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Blockchain In Luxembourg : Real Investment Fund Transaction Based On Blockchain

Natixis Asset Management announced that investors have successfully purchased shares in its funds through FundsDLT, the Luxembourg blockchain-powered fund distribution platform for fund managers. This is the first real blockchain transaction in the global investment fund industry.

This article covers blockchain and investment funds in Luxembourg:

  • Distributed Ledger Technology and Blockchain Success
  • Investment funds and a real transaction made via Blockchain
  • Blockchain-powered asset management and the new law in Luxembourg
  • Blockchain will impact Luxembourg’s economy at large

Distributed Ledger Technology and Blockchain Success

Distributed Ledger Technology (DLT) and Blockchain success lies in: 

  • unchangeable, and immutable, traceable transactions in a public digital ledger
  • highly secure based on cryptographic methods

The blockchain’s main purpose is to certify transactions between people. This is especially desirable for applications where transparency, auditability and traceability are important.

Blockchain can be applied to the following areas :

  • copyright;
  • patent registration;
  • medicine safety;
  • banking;
  • finance;
  • supply chain;
  • energy;
  • Read also in education: Blockchain Basics.

Investment funds and a real transaction made via Blockchain

An investment fund, as stated  is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group. These advantages include an ability to:

  • hire professional investment managers, which may potentially be able to offer better returns and more adequate risk management;
  • benefit from economies of scale, i.e., lower transaction costs;
  • increase the asset diversification to reduce some unsystematic risk.

There are various types of investment funds. Three major are: 

  • Pension Fund: which provide retirement allowance, which do not take risks
  • Hedge Fund: which use a wide range of assets to generate higher margin for a higher given risk
  • Venture Capital: which help startup and early stage companies that show high-growth potential to develop

Investors can invest in startups, more mature companies, real estates, energy and even currencies, and many more immaterial goods. Thus the whole economy can be empowered by investment funds. 

FundsDLT uses Blockchain to tackle investment fund challenges

Lack of interoperability between actors and costly distribution of investment and new regulations might leave some Asset Managers with no distribution network.

FundsDLT – initiated by Fundsquare in cooperation with ICT and fund transfer companies, has enabled a successful real cash and real fund transfer between investors, based on blockchain technology, revealed Natixis Asset Management

FundsDLT’s goal is to build a DLT servicing the entire fund management lifecycle. 

“The successful transaction is a significant milestone for Luxembourg’s FinTech environment and its investment fund industry”, reports Luxembourg for Finance.

“We are close to having an industrial product that could be used in different configurations: distributors, IFA, robo advisors and D2C.” Said Fihri of KPMG Luxembourg

“Natixis Asset Management is delighted to have contributed to this pioneering first blockchain enabled trade via the FundsDLT platform.” Matthieu Duncan, CEO of Natixis Asset Management

Blockchain-powered asset management and the new law in Luxembourg

Luxembourg is a world wide investment funds center and wants to stay on top

In this paper Luxembourg For Finance reports some noticeable initiatives based on Blockchain :

    • Fundchain – has already deployed a proof of concept (PoC) initiated by Scorechain
    • Infrachain – a non-profit public-private initiative aiming to build the first worldwide trusted cooperative blockchain environment that respects regulatory and compliance guidelines

Investment funds are crucial to blockchain projects

For start-ups, 92% of blockchain projects still fail and have an average lifespan of about 15 months. With such short life cycles, time to market almost always has priority over security: this needs to change, and the best way to do that is through investors, as recommended by the World Economic Forum.

Luxembourg’s new law enhances blockchain investment

In 2019 on his website, the government of Luxembourg voted on a new law, giving a safer environment to blockchain investors, and making asset transfer more effective by reducing the number of participants. 

The Law explicitly recognizes the possibility of using public electronic registration mechanisms, such as the Blockchain, for holding and moving financial instruments, thus offering more transparency and certainty to financial market participants. 

By passing this Law, Luxembourg has become the first country in the European Union to have a regulation on this matter, explains Arnone & Sicomo

 

Blockchain will impact Luxembourg’s economy at large 

Digital-Luxembourg summarises: According to the World Economic Forum, 10 percent of global GDP will be stored on blockchain by 2027 and the World Trade Organization estimates that, by 2030, blockchain deployment could add $3 trillion to international trade.

The Grand Duchy established a list of use-cases where Blockchain will impact:

  • copyright;
  • patent registration;
  • medicine safety;
  • banking;
  • finance;
  • supply chain;
  • energy;
  • real estate market;
  • health;
  • retail;
  • smart cities;
  • art market;
  • agriculture and food;
  • manufacturing.

 

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Image: Laurent Verdier 

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