The advent of decentralized technologies could soon enable entire indexes to be traded as tokens on a blockchain. Would that be the end of exchange-traded funds (ETF) or would it mean their transformation into blockchain-traded funds?
Mike Venuto thinks so. Mike is an ETF researcher and co-creator of an index tracking the publicly traded companies involved in the ETF ecosystem.
According to the researcher, ETF's have changed wall street. They have disintermediated the hedge funds and mutual funds companies that have charged ridiculous fees for years.
Ironically, one of the headways to the continuous growth of the ETF industry is a technology that would potentially disintermediate Wall Street yet again–Mike says its blockchain.
ETF companies have already started to embrace it for example, Vanguard is using a blockchain technology to help build indexes today. In this new world it is possible that ETF's become BTFs or blockchain traded funds.
Why ETFs May Become BTFs
Mike says there are many companies involved in the growth of the ETF. There's a possibility that some day there would be a token for each index and essentially trade them on the blockchain without the need for some of these custodians, some of these exchanges, some of these traditional warehouses and traditional banks.
So it's not just the issuers, there are companies–BlockRock, for example, who owns the ishares brand the largest issuer of ETFs in the world. In addition to that the exchanges, the index provider, S&P and MSCI, the service providers, who are doing all the backoffice and finally the liquidity providers making all the trading.
Vanguard, the second largest ETF Issuer is not public. But within this ecosystem of public companies, there are at least 15 companies making revenue as Vanguard's assets grow.
For example, Goldman Sachs – helping with security landing; MSCI and S&P, who provide indexes for Vanguard or Morning Star and FactSet that provide data or J.P Morgan and StateStreet that provide custody.
Mike thinks of ETF's as a true financial innovations and that the next step will be to take that innovation and remove the trusted third parties to make it accessible to everyone. Blockchain is a solution that can allow for that, which will disintermediate Wall Street and also potentially be the end of ETFs.