Given limited budgets and existing technological priorities, such as digital distribution and big data, few fund managers are currently contemplating distributed ledger investment. However, despite a fairly passive approach so far, most managers are giving active thought to the technology. This is due to the far-reaching long-term affects it could have, on the operating models that support core activity.
It could be used to build closer relationships between asset managers and asset services. The technology could provide a single all-purpose connection, filling existing ‘air gaps’ and providing a seamlessly combined book of record. This would have a range of benefits in areas such as investor reporting, regulatory compliance, custody and settlement.
How does it work?
The open-source Melon protocol will enable distributed digital asset management on the Ethereum blockchain. Anyone can set up, manage, and invest in digital assets. The demonstration and audition of the performance are easy. You can invest in other portfolios or have others invest in yours. The core software will support trading multiple tokens through a single interface, while add-on ‘modules’ will open features like price feeds, risk calculation, and KYC compliance.
In traditional finance, hedge funds manage assets smartly on behalf of others. However, the fledgeling crypto-finance industry lacks the technological infrastructure to keep performances auditable, secure and as frictionless as possible. To solve this, they have created the Melon protocol.
Distributed ledger could also be extended to the processes that continue to be manually intensive, stretched across multiple participants or simply not quick enough. Take IBOR for example, and the challenges many faces in aggregating data across different platforms in order to generate this. This is a process that can take up to 24 hours. With a single, shared book of records, IBOR in real-time could become a reality.
In the front office, distributed ledger technology in a blockchain could affect the way clients are on-boarded and how trades are captured, while also providing a ‘golden source’ of portfolio management data.
With such a range of possibilities, it is easy to see how distributed ledger in the blockchain will have a genuinely revolutionary impact on financial markets.
Change may well be gradual, but it will not be something that any financial institution can ignore.