- Chainlink teams up with major US banks to pilot improvements to TradFi investing infrastructure.
- The program explored using blockchain technology to improve data dissemination.
- This provided a proof of concept on innovative use cases for the investment sector.
The Depository Trust and Clearing Corporation (DTCC) offers critical TradFi infrastructure in clearing and settlement services for US investment firms. The entity processes trillions of daily transactions, underpinning the TradFi investment market. As blockchain technologies continue gaining traction, DTCC has recognized its potential for enhancing its core services and operational efficiencies.
One area the firm has been focused on is its Mutual Fund Profile Service I (MFPS I) system, which offers a standardized way for transmitting price and rate data, including net asset value (NAV) and dividend distribution data. Seeking to improve this process, DTCC recently launched the Smart NAV pilot, in conjunction with Chainlink, to explore enhanced data dissemination capabilities.
Tapping Chainlink Technology
The Smart NAV pilot aimed to improve MFPS I’s data dissemination capabilities. Current processes for calculating and distributing NAV data are complex, manual, and riddled with inefficiencies. The need to bring MFPS I processes into the 21st century is all the more pressing considering the investment fund industry’s massive size and global assets under management’s expected reach of $145 trillion by 2025.
To tackle these challenges, the Smart NAV pilot brought together DTCC, Chainlink, and ten major financial institutions, including BNY Mellon, JPMorgan, and Invesco, to name a few. The goal was to utilize Chainlink’s blockchain technology to assess the feasibility of enhancing efficiencies and bringing more streamlined operations to the existing MFPS I platform.
How Smart NAV Worked
The Smart NAV pilot improved the existing MFPS I platform’s data dissemination by using a modern JSON data structure, wrapping it into a blockchain transaction secured by DTCC’s private cryptographic keys, and relaying it via Chainlink’s cross-chain interoperability protocol (CCIP).
The CCIP transmitted data loads across multiple blockchains, including DTCC’s private Ethereum blockchain. On this network, a smart contract system verified DTCC as the authorized and permissioned publisher before securely storing the on-chain NAV data in a decentralized manner. With the data made available on-chain, clients could consume and leverage the information.
Leveraging the information included using real-time APIs that pushed data updates to connected systems, smart contract models such as tokenized fund contracts directly inheriting the NAV data, and “bulk consumer” contracts representing baskets of multiple funds’ data.
This enabled streamlined, automated dissemination of investment data while demonstrating powerful new ways to leverage the on-chain data for investment applications.
The Pilot’s Findings
The Smart NAV pilot demonstrated how delivering structured investment data on blockchain and establishing clear roles and processes governed by smart contracts enabled a wide variety of innovative use cases for investment applications.
By bringing pricing and distribution data on-chain in a standard, accessible format, Smart NAV opened the door for imaginative new applications and services leveraging the investment data flows.
The pilot showcased the capability for real-time, fully automated dissemination of NAV and rate updates, a massive improvement over the sluggish manual processes of the existing system. It also provided built-in access to complete historical records, a previously unavailable capability.
The success of the Smart NAV pilot also laid the groundwork for DTCC and its partners to explore additional use cases, such as triggering automated workflow events and enabling asset managers to publish data directly to smart contracts without requiring a centralized hub.
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