Calastone recently launched its Tokenised Distribution solution. How does focusing on digital distribution through established transfer agency networks allow asset managers to scale faster than launching brand-new, natively issued digital funds?
Firstly, I believe that, at the moment, what is often described as digitally native is not yet onchain throughout the full lifecycle.
For a fund to be truly blockchain-native, it would have to be onchain throughout its whole processing lifecycle, and ultimately, that does not really exist today. Instead, when we work with asset managers and build out our propositions, we frame that as the end game. To achieve this goal, you have to move at a sensible pace in sensible steps, while simultaneously complying with regulations.
At Calastone, our first move was launching our tokenised distribution product, which takes existing funds that are already scaled and gives them a presence onchain.
We have utilised our existing connectivity infrastructure, supporting more than 400 message formats across the Calastone network, and built smart contracts that represent the fund trading lifecycle onchain. DeFi investors and distributors can either come directly onchain themselves or use an existing connectivity method to get into our network.
Either way, the outcome of their trade will be recorded by the transfer agent (TA) register and as tokens in their blockchain wallet.
We view it as a light-touch entry point for asset managers looking to start their tokenisation journeys, enabling access to pools of liquidity already sitting onchain.
Calastone is seeking to remove some of the barriers that exist in the DeFi space and ensure the smart contract model is an entry point that makes sense for everybody.
There is little upheaval for asset managers, TAs, or distributors on the other side of the trade. We are extending that model, with regulation allowing us to move more asset servicing processes onchain where it makes sense.
Having said that, putting a smart contract on a public blockchain does present some issues related to privacy. Once it goes onchain, transactions may become visible before they are even confirmed. Trade orders can be masked, but the firms we have been working with still view API and offchain connectivity as familiar and controlled ways to connect.
In Europe and the UK, something like an onchain register — a list extending out from TA records, showing legal ownership on the blockchain — is now permissible.
Beyond that, where it is most appropriate, Calastone will move more fund administration onchain. Unfortunately, at the moment, at least, not every administrative process benefits from moving onchain today, so the focus should be on the parts of the lifecycle where it creates clear value.
SS&C and Calastone connect traditional fund managers to multiple blockchain environments, including Canton, Ethereum, and Polygon. How does your platform ensure unified shareholder recordkeeping and TA oversight across fragmented public and permissioned ledgers?
The initial model is something that I would call ‘issuer-led tokenisation’. Instead of a mirror record, it is the direct representation of the fund units as a token, straight from the TA register, with smart contracts deployed on behalf of the asset manager. We are not a third party or an intermediary taking a position in a fund and tokenising.
We can leverage SS&C’s reach and provide a tightly woven legal onchain register of record holders, integrated into a processing engine. I believe these aspects all need to work closely together, something that is often overlooked in the industry.
Much of the market’s early focus on tokenisation has been on how funds are issued. Why does Calastone believe distribution — connecting existing funds with new onchain pools of investors and liquidity — represents the more immediate commercial opportunity for asset managers?
At Calastone, we have mapped out an entire end-to-end asset lifecycle for mutual funds. A few years ago, we did public work with an asset manager under Project Guardian in Singapore — testing and advancing the tokenisation of digital assets. The aim was to prove that the end-to-end concept would work. Now, when you speak to fund, investment, or asset managers in this space, they get it; they see the future and where we are headed. It is never going to be a seamless transition; new end-to-end books of record and processes take time. All of those capabilities have to be integrated with existing ones further back in the value chain.
When we talk with various managers about this end state, even though at Calastone we know it can be transformational, it does not immediately register as a top 10 item for a fund board. However, highlighting the new pools of liquidity that sit there and attract more assets into the fund makes it a much more enticing prospect.
The change will happen in pockets. For asset managers, moving an entire book of business is a risk, even though we do not necessarily see it as inherently risky. Instead, moving segments or smaller books is seen as the more viable option.
Ultimately, to have a truly digital TA experience, the back end needs to move on from decades-old processing technology and adopt the onchain capabilities used by front-end registers.
You have argued that tokenised money market funds allow institutions to post yield-bearing units directly as collateral without first liquidating to cash. How does this 24/7 mobility alter liquidity management and margin efficiency for institutional treasuries?
There are two main points here.
Firstly, 24/7 trading will allow corporate treasurers to enhance their businesses in a few different ways. Many of them are looking at stablecoins and how they move assets around the globe to meet regulatory requirements on a jurisdictional basis. There is a question of whether money market funds (MMFs) moved to different parts of the business are more suitable, but stablecoins certainly seem to be the favourite. Having said that, if you use a stablecoin to move liquidity from, say, the UK to Asia, you are not getting any yield by sitting on the asset. If I want to move from that stablecoin into a yield-bearing vehicle, I need to invest in a tokenised version of a liquidity fund that accepts stablecoins as a settlement asset.
Secondly, if I am a corporate treasurer and I receive a stablecoin or fiat at a certain point during the day, I have a liquidity buffer and need to move cash later. In the TradFi world, I would have to leave that asset sitting there, but DeFi models mean I can invest it for, say, six hours and generate yield before redeeming and moving it on. Tokenisation is transforming whole collateral markets through real-time capital movement.
These are attractive models, and we are already seeing them in the market.
As institutional liquidity shifts onchain, how do stablecoins, tokenised bank deposits, and tokenised MMFs coexist? Do you expect yield-bearing tokenised funds to eventually displace non-yielding stablecoins for institutional settlement and margin functions?
There is the possibility for tokenised MMFs to be a competitor to stablecoins. But, given where regulation is going in the US with the Clarity Act, it makes it difficult to use anything other than stablecoins for payments.
Of course, there are areas where tokenised funds can be used for the exchange of ownership or assets, but they are fairly limited as to what you can do. I think that these vehicles will coexist, although I believe that the debate is more along the lines of stablecoins versus tokenised deposits rather than tokenised MMFs versus the other two.
The US is also very important in any category that we work in, particularly with stablecoins.
The market there is worth around US$300 billion, and over 90 per cent of stablecoins are US dollar or Treasury-pegged. Stablecoins and tokenised deposits are appearing in other jurisdictions, but they still pale in comparison to US-backed vehicles. The administration being friendly to the digital asset space has certainly accelerated the market over the past couple of years, and the legislation is definitely giving more credibility to stablecoins.
As a result, industry players are sitting up and taking notice of the transformational capacity of the asset class.
While frameworks in Singapore, the UK, and the EU are progressing around fund tokenisation, global convergence remains unlikely in the short term. For Calastone, which jurisdictions are currently viewed as the most viable regulatory pathways for institutional onchain fund distribution?
Speaking from a distribution perspective, most of the major jurisdictions are viable for us now. The US, UK, Europe, Hong Kong, and Singapore are all open for business in that respect. Unfortunately, they are all slightly different in terms of legislation, so some kind of global convergence would be ideal. There are some changes that I would like to happen, though. Namely, in the US distribution model, needing a broker-dealer-type entity for every single trade is questionable. The same can be said for some parts of Southeast Asia.
Asset managers are also looking at developing regions that are digitally native. Take Sub-Saharan Africa or India, for example, where the majority of the population uses mobile phones for payments; fund issuers are assessing the viability of targeting these areas for the distribution of tokenised assets.
The size of the populace means that if investors can move just a fraction of a payment into an investment, that could be quite a rewarding avenue.
As smart contracts automate subscription, redemption, and dividend calculations, how is the core role of the fund administrator and transfer agent evolving?
Across the board, processes have been automated for quite some time now — whether that be through AI or another tool, we always aim to enhance processing environments.
Fund administration and TAs are no different. They are regulated entities that do not go away; they need to be there within mutual funds and ETFs, among others, and for good reason: they provide investor protection and servicing. They are not just a processing engine or book of record. You cannot just automate some technical processes and forgo the need for a fund administrator or TA; these are key roles. Instead, the industry is making these positions much more efficient, creating a better operating environment for asset managers, and, importantly, the outcomes investors need on the front end.
Ultimately, you need to have forward-thinking people in critical roles — those looking at how technology can improve processes and make things more efficient across the board. Whether that is tokenisation or any other technology, you almost need people who can ‘see the future’ and know where we are heading.
If you were not working in institutional finance, what would you be doing?
Formula One is something that has always interested me. Not that I have the personal budget or skills to be a racing driver, but the engineering side is something I feel captivated by. I think I see myself looking in wind tunnels and making things better, looking at how to improve performance.
And I do think there is a parallel between F1 and institutional finance, in that the innovation you see at that level tends to appear in the retail world a few years later.
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Guilhem Chaumont
Image: Calastone 
