Funds stump up $1m to test decentralised asset management system

Will trading of financial assets witness a revolution? A scene from the New York stock exchange. Keystone

The Swiss blockchain start-up Melonport has taken a step further towards launching its decentralised portal for trading tokenised financial assets without the need for intermediaries. It has opened its doors to well over 100 funds to test its software under live conditions.

MelonportExternal link is perceived to be one of the most promising projects to emerge from Zug’s Crypto Valley. It envisions a future where most traditional assets including stocks, bonds and commodities will be tokenised, creating a new digital asset class that could be traded beyond the grasp of monopolistic exchanges.

The Swiss stock exchange is also eyeing this space and is building a digital platform encompassing the entire trading chain that it plans to launch by the middle of next year. 

Mona El Isa moved into blockchain after a career in the traditional financial sector. Keystone

But like other rival start-ups, Melonport is taking things a step further by providing a decentralized portal for asset managers, including pension and real estate funds, that would allow them to directly enjoy the benefits of reduced time and costs. This would be accomplished by replacing intermediaries with coded smart contracts layered on top of the Ethereum blockchain.

It promises to bring other benefits to small and medium sized players. “The traditional asset management sector has high entry barriers. Most funds with less than $300 million assets under management fail within a year,” Melonport co-founder Mona El Isa told swissinfo.ch.

To test the system and iron out any software bugs, Melonport this week invited some 140 funds, with a maximum combined pool of $1 million in assets under management, to plug in during a simulated live test. The portal plans to go completely live in February of next year.

Test funds will be able to realise profits or incur losses and match their performance alongside other funds on-chain. But managers will solely bear the risk as outsiders will be blocked from investing during the live test stage.

Regulatory challenge

The fund managers will remain anonymous but include financial professionals, such as banks, who are eager to see if they can use the blockchain system in future.

The technology now exists to make this happen, but the sticking point is getting regulatory approval. Melonport is trying to get the regulators in Switzerland, Liechtenstein, Malta and Gibraltar to issue licenses for its users in the in the first wave.

Swiss-based asset management firm Base58 Capital says it is close to getting regulatory approval for such a fund in Malta. Bank Frick of Liechtenstein is making similar efforts in the Principality.

El Isa co-founded the project in 2016 with IT entrepreneur Reto Trinkler, who has since left the enterprise.  El Isa gravitated towards blockchain-based finance after a career in the traditional financial industry that spanned Goldman Sachs and the Geneva-based asset manager Jabre Capital.

It was an unsuccessful attempt to set up her own independent fund that persuaded El Isa to explore blockchain solutions that lower the bar for smaller asset managers.