Operations
4.1 On-chain Accounts
The Fund can interact with multiple protocols where the assets are held. The possibilities include, but are not limited to: Metamask wallets, Trustwallet, MPC wallets, or even multi-sig wallets. Self-custody also includes Fireblocks as a non-custodial solution.
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If the assets are on-chain, the Fund can recognize and work with the following token standards:
ERC-20 (Fungible)
ERC-721 (NFTs)
ERC-3643 / ERC-1400 (Securities)
Total on-chain asset tokenization value is growing at an outstanding pace. BCG estimates it will reach $16T by 2030. We expect to gradually evolve toward a model of exclusively directly held assets.
4.2 Off-chain Accounts
Besides the on-chain assets, the Fund could hold also some other accounts. These assets might represent coins held on a centralized exchange, on a separate cold wallet, or part of the Fund’s Account Receivable.
Note: The positions/accounts could be encrypted to preserve privacy. (e.g. shared only with the desired audience, such as the LPs or auditors).
4.3 Private deals
The last kind of assets that can be held represent private deals. These can range from Real Estate to VS deals, and correspond to the less liquid assets of the Fund.
To offer a consistent model between the different kind of assets and accounts, the private deals will be registered as NFTs held by a smart contract. This allows the contract to be the custodian of these assets, and smooth out the user experience.
The NFTs also allow to register the different details of the deal, such as the number of shares, the percentage of acquisition, the vesting (wherever applicable). A document serving as Proof-of-Purchase will also be required. These will be uploaded to IPFS (file sharing network) and the reference as one of the fields of the NFT.
4.4 Flows
Inflows
Inflows corresponds to capital entering the Fund. This means new subscriptions, whether from new investors or current investors re-investing. The capital is held on a smart contract until the next NAV, where it will be moved to be at the disposal of the FM.
Similarly, the Fund might add some liabilities on the balance sheet for the NAV calculation, such as pending invoices in the Account Payable. Moreover, the Fund can directly pay invoices reporting these costs with an invoice reference (off-chain traceability).
Outflows
Outflows might represent redemptions, but there are several more categories. Pending invoices in the Account Payable and fees are examples of capital moving out of the Fund as well.
Redemptions are processed in reverse fashion compared to subscriptions: the investor notifies the platform of his wish to withdraw its capital by depositing its fund shares into the smart contract. At the next NAV, the FM can automatically process the redemption by receiving the fund shares and sending the corresponding capital to the investor’s wallet address.
Fees that are paid either to the FM or to the platform can also be processed automatically. When a fee is due (when a NAV calculation is performed for example), it is added as a liability to the outflows of the fund. This liability can, just like the others, be settled in a couple clicks with a transfer to the corresponding addresses. The fields are pre-filled (such as recipient of the transaction as well as any currency exchanges needed.
4.5 NAV Calculation
The FM decides the frequency at which the NAV calculation is performed. For example, with a monthly NAV, the FM might perform the calculation at the end of each month. Moreover, the FM might decide to perform ad-hoc NAV calculations for the purpose of subscriptions and redemptions.
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To perform the NAV calculation, there is a sequence of 3 steps.
Step 1
The FM provides the unit prices of the assets directly held by the Fund. To facilitate this task, the prices are pre-fetched (for the assets and accounts where it is possible).
Step 2
The FM reviews the data inputted during the month as well as in the previous step. To facilitate inspection as well as later accounting, the review is presented with two categories:
Assets
Liabilities
This allows to have a different overview than the one in the Accounts section.
In case there are some pending redemption requests, the FM must allocate part of the Fund liquidity to a Redeemable compartment to allow the withdrawal of these assets.
Note: the subscribed liquidity can be used to offset the withdrawn liquidity. I.e. if for the same NAV calculation, there are both new subscriptions and redemptions, the subscribed amount can be used to pay back the redeeming investor.
Step 3
The FM sends a transaction on the blockchain that commits the information previously reviewed. This means that the following information are registered on the blockchain:
Unit prices of the assets directly held by the Fund
Unit prices + amount of additional assets not-held by the Fund
Liabilities (if any)
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Protocol Fees