(Kitco News) – As news headlines focus on spot Bitcoin (BTC) exchange-traded fund (ETF) flows and the latest institutions to divulge exposure to the BTC ETFs, in the background, financial service infrastructure providers are hard at work integrating blockchain technology into their systems.
According to a new report from the Depository Trust & Clearing Corporation (DTCC), the firm recently completed a pilot program – dubbed Smart NAV – in conjunction with Chainlink (LINK), which was “designed to explore an extension of a DTCC service, Mutual Fund Profile Service I (MFPS I), the industry standard for transmitting ‘Price and Rate’ data (referred to as ‘NAV data’).”
DTCC’s Mutual Fund Services business currently operates MFPS I, an industry standard that provides fund companies with an automated solution for delivering prices and daily distribution rates to thousands of clients for tens of thousands of mutual fund securities.
In the current process, DTCC links funds/service providers and distributors (or other interested parties), collecting price and rate data via its message queue (MQ) and file-based methods, aggregating and disseminating at regular intervals.
The Smart NAV Pilot was designed as a digital extension of the existing MFPS I service, seeking to extend and complement its current capabilities.
“In recognition of increased industry attention on mutual fund tokenization, DTCC identified an opportunity for on-chain price and rate data that can serve as a key enabler to the exploration of new initiatives,” the DTCC said in a release. “Taking a ‘chain-agnostic’ approach (i.e., the ability to disseminate the NAV data across (virtually) any blockchain) would be key to enabling other use cases to build atop Smart NAV’s foundations.”
A total of ten market participants – including American Century Investments, BNY Mellon, Edward Jones, Franklin Templeton, Invesco, JP Morgan, MFS Investment Management, Mid Atlantic Trust d/b/a American Trust Custody, State Street and U.S. Bank – joined the DTCC and Chainlink on the pilot.
They worked together to “evaluate the feasibility and industry value of delivering a DLT-based price and rate dissemination solution that can enable new benefits and support experimentation in the asset management space,” the release said.
The results of the pilot showed that delivering structured data on-chain and creating standard roles and processes allowed “foundational data to be embedded into a multitude of on-chain use cases, such as tokenized funds and ‘bulk consumer’ smart contracts, which are contracts that hold data for multiple funds.”
“This capability can support future industry exploration and can power numerous downstream use cases as well, such as brokerage portfolio applications,” the DTCC said. “Additional benefits include real-time, more automated data dissemination and built-in access to historical data.”
The simplest application of Smart NAV is to provide the capability to make trusted, verifiable data available on “virtually any blockchain network(s) to support the use of that data in business workflows,” they said.
During the pilot, DTCC served as the provider of that data as well as the governor of the on-chain solution that stores that data, while Chainlink’s CCIP served as the interoperability layer. “The core capability explored is applicable across endless use cases that could ultimately power more streamlined and efficient operational processes,” the report said.
“Based on these findings, we see an opportunity to potentially expand the scope of the pilot to explore how the technical capability leveraged in the pilot could power a broader range of use cases beyond the dissemination of price and rate data and across a greater number of blockchains,” the DTCC concluded.
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