Where Finance Finds Its Future

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It’s time to start thinking about CBDCs as an intelligent form of QE

Season 1, Ep. 109

Part 2 of a Future of Finance interview with Vadim Sobolevski, co-founder of FutureFlow.


No one central bank digital currency (CBDC) is ever quite the same as another. But so far every CBDC project has focused largely on the technicalities of making payments – by or to unbanked consumers or businesses, or between counterparties across national borders, or to prevent consumers and businesses undermining the role of central banks by making payments with alternatives such as cryptocurrencies or Stablecoins. This has confined thinking to far too narrow a range, argues Vadim Sobolevski, co-founder of FutureFlow. He thinks CBDCs have the potential to transform not just the conduct of payments, or even monetary policy, but the implementation of economic and social policy itself. CBDCs, in his view, can and should be used to manufacture credit and direct liquidity precisely where they are needed. He spoke to Future of Finance co-founder, Dominic Hobson.

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8/30/2022

Data provides the prices that drive activity in tokenised asset markets

Season 1, Ep. 119
Liquidity in privately managed assets is hampered by a lack of reliable and timely data about asset values. If value is hard to discern, privately managed assets are more difficult to buy and sell, harder to use as collateral and suffer from a less favourable accounting treatment. It is also difficult to develop secondary markets in which the assets can be traded. A distributed technology such as blockchain is well-adjusted to capturing, validating and then distributing data scattered across multiple databases, within as well as between institutions. It enables Inveniam to deliver the data needed to value private managed assets regularly, frequently and reliably without the need to centralise it in a single data warehouse.The data garnered by Inveniam is used by orthodox valuation agents such as Cushman & Wakefield, CBRE, Houlihan Lokey, Mercer and others to mark privately managed assets to market on behalf of their buy-side clients. The data enables the valuation agents to provide a faster, more frequent and more reliable valuation service to their clients. Where privately managed assets such as real estate, infrastructure and private equity can be marked to market daily, weekly, monthly or quarterly, by an independent third party and at low cost through the use of technology to retrieve and process data from widely distributed and highly variegated systems, two-sided markets can develop to facilitate price discovery.Accessible, reliable data improves valuations and makes two-sided markets possible, but liquidity ultimately depends on the engagement of market-makers with tokenised asset classes. They have already engaged with the cryptocurrency markets and can be expected to engage with the security token markets once issuance volumes gain sufficient momentum.The emergence of two-sided markets on blockchain-based networks will attract issuers of privately managed assets and funds invested in privately managed assets in tokenised form, because better functioning markets will lower the cost of raising and servicing capital (for example, paying dividends). Estimates indicate savings of between 20 and 50 basis points.Real estate will pioneer the tokenisation of privately managed assets in the United States because the impact of more accurate, frequent and independent valuations in reducing the capital financial institutions must allocate to the asset class is so dramatic. Similar benefits will accrue to holders of infrastructure and private equity investments as well.Reliable valuation data also cuts the cost of fund accounting or calculating the Net Asset Value (NAV) of a fund. If the cost of the NAV is borne by the fund, it lifts returns. If it is borne by the management company, it widens margins for general partners (GPs). With independent valuations, it also becomes easier to post fund units as collateral for margin loans.In the United States, the Decentralised Autonomous Organisations (DAOs) that issue tokens to raise funds and use smart contracts to service the tokens are now obtaining formal legal recognition. Three states have granted DAOs legal status and the leading jurisdiction for publicly traded corporations (Delaware) is expected to follow suit.