Digital Fund Token Creation via Escrow and Distributed Ledger
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Solution Overview
Problem
Existing trading systems struggle to efficiently create and redeem multiple security assets such as ETFs, mutual funds, and index funds due to incompatibilities in market data storage and pre-trade communication protocols, particularly with cryptocurrencies, leading to issues like illiquidity, transparency, and increased investor risk.
Innovation Solution
A Crypto Fund Creation and Redemption Platform utilizing a distributed ledger to create and redeem digital fund tokens, allowing for direct or indirect creation and redemption of fund shares using cryptographic techniques, ensuring transparency, liquidity, and reducing risk through digital tokenization and escrow accounts.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If existing trading systems are used for creating and redeeming multiple security assets, then traditional protocols and market data storage are maintained, but compatibility with cryptocurrency systems is poor and illiquidity occurs
Solution Approach 1:
The patent implements a universal trading system that can handle both traditional securities and cryptocurrency assets through a single platform. The system uses a unified ledger that records both types of assets, allowing the same infrastructure to serve multiple asset classes and eliminating the need for separate systems for different asset types.
Solution Approach 2:
The patent introduces a digital token as an intermediary representation of both traditional securities and cryptocurrency assets. These tokens serve as a common language that bridges the gap between traditional finance and cryptocurrency systems, enabling seamless trading and redemption operations across different asset types without requiring direct compatibility between their native systems.
2Adaptability or versatility
If traditional trading protocols are used, then pre-trade communications are handled conventionally, but execution compatibility with crypto trading systems is poor
Solution Approach 1:
The patent creates digital copies of traditional security assets in the form of digital tokens that replicate the essential characteristics and trading mechanics of traditional securities. These token copies can be natively integrated with cryptocurrency trading infrastructure, allowing the same execution systems to handle both traditional and crypto assets without requiring complex custom integration.
3Reliability
If digital tokenization is implemented, then transparency and liquidity are enhanced, but new technical infrastructure is required
Solution Approach 1:
The patent designs a universal ledger that serves multiple functions: it records cryptocurrency transactions, tracks traditional security holdings, manages digital token representations, and facilitates both creation and redemption operations. This single multi-functional infrastructure eliminates the need for separate transparent ledgers for different asset types, reducing overall system complexity while maintaining comprehensive transparency.
Data Source
AI summary
A cryptographic asset trading system comprises circuitry configured to: receive creation request for share(s) of digital fund token serving as digital representation of fund of assets, creation request comprising digital signature of first cryptographic key associated with first account; in response to receiving creation request: place respective quantity of each of plurality of different assets represented by share(s) of digital fund token into escrow account associated with cryptographic asset trading system as collateral for digital fund token; create and transfer digital fund token to first account by cryptographically signing digital fund token with second cryptographic key associated with cryptographic asset trading system; and record creation and transfer of digital fund token to first account on distributed ledger thereby requiring cryptographic signing with first cryptographic key associated with first account to: (i) redeem digital fund token from first account or (ii) transfer digital fund token from first account to second account.