The need for asset management has grown in past decades. In particular, an effective capital and fund management structure are essential for enterprises. Managing assets is one thing, but making them cost and time efficient is where the advancement lies.
Distributed ledger technology solves exactly those. It makes fund distribution transparent and easy at all levels. According to a Santander fintech study, distributed ledger technology is expected to reduce financial infrastructure costs by $15 to $20 Billion a year by 2022.
This way bringing blockchain into asset management reduces many miscellaneous cash outflows. It also removes the need for authorities and makes a transparent asset management business chain.
In business sectors, Blockchain has become a more needed technology, especially in finances alongside cryptocurrencies. With the increased usage of Ethereum smart contracts, many processes of businesses are completed effortlessly.
Process innovation is what makes companies choose this decentralized structure. Everything from supply chain management to credit scoring is now adopted by blockchain technology, making room for more transparency and fewer errors.
Some popular distributed protocols are made on Ethereum, Hyperledger Fabric, R3 Corda, and Quorum.
Asset Management’s Going Decentralized
With blockchains, digital asset management has been made easy. Few processes like the supply chain in Blockchain by Walmart have already made headlines.
And now, enterprises are aiming to adopt these and keep all the processes within a single source to ensure effective fund management.
Capital management and fund administration are the heart of your company’s operations. Blockchain can now take care of these fund managements as per the need for smart contracts, so there are no possibilities for errors.
Because of the increasing trust in blockchain, banks and companies like Barclays and Tencent Holdings Ltd are initiating Distributed ledgers for administrating their funds.
With the incoming of ICOs and IEOs, you can see that the future of asset management is changing rapidly. Fund management structures are mostly incorporated on the enterprise blockchain, while some prefer permissioned blockchain.
It initiates direct communication without third parties and eliminates many miscellaneous costs.
Types of Blockchains Useful for Businesses
The organization shall use any type of blockchain as per the requirement to operate on making the firm enterprise friendly.
Enterprise blockchain would be suitable for management who prefer sharing all information publicly
Permissioned blockchain would be suitable for management if you want to keep some of your data to authorized parties
DLTs Take Care of Four Processes in Asset Management
Data and Digital Identity
Efficient and fast operations
Reporting as per smart contract
The Need for A Transfer Agency
According to an OECD report released in 2019, “The role of registers/transfer agents may thus be rendered redundant and corporate/shareholder registries replaced by the decentralized ledger itself.” This confirms the arguments that are spoken across the industry.
The primary aim of transfer agents is to track, verify and give information when requested, and these features are the central aim of decentralization (through on-chain transactions).
Additionally, there is no need for fund managers and enterprises to meet. With distributed ledgers coming in, the need and responsibility of a transfer agent are being replaced by smart contracts and blockchains.
Subsequently, the time taken for KYC has also been reduced, as all the digital identities are already present.
Scope of Blockchain in Asset Management
The current asset management is indeed scattered and disorganized. For some industries, this might cause a million dollars worth of losses. Because the existing management is constantly working with the intermediaries, there are more chances of additional fund flows.
Blockchain has the potential to eliminate these intermediaries and become the single solution for all of these enterprise issues, as all the communications and management of assets are bought under one umbrella.
Immutable data - The major asset of an enterprise is data, so it should be secured. The biggest flex of distributed ledgers is that the data entered are non-changeable. Once the data is inputted, a copy of them is stored across all nodes, making it impossible to tamper or modify. This also makes the verification and validation process easy.
Lowering costs - Deploying smart contracts with a clear set of conditions resolves inefficient spending. As it removes intermediaries, it reduces the cash outflow from the business. Now, the funds will be distributed and managed through Blockchain. It changes many processes like KYC, settlement processes, etc.
Risk-free - Because of the Blockchain's strong consensus mechanisms and tokenization, data leakages and data breaches are eliminated. Any insider violation is also identified because of unchanging data making this a risk-free value chain.
Enterprises that adopted blockchain and distributed ledger technology are increasing day by day. Companies investing in crypto-currency are on one side of the curve. But, using Blockchains to scale the business makes companies' future exciting.
Some known companies that have incorporated Blockchain are JPMorgan Chase & Co., Berkshire Hathaway Inc., Bank of America, Wells Fargo & Company, etc.
An example of how Blockchain will reform capital and fund management:
Distributed Ledger Technology will play a key role in shaping the financial sector across the world. Because of the trust in blockchain and smart contracts, this structuring will be implemented soon. Though there are many limits, digitalization and tokenization of the value chain will grow further in the future.
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