Digitally-Native Financial Assets are our Future

Digitally native assets live in an entirely digital state; there is no offline processing or intervention needed to issue/originate, sell, manage/service or trade a digitally-native asset. This means that aspects of the financial asset lifecycle, such as how money is transacted can be done instantaneously in a decentralized manner without money being exchanged between two centralized systems, as it works with two-three day processing of ACH today.

This is of course not entirely possible for physical assets, though most financial asset lifecycles can technically be entirely digital. For those assets, such as a house or piece of artwork, a non-fungible token can substitute as the representation of that asset, in order to track ownership, loans, leans and transactions.

When most think of what a digital experience is, we think of our personal experience online - finding, buying, transacting, and managing the services we buy and subscribe to, in seemingly real-time. Though when you pull the curtain back, as many of us know from our work lives, it’s not so digital. The back-offices are still mired in lengthy and costly operations.

For instance, in financial services, intermediaries are needed to settle financial transactions. You may ask, why. If you plan to make a major purchase from someone you have not met and do not know, how could you be certain you will get the real asset, with the conditions warranted? And on the flip side, how can the seller be certain that you have the necessary cash, and that they will receive all of the cash. Intermediaries enable that trust, and rightfully so, these intermediaries come with costs - time and money, and they are not without risk.

A Web3-enabled world, couples together the front-end experience with a full digital back-end leveraging blockchain technology, which solves for the back-off process that involve these intermediaries. Financial assets and services that originate on and live on blockchain technology are digitally-native.

As mentioned above, all financial assets can have an entirely digital life cycle. Let us consider a few harder examples:

Loans

Often loans are used to purchase physical assets, such as a far or a residence. These physical assets can be represented by a digital representation of ownership, interest rights, and information about the asset, such as VIN number, model, year, etc. This digital representation is a non-fungible token (NFT). That NFT can be created, transferred, amended and serviced completely online and through decentralized blockchain technology, where, even at the end of the asset lifecycle, it can be destroyed.

Payments

Today, as consumers we use digital apps to send money, occasionally we write checks, withdraw money from an ATM, use a credit card, or visit a money transfer retail store. Whichever route you take, as seamless as it may appear in the user interface or customer interaction, there’s at least one intermediary, often multiple, involved in that transaction. Each intermediary takes a cut. A fully digital asset requires digital currency and a digital wallet, which you yourself can custody. You can push money to another wallet anywhere in the world through a decentralized blockchain without an intermediary involved.

The digital nature of these financial assets enable better accessibility, increased liquidity in certain cases, and have the ability to significantly reduce the operating costs and allow new revenue-streams made possible by blockchain technology.

Similar to today, administrators require a digital interface to interact with - to make necessary inputs. What is different is that this digital interface sits on top of decentralized blockchain technology. Blockchain technology is the new component that enables the back-office processes to work without intermediaries and offline processes. And as a result of blockchain technology, that digital interface will have access to real-time information being processed on the blockchain, such as a real-time view of who your shareholders are and true up-to-the second verification that the buyer/borrower has the resources to make the transaction.

Today, there are various platforms that provide that digital interface and plug into decentralized blockchains, such as Figure which supports Lending, Fund Management, Broker-Dealer Services, and Equity Solutions.

The lifecycle of any financial asset can be digitally-native, where the entire lifecycle of the asset is managed on decentralized blockchain technology. Digitally-native assets create material value for both clients, and asset issuers and service providers by removing intermediaries that otherwise introduce cost, risk and settlement delays. Blockchain technology enables instantaneous settlement, increased accessibility, increased transparency, and new revenue streams for financial institutions.

Many blockchains exist for various purposes. Specifically for financial services, Provenance Blockchain is leveraged by innovative and leading financial institutions and fintechs to manage the lifecycle of financial assets.