This is a guest opinion post from Adam Belding, Chief Architect at Calastone.
Blockchain is more about the creation of an ecosystem than it is about a technology – and a key part of creating that ecosystem is interoperability: ensuring that different systems can talk with each other. However, the problem is that most conversations around blockchain and interoperability in the asset management industry start at a very high level and then quickly get into the weeds of technical complexities, never grounding the discussion in the practical realities of the industry and specific use cases. We need a more practical way forward.
The asset management industry is incredibly complex. It comprises adiverse network of retail and institutional investors, asset types, and intermediaries. That’s before you consider the structures designed to facilitate collective ownership, such as funds – which themselves present a complex web of global trading venues, currencies, and regulatory considerations. So the issue is not unique to blockchain. We have the problem now: separate representations of the same thing on different systems. For example, the distributor has a representation of the holdings in a fund they hold on behalf of their investors on their own system. And the transfer agent has their own separate representation of the same information.
But the asset management industry has navigated challenges of interoperability for decades, developing systems and processes that mostly function, despite their inefficiencies. The introduction of blockchain technology and tokenisation of assets, while promising, does not magically resolve these challenges. Linking two blockchains together is no different in terms of a technical challenge than trying to link different financial technology systems as they have existed for the last 50 years. Security, synchronisation, resilience, and ACID considerations are all the same.
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