SINGAPORE (Jan 31): As blockchain technology continues to attract investors and portfolio managers, Singapore based fintech startup DEXTF has devised a platform to make the process much easier. Not only will it make the fund management industry more cost-efficient and accessible, the company is also hoping its platform will attract even everyday institutional investors.
When asked to explain its software, the company’s co-founder and president Mario Aquino says it’s like “asset management 2.0”. DEXTF – which stands for decentralised trading funds – allows portfolio managers to, in a matter of minutes, create new funds and define their investment strategies using blockchain technology.
Blockchain records cryptocurrency transactions in a distributed digital ledger that is maintained across several computers. This means the transactions are transparent to all parties involved, in order to prevent fraud and money-laundering.
“Investors are able to create or list a fund on the platform, which then gets exposed to the right type of investors that we have categorised for them in the jurisdictions they’re listed under,” Aquino tells The Edge Singapore in a recent interview.
But it’s not just about making transactions easier. DEXTF is also looking to make the investment process even more seamless. For example, they aim to code the respective jurisdiction’s regulations directly into the smart contract for investors.
“If you’re a Singapore-based fund manager, we’ll have a template at the click of a button that enables you to comply with all the regulations of the Monetary Authority of Singapore. This would mean that your fund will not be allowed to do certain things, in compliance with the state’s regulations,” Aquino explains.
He believes DEXTF will also make fund management more efficient, without compromising the compliance requirements of the relevant jurisdiction. “The regulator does not have to check and chase for compliance, because compliance is no longer a mere afterthought. It’s embedded into the contract,” he says.
However, Aquino says that their platform differs from the traditional asset management model where third-party custodians hold the assets. Instead, DEXTF allows investors to retain “full custody” of their assets. “That’s the novel part of DEXTF. The ultimate investor has much lower risk, because they retain ownership of the assets,” he says.
Before setting up operations in Singapore, the DEXTF team did extensive market research and found that investors were “uncomfortable” with the risks associated with the lack of custody over their assets. “Although the blockchain technology is generally safe, DEXTF brings an additional level of security through its decentralised custody concept,” claims Aquino.
“In terms of transactions, blockchain itself is fairly secure. But what isn’t exactly secure is the ability to take over the control of other people’s assets,” he adds. “The crux of DEXTF is tackling this particular pain-point.”
If DEXTF is able to do what it claims, it is positioned to capture a growing market. After all, the business of providing blockchain technology is growing: In an August study by global research firm Statista, worldwide spending on blockchain solutions is expected to grow from US$1.5 billion in 2018 to an estimated US$11.7 billion by 2022.
Halving costs
In their research, Aquino and his team also found that the investment scene worldwide was littered with hidden costs ranging from legacy infrastructure and custody compliance costs to fees for multiple intermediaries.
Aquino claims DEXTF can halve these costs by eliminating the need for multiple intermediaries. “Our infrastructure can connect asset managers directly with investors, without the need for intermediaries. The process becomes almost automatic,” he explains.
For instance, cutting out back-office costs such as record maintenance and regulatory compliance as well as middle office costs including financial services and IT expenses could help investors make more out of every dollar. “Asset managers today need to remain competitive by tackling cost pressures. Due to technological advancements, these costs can be eliminated, or even reduced,” he adds.
Aquino claims the way DEXTF operates can be applied to other asset classes or even create new types of investible products. “You can basically think of making anything an asset – from intellectual property rights to more exotic classes like arts and wine. This unlocks huge growth potential for the industry,” he adds.
Due to its efficient operating structure, DEXTF claims to be accessible to a wider demographic of investors – and not merely high net worth individuals well served by highly paid professional managers.
In their research, DEXTF found that portfolio managers today face high barriers to entry. “If you don’t have 50-100 million dollars in asset under management, your fund is not viable and the cost structure is not effective enough to put money into,” says Aquino.
On the other hand, many asset classes are only accessible to high net-worth or ultra-high net-worth individuals, thereby limiting the potential pool of funds that can be put to work. More investors, with lower quantum of investible funds, can therefore enjoy the potential upside of investing.
“Frankly, what’s really leaving some people behind in the investment race isn’t them not having a bank account, but instead denying them the ability to invest their savings,” says Aquino.
The company also aims to open up the addressable market and reach out to retail investors and not just institutional investors. “If an investor is unable to preserve his savings in a way that guards it against erosion overtime, then the divide between those who can and cannot invest widens,” he adds.
Facing curveballs
Being placed in the largest fintech ecosystem in South East Asia may have its advantages but the Italian-born Aquino admits that there is still some way to go for DEXTF, especially if it is looking to carve a name for itself in the highly competitive industry. And Aquino, for one, is ready to face the industry curveballs head-on. “Any product of innovation that does not scale, while nice and well, does not bring about positive benefits to society, corporates and the world. It is, therefore, necessary to pay attention to the right things that will push the product forward,” he says.
Looking ahead, Aquino is positive of his company’s chances. His biggest advantage, he says, is his team – unlike other companies that have founding members from similar industries, DEXTF’s team boasts people from different industries, bringing different types of expertise and experience to the table.
For example, he says DEXTF’s second co-founder Federico Cristina brings a wealth of experience from the financial sector. In addition to knowledge in areas such as securities trading and portfolio management, Cristina has also launched and developed several investment funds which have been sold to private and institutional investors.
Other co-founders are chief marketing officer Nicola Dalmazzo (previously with cosmetic company L’Oreal and Google) and chief financial officer Filippo Fanin, a qualified Chartered Financial Analyst (CFA) who was also previously the chief executive of local restaurant chain Brotzeit.
Meanwhile, Aquino was the co-founder of McKinsey Solution and managing partner of McKinsey New Ventures in Asia Pacific, where he had extensive experience helping clients across different industries implement their financial and technological plans. “For us to set ourselves apart from the rest, we had to combine the expertise of many industries,” he says.
DEXTF recently partnered with Mindful Wealth to test out its prototype. It also secured US$460,000 ($620,837) in a recent funding round that was closed on Nov 9 led by LuneX Ventures — the blockchain-focused arm of Singapore’s Golden Gate Ventures — and government-owned venture firm SGInnovate. Other participants in the funding round included partners at London-based hedge fund CDAM.
Since then, DEXTF has been working on the completion of its proof of concept, and will use the new capital to launch the product in the first half of 2020, and further refine and improve its technologies.
Aquino expects a busy year ahead for the company, as it has gotten enquiries from investors and clients across Southeast Asia, Europe and America.
As industries around the world rush to integrate technology into their processes, Aquino says the blockchain and fintech industry is no different.
“Beyond asset management, most tasks and activities in the world are based on delegation and outsourcing. If we’re able to unlock the delegation capabilities in blockchain, it brings with it a whole change to the industry at large,” he adds.
