Bringing Traditional Finance Onchain

The $22 trillion^[7] alternatives market, encompassing assets like real estate, private equity, and infrastructure, is poised for significant growth but faces critical challenges. Fragmented across isolated networks, these investments suffer from limited efficiency, accessibility, and scalability. While tokenization offers potential solutions, integrating liquidity across multiple blockchain networks remains complex and costly. Solving this fragmentation is crucial to unlock the market's full potential, democratize access, and meet growing global capital needs, all while maintaining investor protection.

Closed-End Funds

• Premium/Discount Volatility: Significant price deviations from NAV.
• Inefficient Market: Limited share trading volumes and price impact.
• Limited Arbitrage: Lack of efficient price correction mechanisms.
• Market Access: Limited retail participation.
• Illiquid Holdings: Difficulty valuing and selling underlying fund assets.
• Activist Exploitation: Vulnerability to short-term profit-seeking strategies.

PE MANAGERS/INVESTORS NEED LIQUIDITY

• An absence of exits after record LP commitments has created a massive need for liquidity (unrealized NAV of ~$1.5Tn from funds dated 2010-18).

Traditional Finance

• Inefficiency: High organizational burden in traditional finance
• Limited Access: Large groups underserved by traditional finance
• Opacity: Lack of transparency in traditional financial systems
• Centralized Control: Dominance of central banks and large institutions
• Lack of Interoperability: Difficulty integrating traditional financial products

2008

• Widespread failures in financial regulation and supervision
• Failures in corporate governance and risk management at systematically important financial institutions
• Excessive borrowing, risky investments, lack of transparency
• Inadequate government preparation, inconsistent response
• Systemic breakdown in accountability and ethics
• Collapsing mortgage-lending standards and the mortgage securitization pipeline
• Over-the-counter derivatives
• Failures of credit rating agencies

Blockchain

• Liquidity remains spread at (often) sub-viable levels across different isolated networks, limiting scale effects.
• Connection to (and aggregation of) liquidity across multiple chains is a bespoke effort and therefore acts as a disincentive to scale for participants.
• Differing rates of adoption risk is giving rise to divergent industry operating models (based on traditional vs. digital technologies) for end-investors, such as the need for digital wallets vs. traditional custody accounts.
• Connectivity between traditional securities and digital assets is still being defined on a case-by-case basis and limits scale, especially in the context of the legacy platforms that continue to support core processing today.
• Integration of further relevant process components, such as payment processes on chain, remain unavailable at wholesale grade.
• Variances in regulatory clarity globally drive different speeds of evolution across different assets and parts of the trade cycle (e.g., issuance vs. clearing vs. collateral).
• Due diligence and risk management processes have to be tailored to each blockchain operator, creating an unscalable oversight burden.
• Complexities in governance requirements make many participants reluctant to run their own blockchain nodes, limiting the decentralized nature of the networks.

Monetary system

• Credit underwriting: with the emergence of structured and sophisticated credit, the capability of commercial banks to effectively assess and manage credit for anything beyond the most standard financing needs is questionable, as demonstrated by the inexorable rise of the shadow banking industry;
• Risk management: the intricacies of today's financial markets pose significant challenges to managing counterparty risk effectively, often at the expense of the depositors, whose financial security depends on recurrent (yet discretionary) taxpayer-funded government bailouts;
• Distribution and storage: the necessity of relying on outdated legacy systems, for the distribution and maintenance of private depositors' ledgers is increasingly being questioned—the emergence of Central Bank Digital Currency (CBDC) projects and self-custody solutions are starting to challenge the need for traditional banking infrastructure;
• Returns: the ability of commercial banks to generate sufficient profits to reward their equity capital providers is under scrutiny, given the challenging macroeconomic environment and the burden of heavy regulatory buffers, as reflected in the depressed price-to-book market multiples for most banks;
• Technological integration: the incapacity of commercial banks to facilitate the necessary technological integrations in today's digital age, where commerce and data travel at different speeds and machines increasingly interact with other machines, is obvious.

Crypto Payments

• Wallet UX: authentication, connection, signing txns
• Stablecoin legal structure (investment fund vs. security vs. commodity
• Send 2 txn, utxo to create pin

CEF Puzzle

• NAV miscalculation, transparency
• Agency costs
• Illiquidity of underlying
• Capital gains tax liabilities