The asset management industry today is highly fragmented across disparate enterprise systems, resulting in siloed data around different asset classes, increased back office costs for asset managers, and ultimately heightened systemic risk that affects institutions and individual users alike. With the rapid wave of innovation in decentralized finance (DeFi) and increased institutional adoption of blockchain technology, smart contract based processes have emerged as the logical next step for the industry.
In his recent presentation at Fidelity Investments, Chainlink Co-founder Sergey Nazarov explored the state of modern asset management and explained the industry-wide implications of smart contracts, which are already bringing increased automation to traditional business workflows. This blog post is an excerpt of Sergey Nazarov’s talk that highlights how blockchains powered by Chainlink oracles can create single sources of truth for the asset management industry to reduce systemic risk, lower costs, and create new highly transparent asset classes.Fragmentation in Today’s Asset Management Industry
In the current asset management industry, you see a lot of fragmentation around certain categories of assets—large categories with billions, sometimes trillions, dollars worth of assets—as well as around how those categories function. There is huge fragmentation across silos of data that belong to the individual institutions participating in asset transactions.
Then you have middlemen technology companies that seek to impose standards because they eventually want to extract monopoly rent. They want to make a messaging standard or an API standard of some kind, and if they’re not member-owned, they seek to eventually arrive at a for-profit extraction of monopoly rents. This increases both the complexity for the internal risk assessment and the management of assets, ultimately increasing the costs, which are then passed on...