It’s no secret that retail brokers are operating in a saturated market. With so many companies offering near-identical products and technology, improving customer service and strengthening technological add-ons have become the means by which companies stand out in a large crowd.
This Thursday, Non-Zero, a blockchain start-up, announced that it would be attempting to break this cycle via its new redistribution technology, with Amana Capital, a retail broker, expected to be the first to use the technology. The firm is launching an ethereum-based blockchain platform that it claims will help to redefine the broker-client relationship.
How does it plan on doing that? Well, the company is going to start by launching ERC20-protocol tokens (NZO), essentially a new cryptocurrency. The tokens, which are going on public sale in September, will be used by brokers that adopt the firm’s Non-Zero platform to redistribute warehouse revenues to loss-making clients. Warehouse revenue refers to one of the three major revenue makers for firms.
Brokers make a substantial proportion of their profit through commissions on trades and spreads but they also make money on internalized, or ‘warehoused,’ trades. When a trade is internalized, it means that there is a zero-sum game in which the client’s loss is the broker’s win.
The platform works by calculating how much of a broker’s revenue has come from warehouse trades. Leaving aside cash made from spreads and commissions, it then takes the money from internalized trades and converts it into NZO tokens.
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Non-Zero’s broker Dapp then allows a broker-set portion of warehousing net revenues to be redistributed to eligible traders in the form of NZO tokens.
“It brings transparency to any adopting broker,” Non-Zero co-founder Ziad Aboujeb told Finance Magnates, “when it’s clear that they only make a profit from spreads and commissions. It eliminates the perception that there is a conflict of interest between a broker and client.”
On top of this, NZO will be deploying its own marketing efforts and be advertising the brokers who use its services. This means that brokers will not have to spend so much on their own marketing efforts.
“We believe that greater transparency and reduced marketing costs will increase brokers’ trading volumes,” Aboujed told Finance Magnates, “and this means it makes it a good proposition for our potential clients.”
Whether or not that is the case remains to be seen. Nonetheless, Non-Zero’s platform is a welcome addition to an industry that is in need of some fresh ideas.