Brickblock — SteemCN

Brickblock general Whitepaper
Jakob Drzazga, Martin Mischke, Holger Schlünzen, Philip Paetz
[email protected]
Abstract
Brickblock is building a new blockchain-based solution for investing in exchange-traded funds (ETFs),
real estate funds (REFs), passive coin-traded funds (CTFs) and active coin managed funds (CMFs).
Through the effective use of smart contracts, order and issuing fees can be reduced to a fraction of
traditional costs. This will make investing in Brickblock more financially inclusive across all income
classes. Artificial geographical trading restrictions, including the need for a bank account, can thus
be eliminated. Counterparty risk can be reduced to mere minutes. Furthermore, we are introducing
a new system of passively managed cryptocurrency baskets, which reduces the risks and high fees of
actively managed coin funds by using liquidity providers, incentivized by arbitrage effects. Our system
is based on an underlying rule-based asset allocation rather than high-risk contracts for difference
(CFDs). It uses the asset-first principle, which incentivizes asset vendors to deliver assets before
getting paid, thus further reducing investor risk.

Introduction - How does Brickblock
work?
At present, the crypto-economy is possibly one of the
most volatile economies. Investors can make 10x gains
in one month only to lose it all the next month. Thus
far, there have only been a limited number of ways
to diversify crypto-portfolios to mitigate these risks.
Real diversification, across multiple asset classes, is
essential for a well-balanced portfolio.
Brickblock introduces the first platform where users
can seamlessly invest in real estate funds (REFs),
exchange-traded funds (ETFs), passive coin-traded
funds (CTF) and active coin managed funds (CMFs)
through a streamlined process and with significantly
lower costs than traditional investing.
Each fund on the Brickblock platform has its own
denomination and its own "proof-of-asset" (PoA) token
which, via established token exchange platforms,
can be traded simpler, faster and cheaper than on
conventional stock markets. Our asset-backed PoA
tokens empower investors to hedge the risk of cryptocurrencies
in real assets without needing to convert
their cryptocurrency into a fiat currency. All dividends
and coupons are automatically transferred to
token-holders through self-executing smart contracts
Copyright (c) 2017 brickblock.io Without permission, anyone
may use, reproduce or distribute any material in this whitepaper
for non-commercial and educational use (i.e., other than
for a fee or for commercial purposes) provided that the original
source and the applicable copyright notice are cited.
on the Ethereum network. The content of the smart
contract and the PoA token itself is unalterable, cryptographically
secured and visible to everyone on the
blockchain.
To ensure the safety of the underlying assets represented
by the PoA token, a digital trust fund holds
the exact same amount of fund shares as tokens issued.
This securities account cannot be claimed by
Brickblock, the broker or anyone else, and is protected
by strict laws regarding trust funds, even in the case
of bankruptcy. Only token holders may reclaim their
fund shares, at any time.
Brickblock’s infrastructure will be implemented as
a decentralized application (Dapp) and run on the
Ethereum network. Broker-dealers and fund managers
will be able to list their investment opportunities
on the platform, after being thoroughly verified by
Brickblock through e.g. proof of residence, credit reports
and criminal record. Based on their personal
risk/reward ratio, investors can then select an investment
from the offered funds to add to their diversified
portfolio. All fees, minimum investment pools,
exchange rates, holding periods, net asset values, dividends
or coupon payments will be listed clearly and
thus, can easily be compared. All investment opportunities
will be carefully validated and audited by independent
parties (such as EY [1]) to eliminate fraud.
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Market Analysis
2.1. Current Problems in the Market
2.1.1. High Volatility
Cryptocurrencies are extremely volatile and, due to
their limited acceptance in the traditional economy,
investors have almost no options to disperse their risk.
Money has three important properties: It serves as
a store of value, a medium of exchange and a unit
of account. Currently, cryptocurrencies are primarily
used as a store of value. The use of cryptocurrencies
as a medium of exchange and as a unit of account is
still in a very early stage. This means that there are
limited options to escape the volatility of its value. At
present, the only real way out is to reconvert into a
fiat currency.
2.1.2. Counterparty Risk
When the counterparty does not possess the necessary
funds or assets to settle a trade, this is known as
"counterparty risk", also "default risk".
In traditional asset trading, clearing and settlement
processes take three days. On the first day, a broker
makes a deal with the counterparty on th
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2.2.5. No Safe Possibility of Crypto Basket Investments
For actively managed CMFs, Brickblock will enter
legally binding contracts with fund managers, verify
them thoroughly and implement a cryptographic audit
structure. We, not the fund managers, will commission
independent auditors to prevent any potential
conflicts of interest between fund managers and auditors.
For passively managed CTFs, rule-based fund indices
in conjunction with the arbitrage phenomenon
of foreign exchange (FX) markets are leveraged to obviate
active fund managers and decentralize trades
toward liquidity providers. Therefore, human error is
minimized.
2.3. Market Review
In the past years, many token-funded startups have
announced the development of financial tools to help
traders and investors diversify within the cryptocurrency
market. In this section, we are going to examine
several of these projects and highlight possible
improvements. However, the purpose of this is not to
devalue the competition, we merely seek to illustrate
our motivation for developing our own solution, i.e.
to address these problems. We have the highest respect
for everyone that is sincerely trying to move the
crypto-community forward and deeply believe that
there is enough room for many innovative players in
this field.
2.3.1. Taas
Taas [4] is a stand-alone, closed-end crypto-fund. Its
whitepaper [5] states that they have built a cryptographic
audit system with Ambisafe [6]. Users are
able to track the trades of Taas on their website. We
could not find any details about this system besides
the trade records, which are made public on a subpage
[7]. From an investor’s perspective, however, there is
no legal contract between the user and Taas, which
carries potential risks.
2.3.2. Melonport
Melonport [8] is an open source protocol (initially
based on Ethereum and currently in development)
that aims to simplify the process of developing portfolios
of different cryptocurrencies for investors. Fund
managers, on the other hand, can easily select what
cryptocurrencies they want to buy. In comparison to
Taas, the Melon Protocol, if executed safely in smart
contracts, will eliminate the trust aspect. However, as
far as we could interpret from the green paper [9], it
is mostly based on contracts for difference (CFDs)
for non-ERC20 tokens and coins. Since investments
can only be made in Melons or ETH, users are heavily
dependent on the stability of these two tokens. If,
for example, a fund manager purchases a certain volume
of Dash [10], no actual Dash tokens are being
held by the user. From an investor’s perspective, this
means that there is a potential risk of not receiving
the equivalent value of Dash if the Melons or ETH
collateral cannot cover the gains or losses.
2.3.3. Shapeshift’s Prism
Prism [11] is also based on Ethereum. The user and a
counterparty both deposit an equal amount of ETH
into a Prism smart contract, which serves as collateral
and is therefore also a contract for difference (CFD).
The user bets, for example, on a bullish bitcoin1 and
the counterparty bets on a bearish bitcoin. This all
works well if ETH is the users’ domestic currency.
However, if, as is the case for most investors, fiat currencies
(like USD or EUR) are the users’ domestic currency,
then one could actually lose money. One could
lose money even if they predicted the correct market
movement of bitcoin, because the user’s collateral will
always be ETH regardless of the price. On the other
hand, the user’s profit is capped at 100% gains, because
Prism’s collateral matches the user’s. Thus, if
one were to bet 1 ETH on Dash and Dash tripled in
price, the maximum gain would not be 2 ETH but
only 1 ETH.
2.3.4. Digix
To the best of our knowledge, we are the first platform
to build the necessary infrastructure to tokenize
ETFs and REFs. The most comparable start-up to
date, however, is Digix [12]. Digix, which is currently
in development, tokenizes a real-world asset: physical
gold. After depositing ETH into a smart contract, a
new DGX token is created and the asset vendor delivers
the gold to a custodian. An auditor then regularly
verifies whether the gold is still in possession of the
custodian. In the last whitepaper [13] we could find,
it seems that Digix’s asset vendors receive investors’
funds before investors receive their gold. For example,
if a great amount of gold is bought in a bearish
crypto-market, the vendor either has to lend the
money and wait until the audit is completed to receive
investors’ funds or the vendor receives the payment
in advance, which constitutes a potential risk for the
buyer.
2.3.5. Proof Suite
Proof Suite [14] is focusing on developing blockchain
tools for tracking real-world assets. In their whitepaper,
they present the benefits for companies and governments
to replace existing systems with Proof Suite.
They are trying to reduce bureaucratic procedures
and make transactions more efficient. Nevertheless,
1 or any other cryptocurrency offered by Shapeshift’s Prism
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they rely on change occurring within companies
and the legal acceptance of their technology.
Thus, if two parties were to trade real estate with
Proof Suite and one of the parties decided to sell the
same real estate to another party on the traditional
market, legal problems accure.
2.4. Difference to Existing Projects
2.4.1. Legal Enforceability of Claims
Brickblock enters a legally binding contract with
every fund manager and every broker-dealer. In contrast
to direct and trust-based investments in fund
managers, this adds an additional layer of security
for investors. On the Brickblock platform, every fund
manager has a direct liability to the investor, which
is enforceable through legal action.
2.4.2. Full Market Exposure
We believe that CFDs and other derivatives rely too
much on trust and moderate price trends. In the
world of cryptocurrencies, where flash crashes [15]
and price movements of >200% on a single day are
a regular phenomenon, we consider CFDs no suitable
instrument for mid- and long-term investments.
Thus, Brickblock only allows physical shares,
commodities and currencies instead of betting on
derivatives.
2.4.3. Escrow-backed Security for Investors and
Brokers (asset-first principle)
Brickblock’s smart contracts will only release investors’
funds to the broker-dealer after the
broker-dealer transfers the assets to the digital
trust fund. This represents a new way of conducting
clearing and settlement. Through automated
smart contracts, the broker-dealer receives the investors’
funds immediately after transmitting the assets.
Initially, until new broker-dealers trust Brickblock’s
asset-first smart contracts, Brickblock will
deposit the investor’s funds in escrow as collateral.
Therefore, if a smart contract does not activate, the
broker-dealer can claim the escrow.
2.4.4. Connecting Old and New Economy
Brickblock builds a bridge from the traditional investment
world into the digital realm. We are leveraging
existing infrastructure to enable faster adoption
of this new system. All Brickblock transactions are
legally accepted and enforceable in a court of law.
We believe a transition from old to new is best
achieved by building bridges, not burning them.
Who is Brickblock for?
3.1. Private Investors
Most importantly, Brickblock will help private investors
diversify their portfolios beyond cryptocurrencies
and tokens, reducing the overall risk. In addition
to other benefits, this helps:
• Significantly lower the costs of investing in REFs,
ETFs, CMFs and CTFs through cutting out the
middlemen and pooling investment volume,
• Create steady returns in the form of dividends and
coupons,
• Hedge the systemic risk of a heated market,
• Clarify fees, tracking errors and liquidity,
• Minimize bureaucratic overhead,
• Empower everyone to invest directly in global
funds in every market, regardless of where funds
or investors live.
3.2. Institutional Investors
Brickblock will help institutional investors invest their
funds in a diversified digital currency portfolio without
having to worry about holding multiple wallets
and handling a multitude of exchange platforms.
3.3. Fund managers
3.3.1. Real Estate Fund Managers
Real estate fund Managers are responsible for a variety
of tasks. Some of the most important of which are:
supervising real estate acquisition; evaluating consultants,
appraisers and property managers; designing
financial models and formulating asset allocation
strategies.
In the traditional system, fund managers must pay
enormous provisions to banks to sell their funds to
custo
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is interested in productive professional relationships
and will help fund managers establish the initial management
structure. Furthermore, Brickblock will work
with third parties to pro-actively reduce potential legal
and cyber security risks associated with the responsibility
of being a fund manager.
3.4. Broker-Dealers
Broker-Dealers, sometimes also referred to as "market
makers", are liquidity providers at traditional stock
exchanges. Most large institutional ETF block trades
do not take place at exchanges, but over-the-counter
(OTC) and are not visible to the public. This is especially
the case for illiquid exotic ETF underlyings.
In contrast to the immediate execution on exchanges,
broker-dealers prefer to be asked for the price of specific
products and quantities. They prepare all background
hedging and internal risk exposure analyses
before quoting and executing an order. The quoted
price is often better than the bid ask offer on exchanges.
The digital trust "request for quote" (RFQ) issued
by the smart contract can be parsed and tokenized in
a variety of industry standard formats, such as FIX
[16] ensuring compatibility with existing processes
and legacy integrations. Brickblock acts as a single
counterpart against the broker-dealer. This simplifies
compliance and set-up processes for broker-dealers.
Brickblock will assist broker-dealers with a dedicated
e-wallet application programming interface (API) solution.
The focus is to radically reduce operational costs
and enable delivery versus payment (DvP) support,
including crypto-payments. Compliance costs (e.g.
maintenance of segregated accounts), onboarding, settlement
and know your customer (KYC) processes
are also included, where applicable. The key is that
broker-dealers are free to focus on the core business.
Broker-dealers profit by increasing their trading volume
of securities, and Brickblock improves the liquidity
of the crypto-economy.
3.5. Commercial Paper Issuers
Brickblock will help issuers enter the crypto-economy
by integrating existing asset management legacy infrastructure
and messaging standards for both issuance
and distribution. There is a strong incentive
in conventional paper issuance to move toward lower
cost distribution models and reach international marketplaces.
The Platform
4.1. Tradeable assets on Brickblock
After choosing a fund, the user deposits the payment
into a smart contract. The smart contract controls
all fees, minimum investment pools, exchange rates,
holding periods, net asset values, dividends or coupon
payments. Therefore, depending on the asset class,
there are three different scenarios.
4.1.1. Real Estate Funds (REFs)
Investing in real estate comes with major diversifi-
cation potential, depending on both the users’ foreign
exchange (FX) exposure and tax domicile. Our
platform will enable fund managers to list real estate
projects with high potential and help users to easily
discover interesting opportunities. Each project will
be carefully audited by independent parties to minimize
fraud.
Real estate funds (REFs) are actively managed by
a fund manager. Depending on its underlying focus,
the fund manager acquires a certain volume of real
estate in certain cities, countries or continents across
the globe.
Real estate has two growth functions. First, there
is the value of the real estate itself, which may potentially
grow over time. Second, real estate produces a
steady income in the form of rent, which is distributed
to its shareholders via smart contracts or re-invested
in new real estate, depending on user preference. By
choosing a fund, users can influence the frequency of
distributions and other factors such as costs and fees,
area of investment, net asset value (NAV) and minimum
investments.
Brickblock will start with European REFs and
subsequently extend into more locations. After the
processes for REFs are established, we will further
broaden the investment scope to also include real estate
investment trusts (REITs) and real estate crowdfunding.
4.1.2. Exchange-traded Funds (ETFs)
Exchange-traded funds are an interesting store of
value for many investors. Unlike actively managed
funds, the fees and costs are significantly lower since
ETFs passively track rule-based indices like the S&P
500, the Nikkei or the Dax 30. Exchange-traded
funds can also track commodities like gold and silver
and have the advantage of being offered at nearwholesale
prices without minimum purchase amounts.
Exchange-traded funds outperform the returns of
most actively managed funds that invest in company
shares [17] and enable investors to diversify their portfolio,
even with very little capital. By choosing their
preferred ETFs, investors can actively decide in which
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Figure 1. ETF/REF: User’s buying process
markets to invest and spread their risk across different
geographic locations and industries.
Brickblock will start with the ETFs that track
global indices and will then inquire after the community
as to which ETFs to implement next. Brickblock
will establish connections with and request quotes
from different broker-dealers based on past pricing
performance. This guarantees the best execution of
orders.
4.1.3. Coin Managed Funds (CMF)
Actively managed CMFs provide projects like Taas
[4] the opportunity to offer their funds to the public.
Fund managers can manage investors’ funds by selecting
specific cryptocurrencies, day-trading, taking
profits out of diversifying portfolios and the active distribution
of funds. Conversely, users can decide which
strategies and fund managers to trust. Each project
will be carefully audited by independent parties to
significantly minimize the risk of fraud.
4.1.4. Coin-traded Funds (CTF)
Brickblock offers passively managed CTFs and tracking
rule-based indices designed by fund managers and
community members. One of these could be a Top 10
cryptocurrencies market cap CTF. The index would
include the Top 10 cryptocurrencies weighted by market
capitalization. Since no passive CTF currently exists,
we are introducing a system based on passive
ETFs, as explained in section 4.2.3
Further, a separate non-profit organization (NPO)
is set up; leading members of the crypto-finance community
are invited to join us in improving the system
and standardizing processes.
4.2. Technical Setup
The following framework describes the underlying
technical processes. Our platform will be developed as
a Dapp on top of the Ethereum blockchain. The Dapp
will guide users through all of the investment steps.
All Ethereum transactions relevant to Brickblock will
additionally be backed up on our own blockchain, with
only one public node for security reasons.
4.2.1. Real Estate Funds (REFs) and Exchangetraded
Funds (ETFs)
Figure 1 displays the detailed process of investing in
real-world assets such as REFs and ETFs.
After choosing an asset class, either REF or ETF,
users can select a fund based on their investment preferences.
Users will be informed about fees, frequency
of distributions, areas of investment, current net asset
value (NAV), minimum investment volume, performance
or track record.
Once users select a fund, they will be asked to deposit
the desired investment amount into a smart contract.
A minimal creation size helps reduce transaction
costs and decouples the PoA tokens from the
nominal value of the fund. After reaching the mini-
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mal creation size, the broker-dealer places a fund order.
The purchased securities are then deposited into
a digital trust fund by the broker-dealer. Simultaneously,
the custodian of the digital trust fund issues
a cryptographically signed electronic document con-
firming the receipt of assets. This document is veri-
fied by the smart contract to ensure that the brokerdealer’s
order matches the user’s order. If the orders
match, the smart contract treats this as proof that
the broker-dealer’s obligations are properly fulfilled.
The smart contract subsequently releases the user’s
deposited funds to the broker/dealer, and a PoA token
to the user. This token serves as a proof of assets.
The digital trust fund is only allowed to hold the
securities for the actual beneficiary of the PoA token.
If PoA token holders want to sell their assets,
they can sell the PoA tokens on token exchanges like
EtherDelta, iDex, 0x or withdraw the securities from
the digital trust fund at any time after going through
a KYC process provided by the bank. If dividends or
coupons are issued by the fund, the custodian of the
digital trust fund will send these proceeds to the selfexecuting
smart contract, which will automatically allocate
them to the respective token holders.
4.2.2. Active Coin Managed Funds (CMFs)
Coin managed fund managers will be able to offer
funding campaigns on our platform and manage funds
by investing in different cryptocurrencies. A cryptographic
audit infrastructure will thoroughly verify every
new individual through, inter alia, proof of residence,
credit report and criminal record. Furthermore,
all trades will be recorded and stored safely. Users can
choose between:
Fund managers who use secured accounts
Users’ funds are transferred to secured accounts
at trustful exchanges, where withdrawal functions
are blocked. Users then receive PoA tokens in exchange
for their funds. Through the use of secured
accounts, the risk of fraud and private key loss are
minimized.
Fund managers who use unsecured accounts
For digital assets that are not traded over common
exchanges, the fund manager receives the
users’ funds from the smart contract into an unsecured
account, controlled by the fund manager.
Users again receive a PoA token in exchange. In
this case, the legal contract between Brickblock and
the fund manager protects users from fraud. In case
of any irregularities, Brickblock is able to enforce
users’ claims through legal action.
The crypto-backed PoA token represents the invested
funds actively managed by a fund manager.
The fund manager diversifies the received funds into
various other cryptocurrencies and tokens.
Fund managers can choose from different fee structures:
percentage of gains, percentage of funds managed
or a fixed fee. Users can then choose a fund manager
based on compliance with their desired fee structure
and risk/reward ratio.
After a predetermined trading time window, funds
are transferred back to the smart contract, which then
forwards them to the users’ Ethereum wallets, minus
the fund manager’s fees.
4.2.3. Passive Coin-traded Funds (CTFs)
The CTF concept maps the efficient ETF mechanism
onto the blockchain. A CTF is a smart contract
that tracks an underlying index of crypto-assets
as closely as possible. The holdings of the digital
trust fund, in the form of crypto-wallets, are stored
in cold storage by a custodian. This is necessary because
an Ethereum smart contract currently cannot
reliably handle automated transactions with other
blockchains. A CTF provides both a creation and a redemption
basket, necessary for creating and redeeming
tokens. The composition of these baskets helps
rebalance the funds’ holdings according to the underlying
index.
The user first decides whether to buy the token via
an exchange trade or using the creation mechanism.
The Trading Process The investment process for
passive CTFs is similar to investing in REFs and
ETFs. Figure 2 illustrates the process flow in detail.
Users can choose between different indexing methods
designed by fund managers. The index is the basis for
the CTF composition and determines risk and performance.
Brickblock will support users by providing
CTF factsheets with holdings, past performance and
tracking quality of the CTF.
Figure 2. CTF: User’s buying process
The Creation Process To prevent trading and
therefore, trading fees inside the CTF, we utilize liquidity
providers (LPs). The LPs hold PoA tokens in
their account and sell them on exchanges. Furthermore,
LPs can create and redeem tokens from the
fund. Figure 3 illustrates the process flow in detail.
Tokens are created by sending the components speci-
fied in the creation file to the custodian and the correspondent
wallet addresses. If the correct basket is
delivered to the wallets, an automated message is sent
to the CTF smart contract and the PoA token is released.
Liquidity providers help minimize the running
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costs of trading and rebalancing inside the fund and
take advantage of arbitrage effects on the market.
If the CTF fund accepts cash redemptions (paying
out ETH for PoA tokens), existing PoA token holders
are charged for the resulting trading costs and thus,
penalized. Therefore, LPs receive the assets of the redemption
basket in return for the PoA token and must
manage the trading themselves.
Rather than buying PoA tokens via an exchange,
users are allowed to use the creation mechanism as
long as they hold all necessary assets. However, for
unprofessional users, it is more convenient to buy already
created tokens on token exchanges.
Figure 3. CTF: User’s creation process
All CTF-relevant entities are listed below:
Users/Investors select in which CTF to invest and
can trade PoA tokens on token exchanges. Moreover,
users are allowed to create tokens by sending a "creation
unit" to the CTF smart contract and receiving
PoA tokens of the same value in return.
Liquidity Providers (LPs) are at the center of
the creation and redemption process of PoA tokens.
They have the right to redeem PoA tokens against
the fund’s holdings. To reduce trading within the CTF
and save on transaction fees, the redemption units are
consolidated into blocks of 5,000 tokens. Like users,
LPs can create tokens by delivering the creation basket
to the fund (the custodian wallets). In exchange,
they receive the same value in PoA tokens.
The LPs act as market makers on exchanges. To
properly fulfill this role and react in a timely manner,
the LPs hold PoA tokens in their own accounts. LPs
act as a buffer between the investor and the fund. The
number of LPs for one CTF is unlimited.
Coin-traded Fund Smart Contracts seek to
replicate the index as closely as possible. They publish
the creation and redemption baskets on a daily basis.
The baskets describe the assets necessary to create
new tokens, or those which the LPs receive when a
PoA token is redeemed. The creation and redemption
baskets are designed to adjust the assets to the underlying
index.
Creation/Redemption Files describe the creation
basket. It is the composition of the coins
or tokens for creating new PoA Tokens. The creation/redemption
file is released by the CTF smart
contract.
Underlying Indecies are the heart of the CTF.
The CTF tries to track the index as closely as possible
without tracking errors or differences. The methodology
and rules of the index are designed by fund managers
or index providers. These rules can be marketcap
oriented, factor or momentum strategies. Every
blockchain asset can be included within the index.
Custodian The custodian holds the different
crypto-wallets in cold storage. The transactions are
automatically sent to the CTF smart contracts, which
confirm receipt of the correct creation basket.
Tokens
There are three types of tokens, all of which implementing
the ERC20 token standard [18]. Detailed information
about volume, distribution mechanism and
the price of tokens will be released separately ahead
of the contribution period.
5.1. Brickblock Tokens
Brickblock tokens will only be released during the contribution
period in exchange for ETH and Bitcoin. If
the Brickblock tokens are stored in a special smart
contract, the Brickblock token holder will receive a
certain amount of access tokens per week until the
Brickblock tokens are withdrawn from the smart contract.
5.2. Access Tokens
Broker-dealers and fund managers need access tokens
to list their fund on the Brickblock platform and to
pay market-determined Brickblock fees when REFs,
ETFs, CMFs or CTFs are sold. The access token is
then burned. Brickblock will determine the amount
of access tokens based on supply and demand.
Brickblock is incentivized to establish the amount
of access tokens needed in such a way so as to positively
influence the usage of the platform, while still
making a profit. All access token holders can act as
competitors to Brickblock and sell their access tokens
to broker-dealers and fund managers on the open market.
Brickblock cannot increase fees without risking
a decline in the number of trades conducted on the
platform and cannot decrease fees without reducing
its own profit.
5.3. Proof-of-Assets (PoA) Tokens
For ETFs and REFs, PoA tokens represent real-world
assets in the form of securities. For CMFs and CTFs,
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they represent a claim to coin funds on a secured trading
account or in the custodians’ wallets. Users receive
a PoA token in return for every fund in which they
invest, which represents a legally enforceable claim to
the underlying assets.
Conclusion and Vision
Brickblock is an inclusive investment platform that
empowers people from all income classes to diversify
their crypto-portfolio with real-world assets like ETFs
and REFs. We will provide legal frameworks to directly
link these assets to our PoA tokens. Furthermore,
Brickblock will lead the development of passively
managed CTFs, as well as offer actively managed
CMFs.
At Brickblock, we strongly believe that digital currencies
are the future. The monetary system and the
financial services industry are extremely old-fashioned
and ripe for disruption [?]. It still takes 5 days for
an international money transfer to crawl through the
SWIFT network, originally created in 1973 [?], and it
still takes 2 days to complete clearing and settlement
processes of asset-transfers. Present technology is far
more advanced than the heavily outdated regulatory
frameworks of sluggish banks.
Various members of the Brickblock team have spent
several years working professionally in conventional
asset management and understand the processes and
issues of trading and settlement. The asset management
and global custody ecosystem is highly complex,
extremely cost intensive in a multitude of ways (execution,
reconciliation, allocation settlement etc.) and
exceptionally exclusive.
Our mission is to change that.
We believe that by including more people in the
global economy and enabling them to invest their
money however they like, everyone will win: investors
will pay significantly lower fees, have more options to
hedge volatility and risks that accompany the digital
economy and bypass unfair local jurisdictions. Furthermore,
trusted brokers/dealers and fund managers
will obtain an entirely new group of financiers, and
underfinanced companies and industries will gain access
to new capital.
Incumbent banks neither have the ability nor the
incentive to free themselves from the burden of the
status quo. They lack vision. Any attempt to innovate
would meet with disapproval from the board.
So it is up to us, the crypto-community, to use the
aspiring blockchain technology to eliminate the faults
of the old economy and to develop tools which make it
simple, affordable and safe to access the instruments
currently reserved for the financial class.
It is up to us, to create a system that gives everyone
access to real-world assets and to participate in profiting
from global economic progress. No matter where
and no matter if you have a bank account or not.
It is up to us, to make trading, clearing and settlement
with any kind of assets as easy and secure as
transferring a bitcoin.
If you are interested in shaping the future of investing
with us: We are always looking for talented
people to help us in making the crypto-world better,
safer and more inclusive. Get in touch.
Glossary
Access Token: An Access Token is used by brokerdealers
and fund managers to pay the platform service
fees.
Brickblock Token: A Brickblock Token is received
in the contribution period and is the only way to
generate access tokens.
Broker-dealer: A Broker-dealer is an entity that
trades securities for its own account or on behalf
of its customers. Broker-dealers are often marketmakers
and authorized participants in the ETF
market; they act as liquidity providers on exchanges.
CFD: A "contract for difference" allows traders to
speculate on the movement of an asset price without
owning the underlying. A buyer and seller devise
a contract to exchange the difference in the
current value of the underlyings.
CMF: A "coin managed fund" is the cryptoequivalent
of an actively managed investment fund,
where the portfolio manager chooses the fund’s investments.
CTF: A "coin-traded fund" is the crypto-equivalent
of an ETF; it is a passively managed basket of different
cryptocurrencies.
CTF Constituents: The constituents of a CTF are
the holdings of the fund.
Creation Basket: A creation basket is the exact
list of assets that need to be sent to the CTF to
create a PoA Token.
Creation File: The Creation File contains the details
of the creation basket.
Custodian: A custodian holds the assets for a fund.
The assets (cash and securities) of a fund must be
maintained in the cash/securities account opened
in the name of that fund.
Dapp: A "decentralized app" is an application that
runs predominantly on the blockchain.
DVP: "Delivery versus payment" is a securities settlement
procedure in which the transfer of the securities
and payments occur simultaneously and no
party holds both at the same time.
ERC20 Token: The ERC20 token is a widely tradable
token that implements the ERC20 standard.
[18]
Brickblock - The Future of Stock Trading on the Blockchain v.1.02
ETF: An "exchange-traded fund" is an investment
fund traded on exchange, which passively tracks a
rule-based index.
LP: A "liquidity provider" provides liquidity for
proof-of-asset tokens on exchanges. The LP can create
and redeem CTF tokens against the portfolio
holdings.
NAV: The "net asset value" is the current value of
the fund holdings divided by the number of shares.
The NAV therefore, is the price of one of the fund’s
shares. The NAV is calculated on a daily basis at a
fixed time.
OTC: "Over-the-counter", within a trading context,
means that the trade is not executed on an exchange,
but privately in a dealer network or over
the phone.
PoA Token: A "Proof-of-Asset" Token represents a
real-world asset in the form of securities or, in the
case of CTFs, the right to Coin funds on a certain
secured trading account
REF: A "real estate fund" invests directly in commercial
and residential property. Most REFs focus
on a specific type of assets (e.g. luxury housing) or
region (e.g. Europe).
REIT: A "real estate investment trust" is a company
that, in most cases, owns and operates
income-producing real estate assets. Some REITs
provide loans to the owners and operators of real
estate.
RFQ: "Request for quote" describes the process of
sending standardized quote requests to select brokerage
firms. The quote is constantly updated and
the processing can be fully automated.
Smart Contract: Smart contracts are computer
protocols that have fixed if-then relations, therefore
facilitating contract design and enforcement.
References
[1] https://www.ey.com/
[2] https://etherscan.io/chart/blocktime
[3] https://medium.com/@Brickblock/brickblock-willlead-the-way-in-making-investing-more-financiallyinclusive-around-the-world-97952f80925d
[4] https://taas.fund
[5] https://taas.fund/media/whitepaper.pdf
[6] https://www.ambisafe.co
[7] https://ca.taas.fund/wallets/dashboard
[8] https://www.melonport.com
[9] https://github.com/melonproject/greenpaper/blob/master/melonprotocol.pdf
[10] https://www.dash.org/blockchain-explorers/
[11] https://info.shapeshift.io/blog/2017/05/21/introducingprism-worlds-first-trustless-portfolio-market-platform
[12] https://www.digix.io
[13] https://dgx.io/whitepaper.pdf
[14] https://www.proofsuite.com
[15] https://blogs.wsj.com/moneybeat/2017/06/23/ethereums-
flash-crash-shows-hazards-of-tradingcryptocurrencies/
[16] http://www.fixtradingcommunity.org/pg/structure/techspecs
[17] https://www.justetf.com/uk/news/passiveinvesting/the-proof-that-active-managers-cannotbeat-the-market.html
[18] https://github.com/ethereum/EIPs/issues/20
[19] https://www.forbes.com/sites/ciocentral/2017/02/24/isthe-financial-services-industry-ripe-fordisruption/#e474e5378af2
[20] https://www.swift.com/about-us/history
DISCLAIMER: This Brickblock whitepaper is for
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Brickblock does not guarantee the accuracy of or
the conclusions reached in this white paper, and this
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