Tokenization on the Blockchain: Unique Challenges and Benefits and Its Use by Hedge Funds (Part One of Two)

The use of bitcoin and other cryptocurrencies has exploded in recent years, pushing the underlying blockchain technology into the spotlight. The private funds industry has struggled, however, to develop ways to take advantage of that new technology. Fortunately, tokenization of tangible assets on the blockchain may provide a path forward for the technology to modernize and improve the industry as a whole. Those concepts were presented in a recent white paper (Paper) co‑authored by the Chartered Alternative Investment Analyst (CAIA) Association, BNP Paribus Asset Management (BNPP AM) and Liquefy, a licensed financial technology platform. In addition, CAIA hosted a webinar to explore the Paper’s findings in further detail, which was moderated by Jo Murphy, managing director at CAIA, and featured Emmanuelle Pecenicic, digital transformation manager at BNPP AM; Adrian Lai, CEO of Liquefy; and Jack Wu, director at CAIA. This first article in a two-part series explores drivers of tokenization in the alternative investments industry, some of the benefits it can offer and ways it can be used effectively in the hedge funds industry. The second article will describe how tokenization can be applied in the private debt industry, as well as forecast where the sector is heading. See our three-part series on blockchain and the private funds industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption” (Jun. 15, 2017).

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