Building on the initial announcement by SBI Digital Markets, this first-of-its-kind initiative under the Monetary Authority of Singapore’s (MAS) Project Guardian1 shows how fund managers can efficiently scale their funds across any chain and any distributor.
SAN FRANCISCO, Nov. 18, 2024 /PRNewswire/ — Today, SBI Digital Markets, UBS Asset Management, and Chainlink announced the successful completion of their implementation of a tokenized fund, showcasing how tokenization, smart contracts, and Chainlink infrastructure can automate the fund management process for traditional fund administrators and transfer agents, unlocking a fundamental shift in how the industry’s $132T global assets under management can begin to operate using blockchains.
The adoption of tokenized funds by the world’s largest asset managers has created a need for the fund administration industry to evolve into an onchain format. The new model launched during the Singapore FinTech Festival by UBS, SBIDM, and Chainlink shows how existing fund administration processes can be made applicable to tokenized funds, delivered across multiple chains. The key insight of this work has been that existing systems that are already widely in use for the fund administration process can be successfully made compatible with tokenized funds, once they are made compatible with blockchains and smart contracts through the use of Chainlink.
Today, 93% of fund services firms have yet to fully automate data inputs, data checks, and key workflow processes. It’s part of why traditional fund operations face inefficiencies in subscription and redemption processes, as they are still subject to manual interventions, delayed settlements, and a lack of real-time transparency. These inefficiencies can potentially lead to increased operational costs, reduced liquidity, and missed investment opportunities. Over 90% of firms agree that “increasing efficiencies through automation is a priority for 2024.” Smart contracts, tokenized funds, and oracle networks represent the most cutting-edge financial automation technologies that are now successfully being applied to these longstanding problems for the asset management industry.
One of the key components of the new model is the digital transfer agent (DTA) smart contract, which was made possible by utilizing multiple oracle networks from Chainlink and deployed by SBIDM as a custodian and fund distributor, successfully setting up a workflow that enabled efficiency gains in the fund administration process through the combined use of smart contracts, oracle networks, and multiple blockchains. The pilot demonstrated the possibility for a tokenized fund to maintain its share register on one blockchain while using Chainlink’s Cross-Chain Interoperability Protocol (CCIP) to enable the processing of intensive fund lifecycle activities like subscriptions and redemptions on another blockchain with different underlying security, cost, and efficiency properties. This blockchain-agnostic architecture delivers the possibility to specify the deployment of fund lifecycle processing activities on various chains, while meeting the rigorous security and compliance standards that institutional funds demand.
“This architecture creates a foundation for our own onchain financial products and services to meet immediate user demand for tokenization and tokenized funds in particular,” said Winston Quek CEO at SBI Digital Markets. “This new way of launching fund structures and administering them via smart contracts empowers both fund managers and their service providers to deliver new onchain financial products and lower operational costs to investors, both things they are actively looking for.”
The solution’s benefits to fund management include enhanced efficiencies, decreased costs due to fewer errors, with less manual communication from fund distributors to fund issuers, as well as much higher levels of security and transparency for investors. There are also meaningful benefits from the levels of transparency around transaction histories and balances since there is real-time reconciliation between the fund distributor and the fund issuer. The solution is live on multiple blockchain testnets now and expected to go to blockchain mainnet.
“Enabling the financial industry to adopt smart contracts as a unified golden record has been the driving goal of the Chainlink community for many years now,” stated Sergey Nazarov, Co-Founder of Chainlink. “It is exciting to see some of the largest financial institutions begin to transact using smart contracts and oracle networks in the model that Chainlink pioneered many years ago in DeFi. The asset management industry has massive amounts of capital that is now moving onchain in a secure and compliant manner, and they need a way for those onchain interactions to become compatible with their existing systems—this is the critical role that Chainlink is able to play in this exciting industry.”
SBIDM’s choice to start implementing this approach and deploying their own Digital Transfer Agency (DTA) smart contracts shows the large value that tokenized funds have to create a unified golden record, which benefits all market participants. UBS has been expanding its digital asset capabilities offering through UBS Tokenize, its in-house tokenization service, which seeks to open the door to the world of decentralized finance to reduce barriers and provide access to products and services to a broader range of market participants, bringing them closer together. For tokenized funds, this begins with exploring the automation of fund administration and transfer agency processes using smart contracts.
About SBI Digital Markets (www.sbidm.com)
SBI Digital Markets is a subsidiary of SBI Digital Asset Holdings, the digital asset arm of Japan’s leading conglomerate SBI Group. With the largest securities account customer base and second-largest trading market in Japan, SBI Group has a global network across 25 countries including key markets in Asia and Europe. SBI Digital Markets offers clients a comprehensive digitalisation framework from origination, tokenisation, distribution to custodian services across traditional and Web 3.0 product suites.
About Chainlink
Chainlink enables financial institutions to develop customized, compliant, and future-proof blockchain applications and tokenized assets. Chainlink has securely enabled over $16 trillion in transaction value and delivered more than 15+ billion verified messages onchain across the blockchain ecosystem. Major market infrastructure providers and institutional banks such as Swift, Fidelity International, and many others have collaborated with Chainlink to successfully demonstrate how financial institutions can use existing infrastructure and messaging standards to interact with tokenized assets across any blockchain.
1 Project Guardian is a global collaboration between policymakers and key industry players to enhance liquidity and efficiency of financial markets through asset tokenization.
SOURCE Chainlink; SBI Digital Markets