On July 2, 2018, Reason and The Soho Forum hosted a debate between Erik Voorhees, the CEO of ShapeShift, and Peter Schiff, CEO and chief global strategist of Euro Pacific Capital. The proposition: “Bitcoin, or a similar form of cryptocurrency, will eventually replace governments’ fiat money as the preferred medium of exchange.”
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It was an Oxford-style debate in which the audience votes on the resolution at the beginning and end of the event, and the side that gains the most ground is victorious. Voorhees won by changing the minds of 15 percent of attendees.
The Soho Forum is held every month at the SubCulture Theater in Manhattan’s East Village. At the next debate, which will be held on August 27, William Easterly, professor of economics at NYU, and Joseph Stiglitz, a Nobel Prize Winner in economics and professor at Columbia, will discuss whether free markets or government action is the best way to eliminate global poverty. You can buy tickets here.
The math behind cryptocurrencies.
Vanguard, the 44-year-old mutual giant famous for popularizing index investing, has completed one of the most noteworthy implementations of blockchain technology for a financial institution to date. It’s now using blockchain—the distributed ledger software that underpins cryptocurrencies like bitcoin—to help manage data for some of its most widely used financial products, including its largest mutual fund, the $800 billion Total Stock Market Index Fund.
Since February, Vanguard has been using a blockchain product to ingest data for $1.3 trillion worth of funds, or one quarter of its total $5.2 trillion in assets under management. Many financial institutions have been implementing and testing blockchain on a limited scale, as Forbes recently reported in our first-ever Blockchain 50 list. But Vanguard’s project is live as the back-end platform powering millions of customer accounts. It’s likely the first major financial institution using blockchain for a core service.
The company behind Vanguard’s blockchain experiment is Symbiont, a six-year-old New York startup with 75 employees. Symbiont’s products aim to serve different functions for financial institutions, ranging from tracking the full life cycle of a mortgage security to settling securities trades. For now, Vanguard uses Symbiont just to manage index data.
The data source Vanguard uses for its mutual fund indexes isn’t changing. What’s new is its process for pulling in the data. Since 2012, Vanguard has used the Center for Research in Security Prices (CRSP), a research center at the University of Chicago, to support many of its indexes. CRSP indexes are baskets of securities that aim to mirror the value of a given market. Its research dictates what stocks should be included in a given index and what their concentration should be.
Before working with Symbiont, Vanguard used a manual process to update its CRSP-based indexes. It received individual files with point-in-time securities data. Then it had to clean that data, load it into a separate database and perform checks to ensure its accuracy, says Warren Pennington, head of Vanguard’s fintech strategies team. “All day long, throughout the day, we had data team members making sure they could keep data in sync with what CRSP had in mind,” he says.
With Symbiont’s blockchain platform, Assembly, Vanguard has “a synchronized database that is constantly updated every time CRSP makes a change to the index,” Pennington says. “No more manual updates or manual pulling of data. No more manual reconciliations.”
Technically, you don’t need a blockchain to get instant updates to a shared database—that could be done with older technology. But Symbiont has pursued a blockchain architecture to try to increase client trust. Its blockchain aims to serve as an independent third party that hosts information securely across a network of computers that Symbiont doesn’t own (they’re owned by the organizations participating in the shared blockchain ledger), preventing Vanguard from having to trust the startup to keep the data safe.
For now, Vanguard, Symbiont and CRSP are the only organizations with access to the index data blockchain. But Ron Papanek, a managing director at Symbiont, says half a dozen other asset managers have run test versions of the software and are considering participating.
Vanguard first started working on this project in mid-2017, and using a team of less than ten people, it took nearly two years to go live. “One of the challenges in a highly regulated industry is just lack of familiarity,” Pennington says. “That’s what takes time—letting people get familiar.” Much is at stake—any errors can cause Vanguard’s funds to fall out of sync with the markets they’re trying to track, which would lower the quality of its products and could scare off investors.
For Vanguard funds that use CRSP indexes, Symbiont’s software has fully replaced Vanguard’s old system of manual data updates. Pennington says Symbiont’s software has saved time for Vanguard, but that’s not the primary goal. “It’s more like an R&D investment with an actual deployment as a result, which truly improved the way we run our fund.”
Pennington isn’t yet ready to use blockchain to replace a higher-stakes process, like clearing trades, but he’s not ruling it out for the future. “This project isn’t the end,” he says. “It’s a step where we thought we could get more comfortable.”
- Vanguard Group is testing a blockchain-powered platform that would allow asset managers to trade currencies without using major banks as intermediaries, Bloomberg reported Thursday.
- The currency market handles $6 trillion each day, and is currently dominated by firms like JPMorgan Chase and Citi.
- Vanguard’s platform would skirt the banks’ fees through peer-to-peer trading, and has already handled a few trades, a source told Bloomberg.
- Visit the Markets Insider homepage for more stories.
Vanguard Group is testing a blockchain-powered platform for asset managers to trade currencies, Bloomberg reported Thursday.
An entry into the sector from Vanguard could bring long-sought change to the bank-dominated currency market. The investing giant already disrupted the finance world by introducing low-cost index funds to the masses.
Asset managers currently rely on banks as intermediaries for currency trades, even after buy-side companies began matching trades on electronic services in the 2000s. The system being tested by Vanguard would sidestep the traditional players and their fees, Bloomberg reported.
The investing giant’s service has been working for two months and has already handled some trades, a source told Bloomberg. The platform uses the same blockchain technology behind bitcoin to match trades, and could cut trade expenses if enough users join the service.
“In theory, it sounds great because you can reduce your costs if you can match directly with someone else who has a countervailing interest,” Campbell Adams, a former Deutsche Bank senior currency trader and the founder of ParFX, told Bloomberg. However, such a platform “will require a critical mass of users” if it wants to bring a discount advantage to the massive sector, he added.
The investment advisor has previously hinted at efforts to compete in peer-to-peer trading. Andy Maack, Vanguard’s global head of foreign exchange trading, told The Trade there’s a “tremendous amount of interest in the potential for disintermediation.”
Peer-to-peer trade matching “is pretty intriguing, especially for the foreign exchange markets which only really started to seriously explore this topic in recent months,” he added in the September interview.
The company didn’t comment further on plans for the platform, but noted its interest in currency hedging and lowering “the cost of investing for all investors.”
“Vanguard is currently piloting a project focused on improving the efficiency and reducing risk of FX hedging,” Vanguard spokesperson Carolyn Wegemann said in a statement to Business Insider. “Given the project is still in the pilot stage, we can’t comment further.”
Vanguard has more than $5 trillion in worldwide assets and is the world’s largest provider of mutual funds. It also provides exchange-traded funds that track major stock indexes.