Digital assets including cryptocurrencies, stablecoins, and NFTs (non-fungible token) are now widespread investments amongst professional investors and asset managers. As this new asset class takes shape, SS&C Advent is well positioned to broker conversations around managing these new investments with our clients across the full investment management spectrum.
Recently, we hosted a focus group representing more than twenty practitioners of Geneva®, our award-winning portfolio management and investment accounting platform, to discuss supporting digital assets. With the continued expansion of this market, we wanted to hear directly from our clients to understand how Geneva can continue to support their needs. The attendees were broken into groups to have a more intimate exchange on how clients are using Geneva today, the challenges they are working through, as well as overarching conversations on this new asset class. The discussion was lively, wide-ranging and well received – including insightful dialogs around common firm priorities and challenges.
A few highlights resonated with the group- see below:
Decimal Precision is a major concern
The speed of new coins coming to market has picked up over the last six months and will continue to accelerate in the near future. While growth and increased accessibility to this market is a good thing, with that comes operational challenges.
Participants in the focus group spanned the sphere from some trading only one type of coin, others anywhere from 15 to 20 different assets, and still others are involved in derivative trading including futures and options. Not all coins are alike; and with these volumes and differences in assets, the audience expressed legitimate accounting concerns for allocating these trades, particularly concerning decimal point precision. For example, Ether (ETH), the digital asset token of Ethereum, trades to 18 decimal points, whereas other coins trade out to 24 decimal points. This causes unique challenges from a portfolio accounting perspective, as well as keeping track of the different decimal points coins trade. Depending on the systems and workflows in place, entering and normalizing trades can require workarounds and confusion.
Innovation in Digital Assets
The digital assets marketplace is attracting as many new investors and coins as there are new platforms and services to support innovation and trading. Clients had a lively discussion on what this means for firms investing in crypto, including yield farming, tokenization of assets (NFTs), and staking, as well as new ideas coming soon including high frequency trading and perpetual contracts. For this audience, staking has a number of items to address, for instance:
- Firms must segregate staking income from interest and dividend income
- Moreover, it is not clear how to tax income from staking
- From an operations perspective, clients are determining how to automate calculations and posting of accruals for staking
Another interesting area is the tokenization of assets (NFT) and how to account for this internally; this could include anything from artwork and music, to real estate (workflows around accounting for appreciation and depreciation), and even country club membership. The development of new coins and NFT - which can be highly lucrative – are presenting significant operational challenges that are clients are addressing in real time.
Coming to a city near you
It is an exciting time to trade digital assets and we are grateful to our clients for sharing their perspectives, ideas, as well as market challenges that they are experiencing. SS&C Advent is eager to host more thought leadership panels across the country in the year ahead. Stay in touch with your Relationship Manager to find out when we might be in a city near you. And, for a truly immersive peer-to-peer networking experience, save the date for SS&C Deliver, our annual client conference, October 2 - 4.
