ETFs changed how millions of people invest by pulling money out of traditional mutual funds. Now Wall Street is testing what could come next, with major asset managers already putting funds on a blockchain. Cormac Daly, Founder and CEO of Nashpoint, explains why he believes the vault could do to the ETF what the ETF did to the mutual fund. He also covers why tokenized funds from big names are not yet the finish line, how assets stay protected, what is holding asset managers back, and why the UAE is on his radar.
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After the ETF What Comes Next for Funds and Why Vaults Could Replace the Back Office
You have said that what the ETF did to the mutual fund, the vault will do to the ETF. That is a big claim. Make the case.
It is about programmability and efficiency. Minting an ETF token, a normal transaction, can settle over days. On a blockchain it can happen in seconds. You are taking processes on legacy rails that require multiple days and compressing them into an instant, which is a massive cost saving opportunity for asset managers. On top of that you get all of the new powerful features enabled by the blockchain. That is the programmability, the ability to create customised, complex portfolios specific to each customer that match their risk profile.
BlackRock already has a tokenized fund. Why is that not the finish line?
BlackRock tokenizing their funds is amazing. It is the world changing in real time in front of our eyes. But even though they can now offer these funds on the blockchain and achieve new distribution and integrate into the existing system, it still inherits all the limitations of the legacy system. Even though you are looking at a token on the blockchain, in the back end it is still some guy with an Excel spreadsheet. It is still data that needs to be reconciled across multiple actors. When you put this on a blockchain natively and actually create the portfolio on the blockchain, all of this becomes programmatic, instant and efficient. Essentially you are taking the entire fund management back office and replacing it with code.
When people hear crypto and vault in the same sentence they think of hacks and lost money. Who actually holds the assets, and how do you keep bad actors out?
For the last five or six years we have worked in an environment we call DeFi, which is unregulated finance on the blockchain. It is incredible, but it is not ready for prime time and not ready for institutional asset managers. Institutional asset managers need risk isolation, a separation between the asset manager and where the funds are stored. Nashpoint addresses this directly. We work with the custodian, so instead of a vault existing in isolation on a blockchain, you get all of the guarantees, the insurance and the oversight you get from a traditional institutional solution, while getting all of the benefits of offering and executing the product on the blockchain.
What is the biggest hesitation you hear from the large asset managers you are meeting?
One thing: uncertainty. That is what we are trying to address. All of the biggest asset managers in the world see the opportunity. They see new competitors emerging and offering unregulated products and succeeding, and growing. They want to do the same, but they cannot because of their fiduciary responsibilities. They have to follow the law. Instead of existing in the unregulated space, we map our technology one to one onto existing US securities regulations, which means they can work with us and know they are working within the law. They do not need to wait for new regulations or for a new asset class, the vault, to be defined in Congress. We have it right now, today.
Do you have plans for the UAE?
Absolutely. We are a small team, so we are focused on the US today, but we plan to grow into all markets over time. The UAE and the Middle East generally is an incredibly interesting market for us because it is a hotspot for innovation. We see real projects happening right now. For example, Franklin Templeton, one of the biggest asset managers in the world, is now offering a tokenized money market fund directly in the UAE. We see further innovation in this space and a big opportunity for Nashpoint over time.
What do the next five to ten years look like?
The next one to two years is about getting the first couple of products out the door with some of these big asset managers and getting them comfortable with the space. Ultimately we replace the entire fund industry on chain. Your fund admin, your custodian, your transfer agent: these are all functions in the traditional fund industry that become really nice products to offer on the blockchain natively. That is what we are going to do.