Tokenized Equity Management in Nepal’s Capital Market
Revolutionizing Nepal’s capital markets with blockchain-based tokenization for enhanced transparency, security, and efficiency
Introduction
Modernizing Nepal’s capital markets through blockchain tokenization
Capital markets in Nepal face challenges such as manual processes, limited transparency, and delayed settlements. These inefficiencies increase risks, costs, and reduce trust among investors and regulators. With increasing trading volumes and growing retail investor participation, modernizing capital markets has become crucial.
To address these challenges, we developed a blockchain-based Proof of Concept (PoC) using Hyperledger Fabric Token SDK. This solution tokenizes shares and securities, records transactions immutably, and automates processes through smart contracts, ensuring transparent, secure, and efficient capital market operations.
Nepal Capital Market Context
Specific challenges and opportunities in the Nepalese market
SEBON Regulations
Our solution is designed to comply with Securities Board of Nepal (SEBON) regulations, ensuring full legal compliance for all tokenized securities transactions.
Nepal Rastra Bank Integration
The system integrates with Nepal Rastra Bank’s systems for seamless fund transfers and regulatory reporting, creating a unified financial ecosystem.
Local Market Adaptation
Designed specifically for Nepal’s unique market dynamics, including bilingual support (Nepali/English) and adaptation to local trading practices.
System Participants
Key stakeholders in our blockchain-based tokenized equity ecosystem
Issuers
Companies and institutions that create and issue digital tokens representing securities
Investors
Individuals and institutions that buy, sell, and trade tokenized shares and securities
Merchant Bank
Financial institutions that facilitate the issuance and management of tokenized securities
Broker
Licensed intermediaries who execute buy/sell orders on behalf of investors
SEBON
Securities Board of Nepal – Regulates and oversees the capital market ecosystem
CDS & Clearing
Central Depository System that handles clearing, settlement, and custody services
Solution Objectives
Key goals for our blockchain-based capital market solution
Enhanced Security
Implement immutable ledger technology to prevent fraud and unauthorized transactions
Transparency
Provide real-time audit trails and transaction visibility for all stakeholders
Efficiency
Reduce settlement times from T+3 to near-instant through smart contract automation
Compliance
Embed regulatory requirements directly into smart contract logic
Tokenization Process Flow
How securities are digitized and managed on the blockchain
Issuance
Company issues digital tokens representing equity shares
Token Creation
Tokens are created on Hyperledger Fabric with unique IDs
Ownership Recording
Initial ownership is recorded on the distributed ledger
Trading
Investors trade tokens through authorized brokers
Settlement
Instant settlement occurs via smart contracts
Key Benefits
Advantages of our blockchain solution for Nepal’s capital markets
Cost Reduction
Lower operational and administrative costs
Instant Settlement
Real-time trade settlement vs. traditional T+3 cycle
Market Availability
Round-the-clock trading capability
Security Features
Ensuring the highest standards of security and compliance
Immutable Ledger
All transactions are cryptographically secured and tamper-proof
Identity Management
Robust KYC/AML integration with digital identity verification
Regulatory Compliance
Built-in compliance with SEBON regulations and guidelines
Smart Contracts
Automated execution of business logic with predefined rules
Stakeholder Activities
Key user interactions with the blockchain system
Token Issuance
Creation of new equity tokens for investors or employees
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Cap Table Management
Real-time ownership updates and tokenized holdings
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Share Transfers
Approval and recording of share transfers via Fabric Token SDK
TxID: 0x9e1a4d…f8b2c6
View Personal Holdings
Investors checking their tokenized shares portfolio
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Vesting Schedule Tracking
Viewing token vesting status and lock-in periods
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Trading Interface
Executing buy/sell orders for tokenized securities
TxID: 0x1e9b4a…d7c2f8Review Cap Table & Transactions
Verification of ownership and transfer compliance
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Private Placement Verification
Approval or rejection of allocations based on policy
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Regulatory Reporting
Automated reporting to SEBON and Nepal Rastra Bank
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Upload Agreements & Term Sheets
Legal documents uploaded with hash verification on blockchain
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Assign Vesting Rules
Configuration of cliff and graded vesting schedules
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Compliance Rules Management
Setting up regulatory compliance rules in smart contracts
TxID: 0x3a7e9b…f2c8d5Implementation Approach
Our methodology for deploying the blockchain solution
Hyperledger Fabric
Enterprise-grade permissioned blockchain framework providing the foundation for our tokenized securities platform
Token SDK
Custom token implementation for representing securities with built-in compliance features
User Interfaces
Web and mobile applications for different stakeholders to interact with the blockchain network
Transaction Lifecycle
Key stages of a tokenized securities transaction
Token Creation
Issuer creates digital tokens representing securities with predefined properties
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Trade Execution
Buyer and seller agree on terms through broker-mediated order matching
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Settlement
Smart contract automatically transfers tokens and records ownership change
TxID: 0x2b9e4d…f8a1c6Conclusion & Next Steps
The future of tokenized securities in Nepal
Our Proof of Concept demonstrates that blockchain technology can significantly enhance the efficiency, transparency, and security of Nepal’s capital markets. By tokenizing securities and implementing smart contract-based settlement, we can reduce costs, minimize risks, and create a more inclusive financial ecosystem.