Grygo is the chief content officer for FTF & FTF News.
The DTCC and Chainlink have been busy with something they are calling the “Smart NAV pilot,” which was an attempt to apply the digital asset capabilities of both organizations to mutual fund tokenization. (NAV is “net asset value,” or an investment firm’s total assets once all liabilities have been subtracted.)
In mid-May, both players went public with their efforts and probably should have gotten more fanfare than they did.
The effort involved not only Chainlink but also “10 market participants” that explored “an extension of a DTCC service, Mutual Fund Profile Service I (MFPS I),” which is a system for transmitting price and rate data a.k.a. as “NAV data.”
The pilot participants “worked together to evaluate the feasibility and industry value of delivering a DLT-based [distributed ledger technology] price and rate dissemination solution that can enable new benefits and support experimentation in the asset management space,” according to a DTCC announcement.
“In recognition of increased industry attention on mutual fund tokenization, DTCC identified an opportunity for on-chain price and rate data that can serve as a key enabler to the exploration of new initiatives,” according to the DTCC. “Taking a ‘chain-agnostic’ approach (i.e., the ability to disseminate the NAV data across (virtually) any blockchain) would be key to enabling other use cases to build atop Smart NAV’s foundations.”
The pilot participants evaluated “the feasibility and industry value of delivering a DLT-based price and rate dissemination solution that can enable new benefits and support experimentation in the asset management space,” according to the DTCC.
The DTCC reported that some important takeaways pointed to future opportunities.
By delivering structured data “on-chain and creating standard roles and processes,” foundational data could be part of “a multitude of on-chain use cases, such as tokenized funds and ‘bulk consumer’ smart contracts, which are contracts that hold data for multiple funds,” according to the DTCC.
This discovery could be the basis for “future industry exploration,” including “numerous downstream use cases as well, such as brokerage portfolio applications. Additional benefits include real-time, more automated data dissemination and built-in access to historical data,” the DTCC says.
The Smart NAV effort focuses on “providing the capability to make trusted, verifiable data available on (virtually any) blockchain network(s) to support the use of that data in business workflows. DTCC served as the provider, or sourcer, of that data, as well as the governor of the on-chain solution that stores that data, while Chainlink’s CCIP [Cross-Chain Interoperability Protocol] served as the interoperability layer. The core capability explored is applicable across endless use cases that could ultimately power more streamlined and efficient operational processes,” according to DTCC officials.
Ultimately, the pilot convinced the DTCC that there is potential to “explore how the technical capability leveraged in the pilot could power a broader range of use cases beyond the dissemination of price and rate data and across a greater number of blockchains.”
More details about the Smart NAV pilot are chronicled in an online report, “Beyond Token Issuance How Interoperability and Real-World Data Unlock the True Value of Tokenized Asset.”
The report notes that “traditional asset managers are grappling with a knowledge gap in this domain, especially when it comes to evaluating the security and risks of the underlying infrastructure and interacting with these digital assets.”
Thus tokenized assets “that represent physical or traditional financial assets” represent “opportunities for enhanced liquidity, transparency, risk management, and compliance. Yet, the complexity and novelty of these assets also pose challenges, particularly in evaluating the security and risk associated with them,” the report finds.
“As a result, many asset managers find themselves unable to construct or offer comprehensive digital asset investment products involving tokenized assets. With clients increasingly seeking exposure to tokenized assets, asset managers who are unable to securely incorporate these assets into their product offerings risk falling behind their competitors,” the report warns.
“This report provides asset managers with critical industry insights into the tokenized asset landscape, including an exploration of their benefits, a taxonomy for better classification and understanding, an outline of the tokenization process, and case studies that demonstrate the potential of this evolving asset class,” according to the report.
The link to the full report can be found here: https://shorturl.at/MDZBs
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