At a recent security token event in London, there was a lot of talk about the need for speed. As Noelle Acheson at Coindesk writes: “Speed is associated with competitive advantage and additional profits. Just ask any high-frequency trader.”
At the event, entrepreneurs, investors and traditional finance representatives debated what form this new type of asset would take. Acheson recounts the workshop-style exercise they all participated in: “One of the exercises was to split participants up into groups and rank the supposed benefits of security tokens. We were given a list of outcomes to choose from, which included liquidity, operational efficiency, transparency, innovation and many others. The lack of a clear consensus was unsurprising, given the diversity of the participants (much like the sector itself). What was surprising, however, was the number that insisted the main benefit was “speed.”
This was surprising, as it is based on three assumptions:
1) That speed is desirable
2) That blockchains confer speed
3) That it is a technology issue.
All of these assumptions, however, are mistaken.”
But she argues that speed need not be a priority and considers why in finance faster transactions are seen as so desirable. As she says: “The main reason is risk reduction. The longer a trade takes to settle, the greater the risk that the buyer will default on its payment commitment.
She goes on to point out that faster transactions would also be desirable, in theory, because cash could be used more efficiently, as per this example: “ If I am the seller and you are the buyer, I would like the cash sooner rather than later, thank you. The sooner I can invest it for a return or use it to meet payments, the better. You, on the other hand, would rather give it to me later, since you probably have it parked somewhere earning interest.”
In the end, Acheson says, “Unlike in nature, the evolution of financial markets has shown us that speed is not always in our interests.
In finance, efficiency and resilience are more important than “winning” — just ask the tortoise and the hare.”