Finance markets

Digital assets, a transformative force in finance

Nadine Chakar was appointed in June to lead State Street’s new division focused on digital economy and decentralized finance and has said that digital assets will be one of finance’s most transformative forces in the coming years.

Nadine Chakar, State Street

Chakar was previously responsible for global markets at State Street. She told Markets Media in an email: “From February to April 2021, we saw tremendous growth in client investment in cryptocurrency and knew it was time to have a dedicated space that could take up. supports the entire digital investment cycle, pre-trade, trade, and post-trade as well as other initiatives designed to improve the customer experience.

She pointed out that State Street had already been actively engaged with customers and partners in providing solutions for digital assets for several years prior to the official launch of State Street Digital.

For example, State Street was announced as the back office administration and transfer agent for VanEck’s Bitcoin exchange-traded fund which is pending approval by the United States Securities and Exchange Commission. State Street is also the administrator of a bitcoin-backed exchange-traded note project initiated by Iconic Funds BTC and WisdomTree for a token ETF.

The new division includes crypto, central bank digital currency, blockchain and tokenization. The company has stated that its proprietary technology platform GlobalLink will be an integral part of State Street Digital and will be enhanced into a multi-asset digital platform.

Chakar continued that as the financial sector transforms into a digital economy with DeFi, digital currencies and tokenization continue to gain momentum. Additionally, fintech, along with the pandemic, has accelerated the unbundling and digitization of financial services, so industry operating models and technology platform service models must evolve.

“We need to be able to provide customers with complete solutions for their digital needs. State Street Digital will make this trip a reality for our customers, ”she added. “Our goal is to create a digital financial services company designed to support the entire investment process from start to finish. “

Build vs. buy

In deciding whether to build capacity in-house or partner with other companies, State Street assesses whether this is a capacity the company should have for strategic reasons.

“If the ability represents a critical path, then we’ll probably want to own it,” Chakar said. “We have been fortunate to have found some fantastic new entrants into the digital space, and we have partnered up and made investments, as was the case with Securrency and Lukka, for example. “

In April of this year, Securrency, a developer of institutional grade blockchain-based financial and regulatory technologies, announced that it had raised $ 30 million in its Series B funding round from investors such as State Street. , WisdomTree Investments, Abu Dhabi Catalyst Partners Limited (ADCP) and the American bank.

Dean Sakati, head of product innovation and business development for State Street Global Markets, said in a statement at the time, “We believe in the value that security can bring to our clients by promoting interoperability, regulatory compliance in multiple jurisdictions and solutions for identity management as we continue to develop our digital asset management models.

In July this year, State Street announced that it would provide digital asset and cryptocurrency fund administration capabilities to the company’s private fund clients with Lukka, a data and software provider from corporate crypto assets. State Street led Lukka’s Series C funding round in December 2020 and Chakar said their strong data capabilities provide the tools to support State Street private market clients as transparently as possible.

Robert Materazzi, Managing Director of Lukka, said in a statement: “Traditional big funds are quickly looking to add cryptocurrencies to their offerings, leading them to ask their existing trusted service providers, such as State Street , administration of funds.

Other traditional financial firms are also entering the digital asset industry. Zodia Custody, a London-based institutional grade crypto asset custody solution, was formed by SC Ventures, the venture and innovation arm of Standard Chartered and Northern Trust. In July, Zodia Custody was registered with the UK Financial Conduct Authority. TP ICAP is awaiting FCA approval to launch a wholesale platform for cryptoassets in collaboration with Fidelity Digital AssetsSM, Zodia Custody and Flow Traders.

Chakar argued that State Street’s main competitive advantage is the openness and interoperability of its platform, which is somewhat counterintuitive compared to the rest of the industry.

“We are not just digitizing the old, but we are re-imagining and repositioning our role in the investment process,” she added. “State Street is also distinguished by the breadth of service, reputation and depth of client relationships. “

She added that these factors are important for institutions that will view investing in digital assets as an extension of their existing portfolio strategy.

“State Street connects all services under one roof,” she said. “Scale is also critically important in an environment where network effects and liquidity will be important for success. “

Only the first run

Bank of America said in a report that crypto-based digital assets could form a whole new class of assets. The bank launched its research on digital assets with the publication of a report, Introduction to digital assets: only the first run, directed by Alkesh shah, Head of Global Cryptocurrency and Digital Assets Strategy. The report says the universe of digital assets is too big to ignore with a market value of over $ 2 trillion and over 200 million users.

Venture capital investments in digital / blockchain assets topped $ 17 billion in the first half of this year, compared to $ 5.5 billion during the same period in 2020.

This is creating a new generation of businesses for digital asset trading, offerings and new applications across industries including finance, supply chain, gaming and social media, according to the report.

“Our view is that there could be more opportunity than skeptics realize,” the bank added. “In the near future, you will be able to use blockchain technology to unlock your phone; buy a share, a house or a fraction of a Ferrari; receive a dividend; borrow, lend or save money; or even pay for gasoline or pizza.