in CDRs and cryptoshares. This comes back to the point I made earlier in this article about this being a “utility token”, it fuels the exchange, whereas the platform (exchange) hosts securitised tokens.
Source: CDRX, (2018)
As can be seen above CDRX are ensuring there are incentives in place for holding the token. The more tokens one holds, the more benefits one gets. I have to admit this is a very impressive benefits package for holders of the tokens. I envisage large investors holding a large quantity of these tokens to ensure they get the most benefits.
This is an example of a very good use case of a token. Both CDRs and Cryptoshares will use it for listing fees, rating fees, transactions and other corporate action fees, dividends and voting etc…). The exchange itself uses the token for transactions, liquidity fees, licensing fees etc…
- Token Fixed Supply: 400 million non-securitised transaction tokens
- Token amount for sale: 50% @200 million tokens
- Tokens for team and second round investors: 40% @ 160 million tokens (vested over 10 years and released at 10% per year).
- Tokens for 1st round investors: 10% @ 40 million tokens to cover ICO costs.
- Token use: Utility token to fuel the platform
- Token Type: ERC-20
Allocation of ICO Funds
Source: CDRX, (2018)
As can be seen above out of the 200 million tokens being offered during the main sale, they are earmarking a nice sum of the ICO capital to development, which is needed in any infrastructure project. I am also very happy to see a large allocation to marketing, financing of CDRs and acquisitions, which is all vital for success.
Source: CDRX, (2018)
This is a very nicely laid out roadmap. The whitepaper goes into quite some detail about these points, which can be found in the additional reading section below. As I have always stated I am glad when I see long timelines- it gives the impression that the team is being realistic in their goals. It will be 2019 when we will see the exchange and implementation of a fully decentralised version and the launch of CDRs by the latter half of 2019.
Source: CDRX, (2018)
This is an extremely experienced team. I won’t discuss this in any detail here, but the whitepaper gives a nice write up on each team members experience. Please check out the further reading section below for a link to it.
I fully believe that this 8-person team has the experience and vision to pull this off. I am particularly excited that this project is being led by “David Ward (CEO)”, who in my view is an all-star leader. His experience as the Former Asia Pacific head of trading at a top 2 global commodity firm and trading experience with top investment banks instills a lot of confidence in me (CDRX, 2018). David Ward has led this team in utilising incumbent “AMRs” and developing this next evolution “CDRs” (Reuters, 2018); this is a feat which has to be applauded. They also have 2 investors on board (proprietary trading house & Asian Family office) alongside many private investors.
CDRX, (2018) state that they will revolutionise the “traditional share register”. I believe that everything I have researched, as per the CDRX whitepaper and other supporting material, suggests that they will indeed revolutionise the space. The introduction of these CDRs or crypto shares will really make a bold statement in bringing efficiency to this space. CDRX see both of these as the natural evolution of the traditional equity ownership model.
I am amazed by this project both in terms of vision and leadership in the area surrounding securitised tokens. They will provide us with a solution for transferring traditional equities onto the blockchain via the use of CDRs and Cryptoshares. They will cut the middlemen from the equation which has resulted in huge fees/costs in the traditional market. Also, they will virtually abolish the vastly time consuming and costly corporate actions required in the traditional industry. Blockchain technology will allow for a revolution in this area, smart contracts will allow for a lot of the administrative/corporate action to be done automatically, with the end result being all details recorded on a fully secure and transparent ledger. All of this will fall in line with all regulatory requirements across KYC and AML rules.
CDRX are brining CDRs into this space as a stepping stone for full regulation, they are designed based off the ADR model. They envisage a world where widespread use of crypto shares is the norm in the financial market. I fully believe this will be the case in the future and applaud CDRX for being a front-runner in this space. Reuters, (2018) leads us to believe that shares such as Apple, Google and Amazon could be converted into securitised tokens (Via CDRs) and traded on the CDRX exchange from Q1 2019. I have said it time and time again, that these early adopter/leader projects will be the big players in years to come. First mover advantage should never be set aside when it comes to new technology. Blockchain will allow for distributed share ledgers, virtually no corporate actions and automated dividend/voting processes.
Finally, I strongly believe that the potential of CDRX is huge, these combined markets could open up 100s of trillions of dollars of investment so I will leave token price speculation to you. Tokenised securities are coming and this will spark the next revolution in the crypto sphere.
Lastly guys, I just want to stipulate to you that you should not take any of this as investment advice. I am not a financial advisor and urge you all to do your own research when considering any investment, this space can be very unforgiving and is very speculative in nature. Never follow somebody blindly; my job is to showcase projects I see with real potential, that is all. I hope you enjoyed this article and I will aim to find the next amazing project in due course. I thank you all for your support and ask for you to share my work. I would be more than happy to discuss any questions you may have in the comments section.
- CDRX Website: https://cdrx.io/
- CDRX Whitepaper: https://cdrx.io/docs/wp/whitepaper-en.pdf
- CDRX Onepager: https://cdrx.io/docs/wp/onepager-en.pdf
- CDRX LinkedIn: https://sg.linkedin.com/company/cdrx
- CDRX Youtube: https://www.youtube.com/channel/UCbnWLu5v8DbAiBlmfgerJQA
- CDRX Reddit: https://www.reddit.com/r/CDRXchange
- CDRX Facebook: https://www.facebook.com/cdrx.io
- CDRX Instagram: https://www.instagram.com/cdrx.io/
- CDRX Telegram: https://t.me/cdrxchange
- CDRX Twitter: https://twitter.com/cdrxchange
- CDRX Line: https://line.me/R/ti/p/%40isj7527f
- CDRX Kakaotalk: https://open.kakao.com/o/gsrgUAZ
- CDRX Medium: https://medium.com/@cdrx
- CDRX Bitcointalk (ANN): https://bitcointalk.org/index.php?topic=5030690.0
- CDRX Bitcointalk (Bounty): https://bitcointalk.org/index.php?topic=5037716
- Cdrx.io. (2018). [online] Available at: https://cdrx.io/docs/wp/whitepaper-en.pdf [Accessed 4 Oct. 2018].
- Cdrx.io. (2018). [online] Available at: https://cdrx.io/docs/wp/onepager-en.pdf [Accessed 5 Oct. 2018].
- Chepkova, T. (2018). Crypto Depository Receipts: New Take on an Old Solution Can Drastically Change Equity Ownership & Issuance - Cryptovest. [online] Cryptovest. Available at: https://cryptovest.com/news/crypto-depository-receipts-new-take-on-an-old-solution-can-drastically-change-equity-ownership--issuance/ [Accessed 6 Oct. 2018].
- Investopedia (2018). American Depositary Receipt - ADR. [online] Investopedia. Available at: https://www.investopedia.com/terms/a/adr.asp [Accessed 5 Oct. 2018].
- Introduction to Crypto Depository Receipts (CDRs). (2018). [video] Directed by CDRX. https://www.youtube.com/watch??v=qkGYng5hZ_4: Youtube.
- Reuters (2018). Apple, Google and Amazon securitised tokens to begin trading on CDRX from 2019. [online] Reuters. Available at: https://www.reuters.com/brandfeatures/venture-capital/article?id=51587 [Accessed 6 Oct. 2018].
- Say, N. (2018). CDRX Develops Trading Platform for CDRs - Crypto Disrupt. [online] Crypto Disrupt. Available at: https://cryptodisrupt.com/cdrx-develops-trading-platform-for-cdrs/ [Accessed 6 Oct. 2018].
- Trackico.io. (2018). CDRX (CDRX) ICO information and rating | TrackICO. [online] Available at: https://www.trackico.io/ico/cdrx/ [Accessed 5 Oct. 2018]. (Trackico.io, 2018)