Blockchain Technology in OTC-Market for Bonds in Russia

The aim of this paper is to show that the market for external funding can be improved via modern technology Blockchain. The current situation in the Russian market of external funding is such that start-up projects, small and medium size businesses cannot attract funds for investing in the development. This appears due to the presence of asymmetric information between companies and investors. For investors to know more about the company it is needed to incur high costs, which makes investment unprofitable. In my research, I offer the platform under the blockchain technology that solves the problem of external funds unavailability. The idea is that blockchain technology will make market clear for all sides and vanish the incentive to fraud investors by companies. This will help to make the market function. The platform can be easily implemented in the OTC market for bonds, due to the low cost of issue and low level of regulation and control from the government. In my work, I, first, looked at the current situation in the market of external funds for small and medium size enterprises and start-up projects in Russia. Then, I shortly explained the principal of blockchain technology and how it can be used. After that, I described how blockchain technology may help to eliminate the problem of funding by the implementation of the platform. Finally, I showed the theoretical model of Dixit and Pindyck (1994) that helps to evaluate investment projects under uncertainty and make a decision, using the approach of option pricing. As a novelty, I combined the model of Dixit and Pindyck (1994) with a distribution of projects’ yields to highlight reasons why the market does not function and to show how to eliminate the problem by using the blockchain technology.