Melonport, the software platform for asset management being built on Ethereum, has seen its token issuance fill within a few minutes – something of a record within the world of ICOs. 99% of the issuance was sold within the first three minutes and sale was over in under 14 minutes.
Melonport co-founder Mona El Isa said: "Reto and I are overwhelmed at how much interest and support there has been for this project – it finally allows us the possibility to turn the Melon vision into a reality and that's something we have worked hard for over the last year."
Mona El Isa, a former Goldman Sachs banker, has never been in any doubt about the use case Melonport addresses. The experience of running her own investment vehicle left her with a detailed understanding of how hedge funds work from front end to back end – and how archaic and inefficient it all is.
She became interested in Ethereum, the decentralised computing network that allows business rules to be enforced, updated and executed in a trustless manner thanks to blockchain technology, and saw the opportunity to completely re-invent the way hedge funds are set up and managed.
El Isa has since partnered up with software developer Reto Trinkler who was already designing such a framework and together they founded Melonport, the company which is designing and building the Melon Protocol. The startup has also hired the Ethereum Foundation's George Hallam as head of business development, and has been advised by Dr Gavin Wood, founder of both Ethereum and Parity Technologies as well as Dr Andreas Glarner, legal partner of MME.
El Isa points to the many barriers one might face when entering the fund management space; it's very hard to break even when your assets under management amount to less than $150m, thanks to crippling fixed and variable costs, she says.
"If you run things yourself, then you understand how it works front to back end. I couldn't believe how archaic and inefficient the processes were, expensive and time consuming processes. There tends to be layers of new technology bolted on top of decades of legacy technology, limiting incumbants ability to adapt quickly. I started thinking about disruption."
The majority of asset management operations are perhaps too large to care about clunky legacy architecture. But hedge funds have been suffering poor returns lately; last year saw over $100bn of redemptions, and many new, smart innovations are hitting the market.
Melon leverages the trustless nature of blockchains to enforce the parameterising of what the manager can and can't do. The Melon Protocol smart contracts, which would live on the blockchain, are a ruleset that pre-define what the fund can invest in: for example, European and US stocks, or stocks with a market cap of over $3bn.
Melon incorporates these rules into smart contracts which enforce the fund's parameters. If the fund's structure states that it cannot invest more than 5% of AUM in any one asset, any trades over that amount simply cannot go through.
The Melon Protocol itself is modular, comprising a mandatory core module which other optional modules can be plugged into. This gives users a wide variety of options.
"The core glues everything else together. Then there are choices which we outsource into modules. So it should feel like going into an app store where you have to take the core and then make choices such as: do I want my price feed coming from Reuters, or Bloomberg; do I want my fund to trade only with ERC 20 tokens or currencies or can it do stocks as well. You put all of these parameters in a basket and once you deploy this fund structure to the blockchain, the blockchain then enforces these parameters," said El Isa.
Melon also allows users to build an auditable, transparent track record. Most traders and portfolio managers working for big hedge funds are forbidden from taking with them a proven audited track record of their results. This is of obvious importance if you are trying to raise money. This also means that the blockchain in effect allows access to a deeper pool of talented managers, due to lower barriers to entry.
In the short term, El Isa and her team are not trying to raise a fund themselves using Melon. They are building the open source protocol for future asset managers to streamline costs and deploy unbreakable rules. "We are building it with a view to maybe use it one day when it's ready, to set up our own fund, or even a fund of funds," she said.
She also believes passionately in crypto as an entirely new asset class and emerging investment opportunity. "I expect it will soon be in every single portfolio construction," she said. "It reminds me of junk bonds in the 1980s they were seen as untouchable because they were so high risk, until Mike Milken pioneered the way forward in this asset class. Today, it's totally standard to have junks bonds in your allocation.
"Same with ETFs; John Bogle [Vanguard founder] pioneered that 30 years ago and people dismissed the concept when he tried to set up an ETF. Today these are worth over a trillion dollars."