Finance

Blockchain offers a wide range of opportunities for asset managers by bringing a new asset class, supporting background processes and enabling new blockchain-based products in the future.

Firstly cryptocurrencies, or more generally blockchain-token, like Bitcoin can be seen as a new asset class that asset managers can either invest in (with a chance of extraordinary high returns, but also risk of total loss) or use to further diversify their existing portfolios. Besides Bitcoin there are over 700 cryptocurrencies and over 100 “blockchain-assets” with a total market capitalization of over $40 bn. (as of May 4, 2017; numbers from www.coinmarketcap.com). Besides already existing blockchain-token, there also are new projects that collect seed capital by issuing their own coins, so called Initial Coin Offering (ICO). ICOs offer the chance to (financially) participate in promising projects, which often claim to be “the next big thing”, but also bear the risk of a total loss either by project failure or scam. A (incomplete) list of ICOs can be found at www.ICOrating.com.

Secondly blockchain can support background processes such as sending and verifying documents or tracking and trading of assets. The distributed and trustless nature of blockchains also allow asset managers to build shared databases e.g. to comply with know your customer (KYC) or anti money laundry (AML) requirements, thus reducing cost by eliminating redundant systems. Customers could benefit from less bureaucratic expenditure (by only having to go through KYC- and AML-procedures once) or higher transparency of the products e.g. by access to real time transactional data. Furthermore also regulators could access the blockchain to self-serve required reporting data and therefor reducing cost for collecting/verifying documents.

Lastly in the future there could be new blockchain-based products with self-executing smart contracts that either reduce costs and efforts for asset managers or even make them unnecessary. Interesting projects that go in this direction are:

  • The Decentral Autonomous Organization (DAO), where shareholders alone decide about investments. The first DAO failed, though not because of a bad business model but due to an exploit in the (smart contract) code.
  • Iconomi, a blockchain-based asset management platform, where every user can create so called “Digital Asset Arrays” (DAA). DAAs are combinations of underlying digital assets, such as Bitcoin.
  • Token as a Service (TaaS), a blockchain-based closed-end fund, which is actively managed. A new developed cryptographic audit monitors the performance and a smart contracts automatically pays out dividends.
  • The Coin Traded Fund (CTF), a blockchain-based passive fund investing in various cryptocurrencies (like an ETF).