Building an institutional DeFi solution
27 June 2023
Securrency chief executive Nadine Chakar speaks to Bob Currie about how the company is applying a smart blockchain infrastructure to build an institutional-grade decentralised finance service
Image: Nadine Chakar
Many in the financial services industry have recognised the potential for revenue growth and investment efficiency offered by extending institutional and retail investor access to digital assets. But institutional expansion has been a tough nut to crack, with many pensions, endowment and insurance funds cautious about increasing their allocations until the digital market infrastructure matures, standards of safekeeping and asset protection improve, or until their investment guidelines and articles of association are broadened to enable them to increase their holdings of digital assets.
US-based digital markets infrastructure specialist Securrency has been active on the frontline in confronting this challenge, working to develop institutional-standard decentralised finance technology, tokenisation engines and account management tools hosted on blockchain.
Headquartered in Washington DC, Securrency was founded in 2015 by chief technology officer Dan Doney. It also established operations in Abu Dhabi in 2017 and is regulated by the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA), with the company continuing to host a share of its operations and a sizable staff team in the emirate.
Nadine Chakar joined as chief executive in January 2023, having previously headed State Street Digital and, prior to this, fronted State Street Global Markets. Earlier in her career, Chakar had been CEO of ABN AMRO Mellon after the merger with BNY Mellon and CIBC and subsequently became global head of financial institutions at BNY Mellon SA.
With Chakar joining as Securrency chief executive, this has given freedom to Doney to focus his energies on the CTO and lead architect roles, concentrating on solutions development and delivery.
The company is privately owned, with US asset manager WisdomTree, State Street, US Bank, and Abu Dhabi government-backed strategic investment companies Mubadala and ADQ as its major funding partners.
WisdomTree was a lead investor in Securrency’s Series A funding round at the end of 2019 and featured at the heart of the US$30 million Series B investment, alongside Abu Dhabi Catalyst Partners, State Street and US Bank in April 2021. In extending this finance, WisdomTree indicated that it was attracted by the potential that decentralised finance offers to deliver greater automation, transparency and improved audit standards in financial services.
Elaborating on this investment partnership at the time of the Series B funding round, WisdomTree highlighted how one of its foremost development priorities lies in evolving open-ended funds — regulated in the US by the 1940 Investment Company Act — through applying blockchain technology and drawing on the distributed-ledger technology (DLT) and business expertise offered by Securrency.
The fund manager anticipated that its investment in Securrency would also create opportunities to deliver a wider set of features to support mutual fund issuance, including peer-to-peer fund transfers and secondary market trading. The aim, it says, is to create blockchain-enabled WisdomTree funds with features that extend beyond ETFs, while drawing on the advantages of its “modern alpha” strategy — one that targets the outperformance potential of active management with the benefits of passive investing. Its search is to identify innovative technology that will deliver disruption to the ETF marketplace in the way that ETFs have delivered to mutual funds.
Solutions portfolio
Securrency describes its core platform, the Capital Markets Platform (CMP), as an integration and harmonisation solution that brings together each of the fundamental components of the digital assets market in one place. The objective is to deliver an automated and interoperable DLT-based front-to-back digital infrastructure, providing “compliance-aware” tokenisation, client onboarding and account management services, along with advanced analytics and regulatory reporting.
The client can communicate with the platform via open API, a web-based user interface or by mobile app. The benefits, it notes, include faster time to market, stronger interoperability between DLT platforms and across tokenisation protocols, and the potential for CMP users to generate stronger revenues by digitising issuance in public and private markets.
“We view this capital markets platform as having two edges,” explains Chakar. One edge integrates with the client’s legacy environment, bringing the flexibility and additional functions offered by the Securrency platform without the need for the client to undertake a wholesale transformation of its core technology to realise the benefits of this distributed ledger based solution. The second edge is a client-facing portal, providing a user-friendly interface which enables the user to integrate the benefits of the CMP platform into their business model, from onboarding and KYC/AML across the trade lifecycle.
Complementing the CMP, Securrency is building a data platform called LedgerScan that was conceived initially to meet a Securities and Exchange Commission (SEC) requirement for WisdomTree. The US securities market regulator provided authorisation for WisdomTree to natively issue their ‘40 Act funds but specified that all official records should be held off blockchain. To accommodate this, Securrency designed a solution, built in collaboration with Google, to reconcile all on-chain and off-chain records in real-time. This data can then be made accessible to the user, or to their service intermediaries, in a format that can be easily handled by their legacy accounting systems.
For Chakar, the jewel in the company’s solutions portfolio is its Digital Asset Composer, a no-code tool to compose smart contracts. This can take a range of smart contract designs — whether open source, a proprietary design or a smart contract issued by an industry peer — enabling firms to build rule sets into a token that can, for example, enforce jurisdictional regulatory obligations, trade and liquidity requirements or fulfil client authorisation and authentication.
Summarising these thoughts, Chakar indicates that Securrency is applying a smart blockchain infrastructure to build towards an institutional DeFi offering. “We start with compliance, we overlay this with tokenisation and then we overlay this with data,” she says. “The Smart Contract Composer sits on top of these core modules, enabling the user to craft their own contracts. This is how we believe we can deliver an institutional-grade service, one that is fully compliant with regulations applicable to institutional investors and which helps to fulfil their responsibilities as fiduciaries.”
Within the Securrency ecosystem, the firm also operates an Abu-Dhabi-based broker-dealer, Securrency Capital, which was established in April 2022 and offers brokerage services for digital and traditional assets, utilising the CMP platform front-to-back. Inter alia, this supports the tokenisation and fractionalisation of tradable securities, offering full support around the issuance, governance and lifecycle management for these regulatory-compliant tokens.
WisdomTree has close to US$90 billion in assets under management and predicts that at least 10 per cent of this AUM is likely to be represented in tokenised form, indicating a pipeline of more than US$9 billion in natively-issued digital assets on the platform. These digital assets in the WisdomTree product range are issued on blockchain, with the ownership record managed on chain.
Chakar likens this arrangement to setting up an investment bank or fund manager in a box which is then powered and operated by the end client. “Securrency does not operate these functions,” says Chakar. “We provide the technology layer and help the client to deploy the technology that best suits their use case,” she says. Through this arrangement, for example, WisdomTree manages the investors’ digital wallets and acts as a liquidity agent and distributor for its investment products, but with the activity hosted largely on Securrency’s platform.
Until recently, Securrency also maintained a digital transfer agency (TA) platform as part of its service portfolio — a solution also developed initially to support the requirements of WisdomTree’s product range — but the asset manager has now taken the operation of this TA service in-house. This now forms a key building block in its WisdomTree Prime service, a direct-to-retail digital wallet available to the customer via a digital app or web portal. To provide an integrated post-trade environment for this activity, Securrency has also integrated WisdomTree’s main custodians, State Street and HSBC, onto its CMP platform.
Widening the network
As this network expands, Chakar predicts that the advantages that it offers to participants in this digital ecosystem will continue to build. From a securities finance perspective, one of the benefits is that it has enabled users to create a securities lending pool of assets that can be managed using smart contracts. This enables the firm to integrate digital instruments within its pool of lendable assets and to mobilise digital assets as collateral in cases where this aligns with counterparty collateral eligibility schedules.
“The ability to run a securities lending programme at a high level of efficiency with embedded compliance in your tokens, this more than pays for itself,” says Chakar. “This enables 24/7 trading, without requiring that the firm maintains a network of trading desks around the world.”
These are the building blocks of the Securrency ecosystem, she explains, offering liquidity access and market making, along with an electronic DLT-based record of legal ownership. The task now is to expand the network to deepen liquidity, to extend product distribution and to improve efficiency in managing lifecycle events.
Significantly, the Securrency tokenisation engine enables users to take any open-source smart contracts and to add their own specific business- and compliance-driven requirements when writing new smart contracts. “Multiple tokenisation companies have grown up across the industry, but it is rare for them to provide interoperability, the ability to support a wide array of industry-standard tokens, the compliance element and the capacity to deliver a capital markets stack from client onboarding through transfer agency and brokerage,” she says.
Based on this programme, Chakar suggests that Securrency has developed a proof-of-concept that demonstrates that it can replicate the key components of the securities transaction lifecycle based on tokens in smart contracts.
In regulating these activities, financial supervisors are particularly focused on consumer protection, on anti-money laundering and know-your-customer validation, and on containing any potential systemic risks. With this in mind, the financial authorities are maintaining a close dialogue with Securrency and other digital asset platforms to promote this safety and risk control across the digital asset lifecycle.
It has been a long road to this point but, for Chakar, the investment and hard work are paying off. WisdomTree will be the first firm to go live with the Securrency platform, with the launch expected in the next two months. “I have joined as chief executive to bring my capital markets expertise and to help Securrency to expand our digital ecosystem, to commercialise our technology and bring this to market,” she says.
From her experience in the digital asset marketplace, Chakar is very aware of how fast this sector is evolving and the huge potential this offers. “I am interested in playing a key part in building something that will transform the industry for generations to come,” concludes Chakar. “Alongside this, I aim to nurture a company that reflects greater diversity, equality and inclusion and to mentor younger talent that will embrace these principles and carry them forwards. I find that prospect very exciting.”
US-based digital markets infrastructure specialist Securrency has been active on the frontline in confronting this challenge, working to develop institutional-standard decentralised finance technology, tokenisation engines and account management tools hosted on blockchain.
Headquartered in Washington DC, Securrency was founded in 2015 by chief technology officer Dan Doney. It also established operations in Abu Dhabi in 2017 and is regulated by the Abu Dhabi Global Market (ADGM) Financial Services Regulatory Authority (FSRA), with the company continuing to host a share of its operations and a sizable staff team in the emirate.
Nadine Chakar joined as chief executive in January 2023, having previously headed State Street Digital and, prior to this, fronted State Street Global Markets. Earlier in her career, Chakar had been CEO of ABN AMRO Mellon after the merger with BNY Mellon and CIBC and subsequently became global head of financial institutions at BNY Mellon SA.
With Chakar joining as Securrency chief executive, this has given freedom to Doney to focus his energies on the CTO and lead architect roles, concentrating on solutions development and delivery.
The company is privately owned, with US asset manager WisdomTree, State Street, US Bank, and Abu Dhabi government-backed strategic investment companies Mubadala and ADQ as its major funding partners.
WisdomTree was a lead investor in Securrency’s Series A funding round at the end of 2019 and featured at the heart of the US$30 million Series B investment, alongside Abu Dhabi Catalyst Partners, State Street and US Bank in April 2021. In extending this finance, WisdomTree indicated that it was attracted by the potential that decentralised finance offers to deliver greater automation, transparency and improved audit standards in financial services.
Elaborating on this investment partnership at the time of the Series B funding round, WisdomTree highlighted how one of its foremost development priorities lies in evolving open-ended funds — regulated in the US by the 1940 Investment Company Act — through applying blockchain technology and drawing on the distributed-ledger technology (DLT) and business expertise offered by Securrency.
The fund manager anticipated that its investment in Securrency would also create opportunities to deliver a wider set of features to support mutual fund issuance, including peer-to-peer fund transfers and secondary market trading. The aim, it says, is to create blockchain-enabled WisdomTree funds with features that extend beyond ETFs, while drawing on the advantages of its “modern alpha” strategy — one that targets the outperformance potential of active management with the benefits of passive investing. Its search is to identify innovative technology that will deliver disruption to the ETF marketplace in the way that ETFs have delivered to mutual funds.
Solutions portfolio
Securrency describes its core platform, the Capital Markets Platform (CMP), as an integration and harmonisation solution that brings together each of the fundamental components of the digital assets market in one place. The objective is to deliver an automated and interoperable DLT-based front-to-back digital infrastructure, providing “compliance-aware” tokenisation, client onboarding and account management services, along with advanced analytics and regulatory reporting.
The client can communicate with the platform via open API, a web-based user interface or by mobile app. The benefits, it notes, include faster time to market, stronger interoperability between DLT platforms and across tokenisation protocols, and the potential for CMP users to generate stronger revenues by digitising issuance in public and private markets.
“We view this capital markets platform as having two edges,” explains Chakar. One edge integrates with the client’s legacy environment, bringing the flexibility and additional functions offered by the Securrency platform without the need for the client to undertake a wholesale transformation of its core technology to realise the benefits of this distributed ledger based solution. The second edge is a client-facing portal, providing a user-friendly interface which enables the user to integrate the benefits of the CMP platform into their business model, from onboarding and KYC/AML across the trade lifecycle.
Complementing the CMP, Securrency is building a data platform called LedgerScan that was conceived initially to meet a Securities and Exchange Commission (SEC) requirement for WisdomTree. The US securities market regulator provided authorisation for WisdomTree to natively issue their ‘40 Act funds but specified that all official records should be held off blockchain. To accommodate this, Securrency designed a solution, built in collaboration with Google, to reconcile all on-chain and off-chain records in real-time. This data can then be made accessible to the user, or to their service intermediaries, in a format that can be easily handled by their legacy accounting systems.
For Chakar, the jewel in the company’s solutions portfolio is its Digital Asset Composer, a no-code tool to compose smart contracts. This can take a range of smart contract designs — whether open source, a proprietary design or a smart contract issued by an industry peer — enabling firms to build rule sets into a token that can, for example, enforce jurisdictional regulatory obligations, trade and liquidity requirements or fulfil client authorisation and authentication.
Summarising these thoughts, Chakar indicates that Securrency is applying a smart blockchain infrastructure to build towards an institutional DeFi offering. “We start with compliance, we overlay this with tokenisation and then we overlay this with data,” she says. “The Smart Contract Composer sits on top of these core modules, enabling the user to craft their own contracts. This is how we believe we can deliver an institutional-grade service, one that is fully compliant with regulations applicable to institutional investors and which helps to fulfil their responsibilities as fiduciaries.”
Within the Securrency ecosystem, the firm also operates an Abu-Dhabi-based broker-dealer, Securrency Capital, which was established in April 2022 and offers brokerage services for digital and traditional assets, utilising the CMP platform front-to-back. Inter alia, this supports the tokenisation and fractionalisation of tradable securities, offering full support around the issuance, governance and lifecycle management for these regulatory-compliant tokens.
WisdomTree has close to US$90 billion in assets under management and predicts that at least 10 per cent of this AUM is likely to be represented in tokenised form, indicating a pipeline of more than US$9 billion in natively-issued digital assets on the platform. These digital assets in the WisdomTree product range are issued on blockchain, with the ownership record managed on chain.
Chakar likens this arrangement to setting up an investment bank or fund manager in a box which is then powered and operated by the end client. “Securrency does not operate these functions,” says Chakar. “We provide the technology layer and help the client to deploy the technology that best suits their use case,” she says. Through this arrangement, for example, WisdomTree manages the investors’ digital wallets and acts as a liquidity agent and distributor for its investment products, but with the activity hosted largely on Securrency’s platform.
Until recently, Securrency also maintained a digital transfer agency (TA) platform as part of its service portfolio — a solution also developed initially to support the requirements of WisdomTree’s product range — but the asset manager has now taken the operation of this TA service in-house. This now forms a key building block in its WisdomTree Prime service, a direct-to-retail digital wallet available to the customer via a digital app or web portal. To provide an integrated post-trade environment for this activity, Securrency has also integrated WisdomTree’s main custodians, State Street and HSBC, onto its CMP platform.
Widening the network
As this network expands, Chakar predicts that the advantages that it offers to participants in this digital ecosystem will continue to build. From a securities finance perspective, one of the benefits is that it has enabled users to create a securities lending pool of assets that can be managed using smart contracts. This enables the firm to integrate digital instruments within its pool of lendable assets and to mobilise digital assets as collateral in cases where this aligns with counterparty collateral eligibility schedules.
“The ability to run a securities lending programme at a high level of efficiency with embedded compliance in your tokens, this more than pays for itself,” says Chakar. “This enables 24/7 trading, without requiring that the firm maintains a network of trading desks around the world.”
These are the building blocks of the Securrency ecosystem, she explains, offering liquidity access and market making, along with an electronic DLT-based record of legal ownership. The task now is to expand the network to deepen liquidity, to extend product distribution and to improve efficiency in managing lifecycle events.
Significantly, the Securrency tokenisation engine enables users to take any open-source smart contracts and to add their own specific business- and compliance-driven requirements when writing new smart contracts. “Multiple tokenisation companies have grown up across the industry, but it is rare for them to provide interoperability, the ability to support a wide array of industry-standard tokens, the compliance element and the capacity to deliver a capital markets stack from client onboarding through transfer agency and brokerage,” she says.
Based on this programme, Chakar suggests that Securrency has developed a proof-of-concept that demonstrates that it can replicate the key components of the securities transaction lifecycle based on tokens in smart contracts.
In regulating these activities, financial supervisors are particularly focused on consumer protection, on anti-money laundering and know-your-customer validation, and on containing any potential systemic risks. With this in mind, the financial authorities are maintaining a close dialogue with Securrency and other digital asset platforms to promote this safety and risk control across the digital asset lifecycle.
It has been a long road to this point but, for Chakar, the investment and hard work are paying off. WisdomTree will be the first firm to go live with the Securrency platform, with the launch expected in the next two months. “I have joined as chief executive to bring my capital markets expertise and to help Securrency to expand our digital ecosystem, to commercialise our technology and bring this to market,” she says.
From her experience in the digital asset marketplace, Chakar is very aware of how fast this sector is evolving and the huge potential this offers. “I am interested in playing a key part in building something that will transform the industry for generations to come,” concludes Chakar. “Alongside this, I aim to nurture a company that reflects greater diversity, equality and inclusion and to mentor younger talent that will embrace these principles and carry them forwards. I find that prospect very exciting.”
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