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Decentralizing Finance

consequently impacting the overall portfolio. The main issue was that although secu­

ritization of MBS brought liquidity, its underlying exposure in the repackaged prod­

ucts could not be traced. Traceability of tokens fixes this problem, as the connection

to all the underlying assets with a repackaged product is clear and tamper-proof.

Thus, the exposure of all assets can be determined even if the product is erroneously

or fraudulently rated as a AAA investment-grade product. If rating agencies fail

to carry out their duties, the innovative repackaging of financial products to create

more liquidity remains possible via tokens, as the underlying exposure is transparent

and can be diversified accordingly without being misdirected by asymmetric or false

rating information.

Tokenization will also unleash new business opportunities in the area of custody,

the safekeeping of real assets, wealth and investment advisory. In particular, the

impact on the asset management industry is projected to be quite significant, espe­

cially in terms of portfolio construction. Assets under the investible universe would

traverse beyond traditional equities or bonds. Asset managers of this new asset class

will not only have a new opportunity set for portfolio construction but will need to

hone their skills in fundamental research, price discovery and investment-related

views to determine what price to pay versus the value the investor gets in return.

Ultimately, the core task of active management and its importance will be in demand

in this new space. Part of the new capabilities that asset managers need to recruit or

acquire are direct real estate expertise, valuation of works of art expertise, and patent

and technology expertise, among others, in order to accurately determine the value

of the underlying asset, assess its market price and eventually inform an investment

decision.

13.9  SELF-GOVERNANCE, SELF-REGULATION

AND CYBERSECURITY

Blockchain-based frameworks can be addressed as the management of identity, pri­

vacy and security across regions and platforms by decentralizing and distributing

organization. Such dispersed platforms provide integrated systems like an identity

and the ability to make and “receive payments, pass in composite agreements and

conduct without an intermediate” (Mohamed & Ali, 2019).

The only way to comfort acquiescence loads is to construct and organize finan­

cial and investment management resolutions by means of blockchain. The ability of

blockchain to authenticate and verify information through a consensus mechanism

provides a trusted way to identify persons or parties, which makes the entire transac­

tion reliable and trustworthy. Hence, a financial and investment management system

on the basis of cryptography can be developed via anti-money laundering (AML),

counter-terrorism financing (CTF) and know-your-client (KYC) requirements as per

the rules set in each region or country. The whole explanation is focused on the

distributed ledger, where an enterprise is a node in the blockchain network, and the

platforms developed by asset management companies are driven by an AI engine

that checks on AML, CTF and KYC compliance and builds a database of records.

Computerized audits, programmed reporting and process restructuring are other