In recent years, the cryptoeconomy has seen more businesses angle to acquire U.S. broker-dealer firms to get their feet through the door and more rapidly meet the demands of America’s financial regulations.
It’s a strategy that’s undoubtedly not going anywhere anytime soon. And it’s one that ConsenSys, among the largest development outfits in the Ethereum ecosystem, has just put into action.
That’s because this week word broke that an arm of the Brooklyn-based venture and production studio, which was created in late 2014 by Ethereum co-founder Joseph Lubin, had acquired broker-dealer Heritage Financial Systems.
What’s a Broker-Dealer?
In the context of the U.S., a broker dealer is an individual or firm that has been approved by the country’s top securities regulator, the Securities and Exchange Commission (SEC), to trade securities on behalf of clients.
While the terms of ConsenSys’s deal haven’t been disclosed, the fact that the startup’s subsidiary ConsenSys Digital Securities LLC bought Heritage Financial Systems means the studio’s wider operations can now leverage in-house securities consulting and broker-dealer services.
The key takeaway? ConsenSys has its eyes on bringing Ethereum’s programmable possibilities into the heart of the U.S. finance sector.
Municipal Bonds a Low-Hanging Fruit
Municipal bonds, or muni bonds, are loans that citizens give to a government.
A popular traditional asset, the market for muni bonds in the U.S. currently generates nearly half a trillion dollars of volume annually. It’s precisely these financial instruments that ConsenSys is hoping to disrupt with its Heritage acquisition.
The idea? To eventually help governments in the U.S. and beyond tokenize muni bonds in order to make these assets programmable, to make their issuances considerably more efficient than what’s possible via paper-based means, and to make new kinds of secondary markets possible.
To these ends, ConsenSys plans to use its Ethereum-centric “operating system,” Codefi, for the digitization of these bonds.2
Emma Channing, a stay-over from Heritage that will head up ConsenSys’s new brokerage operations, said the marriage of the Ethereum blockchain with municipal bonds was a natural fit:
“It’s a great use case of the technology … There’s a strong desire and demand for more local engagement and more democratization of these types of muni offerings.”
Onward Amid Change
This week, ConsenSys also announced that it was undertaking a restructuring of its operations.
As part of that evolution, the startup said it was splitting its main work around technology solutions from its venture activities. The core tech arm of the firm would remain known as ConsenSys while the new venture division was branded to ConsenSys Investments. The division entailed the company laying off 14 percent of its employees.
“In the coming months, ConsenSys will finalize the transition from its venture production model and spin out a number of its internally funded projects into the ConsenSys Investments portfolio,” the firm said.
Accordingly, ConsenSys proper will now serve as a software solutions outfit that’s focused on developers and enterprises rather than as a multi-spoke venture production studio that does all things at once:
“ConsenSys will operate a software business composed of several of its products optimized for a modular stack, which includes Infura, PegaSys, MetaMask, and Codefi, among several others. The business is focused on two goals: providing developer tools and infrastructure for the developer, decentralized finance, and startup communities; and helping enterprises in the financial services, trade finance, and commerce sectors deploy and operationalize blockchain solutions.”
It’s not the first time ConsenSys has shaken things up with an internal makeover.
In late 2018, the firm reduced its workforce by 13 percent in a bid to “focus much more rigorously across the different business lines on accountability, that includes financial sustainability,” Joseph Lubin said at the time.