The crypto ecosystem is growing exponentially with new assets, exchanges, funds and trading firms opening all the time. Working with crypto assets is remarkably different compared to traditional assets, so funds need the right partners
Crypto funds admin – challenges for hedge fund administrators
Introduction
The crypto ecosystem is growing exponentially with new assets, exchanges, funds and trading firms opening all the time. Working with crypto assets is remarkably different compared to traditional assets, so funds need the right partners and technology to manage the most challenging elements. Traditional fund administrators have struggled to keep up with the challenges of working with crypto funds because of some of the issues outlined below.
Not all crypto trades occur on the blockchain
According to TABB Group, the OTC market for bitcoin is at least two to three times larger than the exchange market. Institutional crypto trades typically hit the blockchain but the remaining trades are actually facilitated across exchanges that use alternative trading systems to match buyers and sellers—and are only processed on the blockchain when funds are transferred between exchange wallets. Since these trades do not occur on the blockchain, a connection to each exchange is required in order to identify, record and reconcile all transactional activity.
Crypto assets do not have a unique ticker and pair identification
New crypto exchanges and wallets are constantly entering the market, requiring expedited API development and continued maintenance. New exchanges tend to update or modify APIs frequently. Beyond the strength and immediacy of exchange connections, more critical for crypto hedge fund or crypto funds is the type of data the API feeds can collect.
In 2018, there were more than 200 instances of crypto asset duplicates, and another 200 instances where exchanges abandoned an asset’s designated ticker and created a new one. The most difficult data reconciliation undertakings materialise when different exchanges use the same ticker for different crypto assets. A universe made up of thousands of active crypto assets, approximately 200 global exchanges, and a multitude of crypto pairs, without any standard naming convention can lead to irreconcilable data and incorrect financial statements.
Existing back office software does not support crypto transactions
Legacy systems were not originally designed to track decentralised and distributed data. The complexities of accessing and obtaining data from the growing number of existing crypto venues is complicated. Many existing systems are simply not equipped to support digital assets that extend beyond two decimal places. Further ERC20, one of the most common blockchain protocols, is not supported by legacy back office software.
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