Blockchain-Based Framework for Stock Market Operations: IPOs, Trading, and Dividend Distribution

Abstract

This study examines blockchain technology's potential to enhance the stock market by offering a decentralized alternative to the traditional system. The study explores the challenges of the current traditional stock market, such as long settlement times, weak transparency, dependency on centralized clearing houses, and heightened fees. The proposed novel system leverages blockchain technology to create a fully decentralized stock market encompassing all fundamental operations from Initial Public Offerings (IPOs) to stock trading and extending to distributing profits or dividends. It connects all market participants through an Ethereum consortium blockchain fuelled by smart contracts. This approach replaces traditional intermediaries like brokers with automated regulations, ensuring more rapid transaction settlements, reduced operational errors and fees, and strengthened security measures. The proposed blockchain-based system, consisting of four smart contracts for IPO, stock exchange, dividend distribution, and participant management, demonstrates remarkable performance, showing promise in efficiently handling the current load of the largest stock markets like the London Stock Exchange (LSE). Through theoretical and practical testing, the system achieved a remarkable throughput of 120 transactions per second and latency or finality of just 4 seconds, underscoring its capability to significantly enhance the efficiency of stock market operations. <sup xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">1</sup><sup xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">1</sup>The implementation code is available via GitHub upon request.