US hedge fund uses Blockchain for stock-borrowing
In a clear example of the expanding usage of Blockchain, a New York hedge fund used a new system called TØ.com to borrow the underlying component stocks of the Dow Jones 30 Index.  This is the first known example of Blockchain technology being used in a live stock-borrowing operation.

Yesterday morning, New York time, a company called Clique Fund used the bitcoin blockchain to borrow $10 million in stock.

Bitcoin is the world's most popular digital currency, and the blockchain is the vast online ledger that underpins bitcoin, tabulating transactions using thousands of independent machines spread across the globe. But the blockchain can oversee more than just the exchange of money. It can also oversee the exchange of, well, anything that holds value. That includes stock and other financial securities.

Through a new operation it calls TØ.com, online retailer Overstock.com and its freethinking CEO, Patrick Byrne, have built a system for issuing, buying, selling, and even borrowing stocks and bonds on the blockchain. On Tuesday morning, Clique Fund, a hedge fund based in New York City, used this system to borrow shares in the 30 stocks that make up the Dow Jones Industrial Average.

Previously, TØ.com, an Overstock subsidiary, had used the system to issue a private bond to Byrne himself. Later, it issued a mostly symbolic bond to an outside company called FNY Capital. But the Clique Fund transaction is more than just a symbol. "This is a real trade," says John Tabacco, who founded TØ together with Byrne.

According to Tabacco, TØ has been facilitating stock loans for the past two weeks, with five different customers borrowing stock, including Clique Fund. Tuesday's transaction is the largest to date. "We're starting to get critical mass---institutional-sized trades," he says.

New Tech to Renew Markets

The transaction spearheads a much larger movement towards systems that use the blockchain and related technologies to facilitate financial trades. Startups such as Symbiont are working on similar systems, as is the company behind the Nasdaq stock exchange. At the moment, Nasdaq is building a system that will use the blockchain to oversee trades in private companies. But it believes that the technology can also be applied to the public stock markets.

The promise of the blockchain is that it can streamline the trading process, providing a more reliable record of who owns what and when, while removing at least some of the middlemen who bog down today's markets. In particular, Byrne sees the technology as a way of closing the sort of well-documented market loophole---so-called "naked short selling"---that has plagued the Overstock.com in the past.

The way the market works today, stock trades can take up to three days to settle, and this largely happens behind closed doors. In the mid-2000s, this allowed hedge funds and other to short sell stock that hadn't really been borrowed----aka naked short selling. Though this loophole has now been closed, similar issues continue to plague the market. In moving transactions onto an online system, Byrne believes, we can remove these loopholes by settling stock trades immediately, and in a more transparent way. TØ is called TØ because it aims to settle trades with zero delay.

Overstock and TØ believe this system could particularly benefit the stock loan market, which is controlled by a select group of middlemen, including prime brokers such as Goldman Sachs and Morgan Stanley, as well as "agent lenders" such as BNY Mellon and State Street. To a certain extent, TØ's system can cut out these middlemen and reduce the cost of stock borrowing.