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By leveraging the blockchain-powered peer-to-peer trading for investors, Vanguard plans to allow asset managers to trade currencies without involving banks as intermediaries.
Mutual funds giant Vanguard Group is working with blockchain startup Symbiont, backed by Nasdaq Ventures, to create a blockchain-based trading platform for asset managers to trade currencies in the $6 trillion currency market.
This step by Vanguard would be a major disruption in the currency market which is currently dominated by banking giants JPMorgan and Citi Group. By leveraging the blockchain-powered peer-to-peer trading for investors, Vanguard plans to allow asset managers to trade currencies without involving banks as intermediaries, reported Bloomberg.
Moreover, using blockchain, Vanguard will also lower the transaction costs for its customers for trillions of dollars of currency traded annually. Vanguard Group has already disrupted the finance world with its low-cost index funds offering to the market players.
The Bloomberg publication wrote that Vanguard is already testing the blockchain-powered platform for two months. Moreover, it has also tested a few successful trades. The platform uses the same trade matching pattern as seen in the Bitcoin blockchain. Campbell Adams, a former Deutsche Bank senior currency trader and the founder of ParFX, told Bloomberg:
“Direct trading really is the Holy Grail for the buy-side. In theory, it sounds great because you can reduce your costs if you can match directly with someone else who has a countervailing interest” But he also added that such a platform needs a “critical mass” of users who can bring a discount advantage to this massive sector.
High Demand for Peer-to-Peer Trade Matching
Speaking to The Trade last month, Andy Maack, Vanguard’s global head of foreign exchange trading, said:
There a “tremendous amount of interest in the potential for disintermediation”. He further added that 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”.
Although not many details regarding the development of the platform are currently available, it said that its main interest lies in lowering the investment costs and currency hedging. Speaking to Business Insider, Vanguard spokesperson Carolyn Wegemann said:
“Vanguard is currently piloting a project focused on improving the efficiency and reducing the risk of FX hedging. Given the project is still in the pilot stage, we can’t comment further.”
Symbiont and Vanguard have previously worked with each other for the latter’s index funds project. Symbiont provided Vanguard with its patented smart contract technology that helped the mutual funds giant to streamline its index fund data collection process.