CRYPTO MULTIPLE SECURITY ASSET CREATION AND REDEMPTION PLATFORM

PLATEFORME CRYPTEE DE CREATION ET DE RACHAT D'ACTIFS A MULTIPLES NIVEAUX DE SECURITE

English Abstract

An asset trading system utilizing a distributed ledger and configured to: when a creation request to create a digital fund token representing at least one share of a fund having a plurality of different assets (i) is received, (ii) is electronically signed with a private key associated with a first addressed account, and (iii) indicates a composition of the at least one share of the fund: place the plurality of different assets represented by the at least one share of the fund into an escrow account; create the digital fund token, wherein the digital fund token indicates the composition of the share of the fund; and record the creation of the digital fund token on a distributed ledger.

French Abstract

Cette invention concerne un système d'opérations sur actifs utilisant un registre distribué et configuré pour : lorsqu'une requête de création pour la création d'un jeton de fonds numérique représentant au moins une action d'un fonds comprenant une pluralité d'actifs différents (i) est reçue, (ii) est électroniquement signée avec une clé privée associée à un premier compte adressé, et (iii) indique une composition de ladite action du fonds : placer la pluralité de différents actifs représentés par ladite action du fonds sur un compte de garantie bloqué ; créer le jeton de fonds numérique, le jeton de fonds numérique indiquant la composition de l'action du fonds ; et enregistrer la création du jeton de fonds numérique sur un registre distribué.

Claims

CLAIMS
What is claimed is:
1. An asset trading system utilizing a distributed ledger, the asset
trading system
comprising:
at least one processor; and
at least one computer readable storage medium having instructions stored
thereon,
which when executed by the at least one processor causes the asset trading
system to:
when a creation request to create a digital fund token representing at least
one
share of a fund having a plurality of different assets (i) is received, (ii)
is
electronically signed with a private key associated with a first addressed
account, and
(iii) indicates a composition of the at least one share of the fund:
place the plurality of different assets represented by the at least one
share of the fund into an escrow account;
create the digital fund token, wherein the digital fund token indicates
the composition of the share of the fund; and
record the creation of the digital fund token on a distributed ledger.
2. The asset trading system of claim 1, wherein the instructions, when
executed by the at
least one processor further causes the asset trading system to:
when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
prior to creating the digital fund token, receive confirmation from the
distributed ledger that the plurality of different assets represented by the
at least one
share of the fund are associated with the first addressed account.
3. The asset trading system of claim 1, wherein the instructions, when
executed by the at
least one processor further causes the asset trading system to:
when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
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prior to creating the digital fund token,
create a plurality of digital tokens representing the plurality of different
assets; and
record the creation of the plurality of digital tokens on the distributed
ledger;
as part of creating the digital fund token,
place the plurality of digital tokens representing the plurality of
different assets into an escrow state; and
record the escrow state of the plurality of digital tokens representing
the plurality of different assets on the distributed ledger.
4. The asset trading system of claim 1, wherein the instructions, when
executed by the at
least one processor further causes the asset trading system to:
when a redemption request to redeem the digital fund token representing the at
least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
release the plurality of different assets represented by the at least one
share of
the fund from the escrow account;
destroy the digital fund token; and
record the destruction of the digital fund token on the distributed ledger.
5. The asset trading system of claim 4, wherein the instructions, when
executed by the at
least one processor further causes the asset trading system to:
when the redemption request to redeem the digital fund token representing the
at least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
prior to destroying the digital fund token,
remove the plurality of digital tokens representing the plurality of
different assets from the escrow state; and
record the removal of the escrow state of the plurality of digital tokens
representing the plurality of different assets on the distributed ledger.
6. The asset trading system of claim 1, wherein the instructions, when
executed by the at
least one processor further causes the asset trading system to:
33

when a transfer request to transfer the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received and
(ii) is
electronically signed with a private key associated with the first addressed
account:
transfer the digital fund token from the first addressed account to a second
addressed account; and
record the transfer of the digital fund token on the distributed ledger.
7. The asset trading system of claim 1, wherein the fund is one of an
exchange traded
fund, a mutual fund, an index fund, a bond fund, a commodity fund, a currency
fund, and a
real estate fund.
8. A method of creating and redeeming digital fund tokens using a
distributed ledger, the
method comprising:
when a creation request to create a digital fund token representing at least
one share of
a fund having a plurality of different assets (i) is received, (ii) is
electronically signed with a
private key associated with a first addressed account, and (iii) indicates a
composition of the
at least one share of the fund:
placing the plurality of different assets represented by the at least one
share of
the fund into an escrow account;
creating the digital fund token, wherein the digital fund token indicates the
composition of the share of the fund; and
recording the creation of the digital fund token on a distributed ledger.
9. The method of claim 8, further comprising:
when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
prior to creating the digital fund token, receiving confirmation from the
distributed ledger that the plurality of different assets represented by the
at least one
share of the fund are associated with the first addressed account.
10. The method of claim 9, further comprising:
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when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
prior to creating the digital fund token,
creating a plurality of digital tokens representing the plurality of
different assets; and
recording the creation of the plurality of digital tokens on the
distributed ledger;
as part of creating the digital fund token,
placing the plurality of digital tokens representing the plurality of
different assets into an escrow state; and
recording the escrow state of the plurality of digital tokens representing
the plurality of different assets on the distributed ledger;
11. The method of claim 8, further comprising:
when a redemption request to redeem the digital fund token representing the at
least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
releasing the plurality of different assets represented by the at least one
share
of the fund from the escrow account;
destroying the digital fund token; and
recording the destruction of the digital fund token on the distributed ledger.
12. The method of claim 11, further comprising:
when the redemption request to redeem the digital fund token representing the
at least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
prior to destroying the digital fund token,
removing the plurality of digital tokens representing the plurality of
different assets from the escrow state; and
recording the removal of the escrow state of the plurality of digital
tokens representing the plurality of different assets on the distributed
ledger.

13. The method of claim 8, further comprising:
when a transfer request to transfer the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received and
(ii) is
electronically signed with a private key associated with the first addressed
account:
transferring the digital fund token from the first addressed account to a
second
addressed account; and
recording the transfer of the digital fund token on the distributed ledger.
14. The method of claim 8, wherein the fund is one of an exchange traded
fund, a mutual
fund, an index fund, a bond fund, a commodity fund, a currency fund, and a
real estate fund.
15. A non-transitory computer-readable storage medium including a set of
instructions
that, when executed by one or more processors, cause a machine to:
when a creation request to create a digital fund token representing at least
one share of
a fund having a plurality of different assets (i) is received, (ii) is
electronically signed with a
private key associated with a first addressed account, and (iii) indicates a
composition of the
at least one share of the fund:
place the plurality of different assets represented by the at least one share
of
the fund into an escrow account;
create the digital fund token, wherein the digital fund token indicates the
composition of the share of the fund; and
record the creation of the digital fund token on a distributed ledger.
16. The non-transitory computer-readable storage medium of claim 15,
wherein the
instructions, when executed by one or more processors, further cause the
machine to:
when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
prior to creating the digital fund token, receive confirmation from the
distributed ledger that the plurality of different assets represented by the
at least one
share of the fund are associated with the first addressed account.
36

17. The non-transitory computer-readable storage medium of claim 16,
wherein the
instructions, when executed by one or more processors, further cause the
machine to:
when the creation request to create the digital fund token representing the at
least one
share of the fund having the plurality of different assets (i) is received,
(ii) is electronically
signed with the private key associated with the first addressed account, and
(iii) indicates the
composition of the at least one share of the fund:
prior to creating the digital fund token,
create a plurality of digital tokens representing the plurality of different
assets; and
record the creation of the plurality of digital tokens on the distributed
ledger;
as part of creating the digital fund token,
place the plurality of digital tokens representing the plurality of
different assets into an escrow state; and
record the escrow state of the plurality of digital tokens representing
the plurality of different assets on the distributed ledger.
18. The non-transitory computer-readable storage medium of claim 15,
wherein the
instructions, when executed by one or more processors, further cause the
machine to:
when a redemption request to redeem the digital fund token representing the at
least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
release the plurality of different assets represented by the at least one
share of
the fund from the escrow account;
destroy the digital fund token; and
record the destruction of the digital fund token on the distributed ledger.
19. The non-transitory computer-readable storage medium of claim 18,
wherein the
instructions, when executed by one or more processors, further cause the
machine to:
when the redemption request to redeem the digital fund token representing the
at least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with the private key associated with the first addressed
account:
prior to destroying the digital fund token,
37

remove the plurality of digital tokens representing the plurality of
different assets from the escrow state; and
record the removal of the escrow state of the plurality of digital tokens
representing the plurality of different assets on the distributed ledger.
20. The non-
transitory computer-readable storage medium of claim 15, wherein the fund
is one of an exchange traded fund, a mutual fund, an index fund, a bond fund,
a commodity
fund, a currency fund, and a real estate fund.
38

Description

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CRYPTO MULTIPLE SECURITY ASSET CREATION
AND REDEMPTION PLATFORM
CROSS-REFERENCE TO RELATED APPLICATIONS
[0001] This application claims the benefit of United States Provisional Patent
Application
Serial No. 62/273,848 filed on December 31, 2015, entitled "CRYPTO ETF
CREATION
AND REDEMPTION PLATFORM", which is hereby incorporated herein by reference.
[0002] This application is also a continuation-in-part of United States Patent
Application
Serial No. 15/141,582, filed April 28, 2016, entitled "DIGITALLY ENCRYPTED
SECURITIES PLATFORM, ALONG WITH METHODS AND SYSTEMS FOR THE
SAME" which claims the benefit of United States Provisional Application No.
62/156,027,
filed on May 1, 2015, entitled "DIGITALLY ENCRYPTED CUSTODIAL REGISTRY FOR
SECURITIES LENDING, BORROWING AND TRADING USING A DISTRIBUTED
LEDGER", and United States Provisional Application No. 62/246,713, filed on
October 27,
2015, entitled "DIGITALLY ENCRYPTED CUSTODIAL REGISTRY FOR SECURITIES
LENDING, BORROWING AND TRADING USING A DISTRIBUTED LEDGER", all of
which are hereby incorporated herein by reference.
TECHNICAL FIELD
[0003] Various embodiments of the present disclosure generally relate to
trading. More
specifically, various embodiments of the present disclosure relate to systems
and methods for
creating, redeeming, and trading multiple security assets such as various
types of funds
including, but not limited to exchange traded funds ("ETFs"), mutual funds,
index funds,
open-end funds, closed-end funds, high yield bond funds, corporate bond funds,
municipal
bond funds, government bond funds, bond funds, money market funds, balanced
funds,
equity funds, fixed income funds, global funds, international funds, specialty
funds, index
funds, commodity funds, currency funds, and/or real estate funds using
distributed and
cryptographic ("crypto") techniques.
BACKGROUND
[0004] Recent increasing adoption of crypto currencies (such as Bitcoin)
throughout the
world creates challenges for existing trading systems. For example, market
data and
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ownership data are stored differently. Additionally, existing trading systems
use protocols
for pre-trade communications and execution that are not compatible with
trading systems that
trade crypt currencies.
[0005] The present disclosure overcomes these and other limitations of
existing trading
systems and provides other benefits, as will become clearer to those skilled
in the art from the
following description.
SUMMARY
[0006] An asset trading system utilizing a distributed ledger and configured
to: when a
creation request to create a digital fund token representing at least one
share of a fund having
a plurality of different assets (i) is received, (ii) is electronically signed
with a private key
associated with a first addressed account, and (iii) indicates a composition
of the at least one
share of the fund: place the plurality of different assets represented by the
at least one share
of the fund into an escrow account; create the digital fund token, wherein the
digital fund
token indicates the composition of the share of the fund; and record the
creation of the digital
fund token on a distributed ledger.
BRIEF DESCRIPTION OF THE DRAWINGS
[0007] Embodiments of the present disclosure will be described and explained
through the
use of the accompanying drawings, in which:
[0008] Fig. 1 illustrates an example of a network-based operating environment
in accordance
with various embodiments of the disclosure;
[0009] Fig. 2 illustrates a set of components in a Crypto Fund Creation and
Redemption
Platform in accordance with various embodiments of the disclosure;
[0010] Fig. 3 illustrates a process of directly creating Crypto Fund shares in
accordance with
various embodiments of the disclosure;
[0011] Fig. 4 is a flowchart illustrating a process of directly creating
Crypto Fund shares
according to one or more embodiments of the present disclosure;
[0012] Fig. 5 illustrates a process of directly redeeming Crypto Fund shares
in accordance
with various embodiments of the disclosure;
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[0013] Fig. 6 is a flowchart illustrating a process of directly redeeming
Crypto Fund shares
according to one or more embodiments of the present disclosure;
[0014] Fig. 7 illustrates a process of indirectly creating Crypto Fund shares
in accordance
with various embodiments of the disclosure;
[0015] Fig. 8 is a flowchart illustrating a process of indirectly creating
Crypto Fund shares
according to one or more embodiments of the present disclosure;
[0016] Fig. 9 illustrates a process of indirectly redeeming Crypto Fund shares
in accordance
with various embodiments of the disclosure;
[0017] Fig. 10 is a flowchart illustrating a process of indirectly redeeming
Crypto Fund
shares according to one or more embodiments of the present disclosure;
[0018] Fig. 11 is a flowchart illustrating a process of creating Crypto Fund
shares according
to one or more embodiments of the present disclosure;
[0019] Fig. 12 is a flowchart illustrating a process of redeeming Crypto Fund
shares
according to one or more embodiments of the present disclosure; and
[0020] Fig. 13 illustrates an example of a computer system with which some
embodiments
of the present disclosure may be utilized.
DETAILED DESCRIPTION
[0021] Various embodiments of the present disclosure generally relate to
trading. More
specifically, various embodiments of the present disclosure relate to systems
and methods for
creating, redeeming, and trading multiple security assets such as various
types of funds
including, but not limited to exchange traded funds ("ETFs"), mutual funds,
index funds,
open-end funds, closed-end funds, high yield bond funds, corporate bond funds,
municipal
bond funds, government bond funds, bond funds, money market funds, balanced
funds,
equity funds, fixed income funds, global funds, international funds, specialty
funds, index
funds, commodity funds, currency funds, and/or real estate funds using
distributed and
cryptographic techniques, and, in particular, a Crypto Fund Creation and
Redemption
Platform.
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[0022] A mutual fund is a professionally managed investment fund that pools
money from
multiples inventors to purchase a group of securities and/or other assets.. An
index fund is a
mutual fund designed to follow certain preset rules (such as by tracking
prominent indexes
such as the S&P 900 or Dow j ones Industrial Average) so that the fund can
track a specified
group of securities and/or other assets. An ETF is a marketable security that
tracks an index,
a commodity, bonds, or a group of assets such as a mutual fund or index fund.
ETFs have
two levels of trading activity: primary and secondary. In the primary market,
ETF authorized
providers exchange a published group of securities in-kind plus a published
cash component
in exchange for ETF shares. These groups are generally very large, and one
creation or
redemption unit is equal to a fixed number of ETF shares. The ratio varies by
product, but is
usually 50,000 ETF shares per unit. fund managers can issue shares to or
redeem shares from
institutional investors (such as broker-dealers) in large blocks (such as
50,000 shares) called
creation units. Creation unit transactions can be conducted in exchange for
the deposit or
delivery of a designated portfolio of in-kind securities and/or cash
constituting a substantial
replication, or a representation, of the securities included in the ETF's
benchmark Index.
Typically, individual shares of the ETF may only be purchased and sold on
national securities
exchanges, electronic crossing networks and other alternative trading systems
through
broker-dealers at market prices. Most institutional and retail clients trade
ETF shares in the
secondary market. In exemplary embodiments, ETF share creation and redemption
can
happen in two ways: (1) in-kind creation of ETF shares; and (2) cash creation
of ETF shares.
In exemplary embodiments of in-kind creation of ETF shares, a basket/group of
securities are
exchanged for a block of ETF shares ("creation unit") and the ability to
create/redeem ETF
shares constantly is hailed as a positive characteristic. In exemplary
embodiments of cash
creation of ETF shares, a market maker (MM) or an Authorized Provider (AP)
cannot trade
certain ETF components for delivery to an originator and a cash equivalent is
substituted to
the originator. Not all ETFs permit cash creation.
[0023] ETFs, mutual funds, index funds, other funds and/or other multiple
security assets are
unique in that they are composed of individual securities. Current systems do
not address
creation or redemption of ETFs, mutual funds, index funds, other funds and/or
other multiple
security shares in cryptographic trading systems. It is understood that any of
these funds
and/or other multiple security shares (such as ETFs, mutual funds, index
funds, etc.) can be
created and redeemed using cryptographic trading systems described herein.
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[0024] Embodiments of the present disclosure provide methods and systems for
fund creation
and redemption through the use of the Crypto Fund Creation and Redemption
Platform. The
Crypto Fund Creation and Redemption Platform uses distributed ledgers/crypto
ledgers (such
as block chains) to document and verify ownership and availability of: (1) the
digital
representations of securities (referred to herein as "digital tokens") used to
create the Crypto
Fund shares (referred to herein as "digital fund tokens"); and (2) the digital
representations of
the funds and/or other multiple security shares (referred to herein as
"digital fund tokens")
themselves. The digital tokens and digital fund tokens are associated with
various digital
accounts referred to as addressed accounts or wallets. The distributed ledger
records changes
of ownership of the digital tokens and digital fund tokens from one digital
account to another
digital account.
[0025] There are various ways in which the digital fund tokens can be created
and redeemed,
including but not limited to: (1) directly creating and redeeming digital fund
tokens based on
a plurality of underlying securities and/or other assets stored in an escrow-
type account; and
(2) indirectly creating and redeeming digital fund tokens by digital
tokenizing individual
securities and/or other assets before creating digital fund tokens based on
the digital tokens
for the individual securities. In the first type of exemplary embodiments,
digital fund tokens
are created directly based on underlying securities stored in an escrow-type
account. In these
second type of exemplary embodiments, the digital fund tokens can be redeemed
directly for
the underlying securities stored in the escrow-type account. In the second
type of exemplary
embodiments, digital tokens for the individual securities and/or other assets
are created first
for securities stored in an escrow-type account and then digital fund tokens
are created based
on the digital tokens for the individual securities. In these second type of
exemplary
embodiments, the digital fund tokens are first redeemed for digital tokens for
individual
securities, which are then redeemed for the individual underlying securities.
[0026] In exemplary embodiments, cash creation might be necessary when in-kind
creation is
difficult. There can be frictions that bog down in-kind creation and
redemption. Primary
market liquidity depends on the Authorized Provider (AP)'s ability to transact
in the
basket/group of securities. In certain cases, this is difficult or nearly
impossible, such as
ETFs tracking non-U.S. benchmark indexes when the constituent securities are
restricted
from foreign ownership or when currency transactions taxes may be large. The
cash creation
of ETF shares is a work-around. In addition, in the case of leveraged ETFs,
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leverage is obtained through the use of total return swaps, cash creations are
the only option,
since the fund holdings are over-the-counter derivatives contracts.
Unfortunately, cash
creation of ETF shares might lead to serious technical problems, such as when
a large cash
creation order is accepted before a market closes, leading to a sizable
difference in Net Asset
Value (NAV) between the ETF shares and the underlying stocks. As trading in
the
underlying index is halted at the end of the trading day and the fund includes
a sizeable
quantity of cash such that if the market goes up a certain quantity, the fund
may increase a
much smaller amount, such as the case where the fund included approximately
the same
value in cash as it did in the value of the underlying stocks and while the
stocks increase in
value over night in trading, the cash itself did not.
[0027] In both of these situations, the ETF digital token provides the
following technical
solutions. First, for an ETF that experiences some illiquidity in one or more
of its component
assets, but does not allow cash creation, the digital token can be substituted
for the missing
component(s), where the digital token represents component shares held in
escrow (or in
some other segregated form). Illiquidity can be caused by a number of factors,
such as an
overseas market being closed, a temporary trading halt, ownership
restrictions, etc. Second,
for an ETF that accepts cash creation, but trading in the underlying component
stocks has
been halted, the digital token can represent some or all of the individual
component shares,
and allow them to trade on a secondary market to prevent huge differences in
Net Asset
Value (NAV).
[0028] Accordingly, the systems and methods described herein address problems
relating to
ETFs, by (1) allowing for increased liquidity, transparency, efficiency and
accountability; (2)
reducing investor risk for retail investors in ETFs; and (3) reducing
market/systematic risk
due to ETF liquidity problems. In addition, the systems and methods described
herein
address problems relating to fund and other multiple security assets
generally, such as double
spending and long settlement transaction times by using a distributed ledger
and digital fund
tokens to track transactions of a fund or other multiple security asset.
[0029] As noted above, in exemplary embodiments digital fund tokens are
created and
redeemed directly (without using intermediary digital tokens for individual
securities and/or
other assets). In these embodiments, to create Crypt Fund shares, a clearing
bank, fund
manager, or other authorized entity can create the digital fund tokens on
behalf of the owner
of the non-digital securities and associate the digital fund tokens with a
fund manager's
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digital account (for example "manager wallet"). In exemplary embodiments, the
fund
manager is managing at least one fund including a plurality of securities
and/or other assets.
In exemplary embodiments, the underlying securities and/or other assets that
comprise the
fund are first acquired and segregated into an escrow-type account in a manner
such that they
cannot be used for any purpose other than as collateral guaranteeing that the
digital fund
tokens created are supported by the actual underlying securities and/or
assets. Once the
securities and/or other assets that comprise the fund are segregated into the
escrow-type
account, the fund manager can then invoke the creation of one or more digital
fund tokens for
the particular fund. In exemplary embodiments, a single digital fund token
represents a
plurality of underlying securities and/or other assets that represent and/or
are collateral for the
digital fund token in the escrow-type account. In exemplary embodiments, the
one or more
digital fund tokens are then created and their creation is recorded on a
distributed ledger.
[0030] In these embodiment where digital fund tokens are created and redeemed
directly
(without using intermediary digital tokens for individual securities and/or
other assets), to
redeem Crypt Fund shares, the clearing bank, fund manager, or other
authorized entity can
redeem the at least one digital fund token on behalf of the owner of the non-
digital securities
and destroy the digital fund tokens. In exemplary embodiments, the clearing
bank, fund
manager, or other authorized entity receives a request from an investor to
redeem at least one
digital fund token and responds by transferring some of the actual securities
and/or other
assets that correspond to the at least one digital fund token out of the
escrow-type account to
an account of the owner and destroys the at least one digital fund token which
has been
redeemed. In exemplary embodiments, the redemption and/or destruction of the
one or more
digital fund tokens is recorded on a distributed ledger.
[0031] As noted above, in exemplary embodiments digital fund tokens are
created and
redeemed indirectly (using intermediary digital tokens for individual
securities and/or other
assets). In these embodiments, to create Crypto Fund shares, a clearing bank,
fund manager,
or other authorized entity can generate digital fund tokens on behalf of the
owner of the non-
digital securities and associate the digital fund tokens with a fund manager's
digital account
(for example "manager wallet") by first creating digital tokens for a
plurality of individual
securities and/or other assets and then creating digital fund tokens from the
digital tokens for
the plurality of individual securities and/or other assets. In exemplary
embodiments, the fund
manager is managing at least one fund including a plurality of securities
and/or other assets.
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In exemplary embodiments, the underlying securities and/or other assets that
comprise the
fund are first acquired and segregated into escrow-type accounts on a
security/other asset
basis in a manner such that they cannot be used for any purpose other than as
collateral
guaranteeing that the digital tokens and digital fund tokens created are
supported by the
actual underlying securities and/or assets. Once the securities and/or other
assets that
comprise the fund are segregated into the escrow-type accounts, the fund
manager can then
invoke the creation of one or more digital fund tokens for the particular
fund. In exemplary
embodiments, a plurality of digital tokens representing a plurality of
different securities
and/or other assets is created and their creation is recorded on a distributed
ledger. In
exemplary embodiments, at least one digital fund token is generated based on
the plurality of
digital tokens and the digital tokens are placed in an escrow-type account. In
other
embodiments, when the at least one digital fund token is generated based on
the plurality of
digital tokens, the digital tokens are destroyed. In exemplary embodiments,
the digital fund
token represents a plurality of digital tokens, where an underlying security
or other asset
represents and/or is collateral for each of the plurality of digital tokens in
the escrow-type
account. In exemplary embodiments, creation of the one or more digital fund
tokens is
recorded on a distributed ledger.
[0032] In these embodiment where digital fund tokens are created and redeemed
indirectly
(using intermediary digital tokens for individual securities and/or other
assets), to redeem
Crypt Fund shares, the clearing bank, fund manager, or other authorized
entity can redeem
the at least one digital fund token on behalf of the owner of the non-digital
securities and
destroy the digital fund tokens. In exemplary embodiments, the clearing bank,
fund manager,
or other authorized entity receives a request from an investor to redeem at
least one digital
fund token and responds by moving the digital tokens represented by the at
least one digital
fund token from the escrow-type account and destroying the at least one
digital fund token.
In other embodiments where the digital tokens represented by the at least one
digital fund
token were previously destroyed, new digital tokens represented by the at
least one digital
fund token are created and the at least one digital fund token is destroyed.
The actual
securities and/or other assets that correspond to the digital tokens that
represented the
redeemed digital fund token are then transferred from the escrow-type account
to an account
of the owner and the at least one digital fund token that is redeemed and the
digital tokens
that represented the at least one digital fund token that is redeemed are
destroyed if they were
not previously. In exemplary embodiments, the redemption and/or destruction of
the one or
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more digital fund tokens and/or digital tokens represented by the digital fund
tokens is
recorded on a distributed ledger.
[0033] The fund manager can create a transaction to transfer the digital
tokens to a creation
wallet where the new fund shares will be created from the digital tokens. The
transaction can
specify the quantity and type of each security used to create the fund shares
(such as 50
shares of security A, 100 shares of security B, 40 shares of security C). Once
the digital
tokens are associated with the creation wallet, the Crypt Fund Creation and
Redemption
Platform can generate one or more new digital fund tokens.
[0034] Each digital fund token is comprised of the specified type and quantity
of securities
for the fund (such as an ETF, mutual fund, index fund, etc.). The creation of
the digital fund
token is recorded to the distributed ledger. The Crypt Fund Creation and
Redemption
Platform can create a transaction to transfer the newly created digital fund
tokens back to the
manager wallet. Once the digital fund tokens are associated with the manager
wallet, the
manager can then place a sell order to trade the digital fund tokens in a
secondary market (for
example on a crypto exchange) on behalf of the owner.
[0035] Embodiments of the present disclosure also provide methods and systems
for fund
redemption (such as, a redemption of the underlying securities of an ETF,
mutual fund, index
fund, etc.). In some embodiments, an owner of the digital fund token may place
a request for
the redemption of the digital tokens and/or the underlying non-digital
securities to the
manager controlling the manager wallet associated with the digital fund
tokens.
[0036] The manager can request that the digital fund token be exchanged for
its underlying
securities by creating a transaction to transfer the digital fund token from
the manager wallet
to a redemption wallet, along with a redemption transaction request. Once
associated with
the redemption wallet, the digital fund token can be redeemed for its
underlying securities in
the form of digital tokens. After the components are exchanged for the digital
fund token, the
digital fund token is destroyed so that it no longer exists. The conversion of
the digital fund
token into its components can be recorded to the distributed ledger. The
Crypto Fund
Creation and Redemption Platform can create a transaction to transfer the
digital tokens from
the redemption wallet to the manager wallet. When the digital tokens are
associated with the
manager wallet, the digital tokens can be redeemed for non-digital securities
and provided to
their owner.
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[0037] As discussed above, the Crypto Fund Creation and Redemption Platform
uses
distributed ledgers/crypto ledgers (such as block chains) to document and
verify ownership
and availability of the digital fund tokens and the digital tokens used to
create the digital fund
tokens. Cryptographic techniques can be used to transfer the digital tokens
and the digital
fund tokens from one digital account to another digital account. For example,
the digital fund
tokens can be transferred to other owners using public-key cryptography and
bidirectional
encryption. Public-key cryptography requires a key pair, where the two keys
are
mathematically linked. One key is a public key that is freely shared among
nodes in a peer-
to-peer network. The other key is a private key that is not shared with the
public. The public
key is used to encrypt plaintext and to verify a digital signature. The
private key is used to
decrypt cipher text and to digitally sign transactions. Each digital account
can have an
associated key pair. Transaction messages may be digitally signed by the
sender's private
key to authenticate the sender's identity. Then, the sender's digitally-signed
transaction
message may be decrypted using the sender's public key to verify that the
sender originated
the transaction.
[0038] Ownership of the digital tokens and digital fund tokens may be based on
ownership
entries in distributed ledgers that are maintained by network nodes. The
distributed ledgers
(such as block chain for Bitcoin) record entries for each change in ownership
of each digital
token and digital fund token and may be mathematically linked to the key
pairs. For
example, to transfer a digital fund token from one owner to another (for
example one
addressed account to another addressed account), a transaction message (such
as in packets or
other data structures) may be broadcast to nodes on a peer-to-peer network. In
an example,
when the digital fund token is being transferred from the creation wallet to
the manager
wallet, the transaction message can be signed by the creation wallet's private
key and may
include information such as a history of the chain of title of the digital
fund token and/or its
components, the number of shares being transferred, and the manager wallet's
public key-
based address. When a majority of the nodes in the network agree that the
sender has the
proper chain of title, ownership is changed to the owner of the creation
wallet and the ledger
is updated to indicate the transaction.
[0039] In the following description, for the purposes of explanation, numerous
specific
details are set forth in order to provide a thorough understanding of
embodiments of the
present disclosure. However, upon reading the disclosure, it will be apparent
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the art that embodiments may be practiced without some of these specific
details.
Additionally, while ETFs, mutual funds, and/or index funds are used as
examples, the
methods and systems described herein can be used with other assets that
include multiple
securities or other assets.
[0040] Benefits of the Crypto Fund Creation and Redemption Platform include
transparency
of ownership, easy recognition of the composition of a multiple security asset
(such as any
type of fund, including but not limited to the funds described herein), and
creation and
redemption of Crypto Fund shares. Cryptographically signing the transactions
ensures
authentication, authorization, and provenance.
[0041] The techniques introduced here can be embodied as special-purpose
hardware (such
as circuitry), as programmable circuitry appropriately programmed with
software and/or
firmware, or as a combination of special-purpose and programmable circuitry.
Hence,
embodiments may include a machine-readable medium having stored thereon
instructions
that may be used to program a computer (or other electronic devices) to
perform a process.
The machine-readable medium may include, for example, floppy diskettes,
optical disks,
compact disc read-only memories (CD-ROMs), magneto-optical disks, read-only
memories
(ROMs), random access memories (RAMs), erasable programmable read-only
memories
(EPROMs), electrically erasable programmable read-only memories (EEPROMs),
magnetic
or optical cards, flash memory, or other type of media/machine-readable medium
suitable for
storing electronic instructions.
[0042] Fig. 1 illustrates an example of a network-based operating environment
100 in which
some embodiments of the present disclosure may be used. As illustrated in Fig.
1, operating
environment 100 includes applications 105A-105N running on one or more
computing
devices 110A-110M (such as a mobile device, a mobile phone, a tablet computer,
a mobile
media device, a mobile gaming device, a vehicle-based computer, a dedicated
terminal, a
public terminal, a kiosk, or a desktop or laptop computer). In some
embodiments,
applications 105A-105N for carrying out operations such as generating orders
(such as orders
to purchase digital fund shares) and checking account balances may be stored
on the
computing devices or may be stored remotely.
[0043] Computing devices 110A-110M can include mechanisms for receiving and
sending
traffic by connecting through network 120 to Crypto Fund Creation and
Redemption Platform
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125, broker-dealer(s) 115, fund manager 130, and clearing bank 135. In some
embodiments,
computing devices 110A-110M can retrieve or submit information to Crypto Fund
Creation
and Redemption Platform 125 and run one or more applications with customized
content
retrieved by Crypto Fund Creation and Redemption Platform 125, broker-
dealer(s) 115, fund
manager 130, and clearing bank 135. For example, computing devices 110A-110M
each can
execute a browser application or a customized client to enable interaction
between the
computing devices 110A-110M and Crypto Fund Creation and Redemption Platform
125,
fund manager 130, clearing bank 135, and broker-dealer(s) 115.
[0044] Broker-dealer(s) 115 are entities (for example natural persons,
companies, or other
organizations) that engage in the business of trading transactional items
(such as ETFs,
mutual fund shares, index fund shares, currencies, other types of securities)
for their own
account or on behalf of their customers. When executing trade orders on behalf
of a
customer, the entity acts as a broker. When executing trades for its own
account, the entity
acts as a dealer. Broker-dealer(s) 115 may receive orders from computing
devices 110A-M,
fund manager 130, or they may create their own orders. Broker-dealer(s) 115
may
communicate orders to fund manager 130 and Crypto Fund Creation and Redemption
Platform 125 via network 120.
[0045] Crypto Fund Creation and Redemption Platform 125 can run on one or more
servers
and can be used to create, redeem, and trade digital fund tokens. In some
embodiments, as
illustrated, Crypto Fund Creation and Redemption Platform 125 includes a fund
creation
module 215 and a fund redemption module 220 (both described in more detail
with reference
to Figure 1 below).
[0046] In exemplary embodiments implementing direct creation of digital fund
tokens, the
fund creation module 215 can generate digital fund tokens directly once the
underlying assets
are segregated into the escrow-type account. In exemplary embodiments
implementing
indirect creation of digital fund tokens, the fund creation module 215 can
receive digital
tokens, which are digital representations of securities (such as bonds,
stocks, assets,
liabilities, currencies, commodities) into an associated creation wallet and
create digital fund
tokens from an assigned mixture of the digital tokens. The digital fund tokens
represent
shares of a fund (such as an ETF, mutual fund, and/or index fund) and thus are
comprised of
the digital tokens of more than one security, but are also a new security. The
digital fund
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tokens can then be traded via a crypto exchange or ATS. Each transaction can
be recorded to
a distributed ledger such as Crypto Ledger(s) 155.
[0047] In exemplary embodiments implementing direct redemption of digital fund
tokens,
the fund redemption module 220 redeems digital fund tokens directly by
releasing the
underlying assets from the segregated escrow-type account and destroying the
digital fund
token. In exemplary embodiments implementing indirection creation of digital
fund tokens,
the fund redemption module 220 redeems digital fund tokens and separates the
digital fund
tokens into the digital fund token's underlying securities digital tokens (for
example digital
representations of securities). Owners of the fund shares can request such a
transaction. The
transaction, however, may be initiated by the manager of a fund.
[0048] Fund manager 130 can be the manager of an ETF, mutual fund, index fund,
etc. Fund
manager 130 can receive securities from the owner of such securities and agree
to initiate a
process to create one or more fund shares. In embodiments implementing
indirect creation of
digital fund tokens, once clearing bank 135 (or other entity) digitizes the
securities, the digital
tokens may be associated with a wallet of the fund manager 130. Fund manager
130 can
transfer the digital tokens to the Crypto Fund Creation and Redemption
Platform 125 for
creation of digital fund tokens. Once the digital fund tokens are created and
transferred back
to the fund manager 130's wallet, the digital fund tokens can be traded on one
or more Crypto
Exchange(s) 150 or Crypto Ledger(s) 155.
[0049] Clearing bank 135 can hold non-digital securities in a fund manager
130's account
and create the digital tokens (digital representation of the non-digital
security). The digital
token may be a one-for-one relationship with the security (such as each
digital token
represents one share of a security) or the digital token may represent
different quantities of
the security (such as each digital token represents 100 shares of a security).
[0050] Crypto Fund Creation and Redemption Platform 125 is communicably
coupled with
one or more Alternative Trading System(s) ("ATS(s)") 145, Crypto Exchange(s)
150, and
Crypto Ledger(s) 155 through network 140.
[0051] Network 120 and network 140 can be the same network or can be separate
networks
and can be any combination of local area and/or wide area networks, using
wired and/or
wireless communication systems. Either network 120 or network 140 could be or
could use
any one or more of the following protocols/technologies: Ethernet, IEEE 802.11
or Wi-Fi,
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worldwide interoperability for microwave access (WiMAX), cellular
telecommunication
(such as 3G, 4G, 5G), CDMA, cable, digital subscriber line (DSL), etc.
Similarly, the
networking protocols used on network 120 and network 140 may include
multiprotocol label
switching (MPLS), transmission control protocol/Internet protocol (TCP/IP),
User Datagram
Protocol (UDP), hypertext transport protocol (HTTP), simple mail transfer
protocol (SMTP)
and file transfer protocol (FTP). Data exchanged over network 120 and network
140 may be
represented using technologies, languages and/or formats including hypertext
markup
language (HTML) or extensible markup language (XML). In addition, all or some
links can
be encrypted using conventional encryption technologies such as secure sockets
layer (SSL),
transport layer security (TLS), and Internet Protocol security (IPSec).
[0052] ATS(s) 145 are non-exchange trading systems that find counterparties
for transactions
by matching buyers and sellers. ATS(s) 145 are an alternative to traditional
stock exchanges.
Examples of ATS(s) 145 include electronic communication networks (ECNs),
crossing
networks, dark pools, and call markets. ATS(s) 145 receive digitally signed
orders such as
FIX orders, find potential buy/sell order matches to trade digital assets, and
contain a state of
the order book which records the state of the orders.
[0053] Crypto Exchanges(s) 150 are exchanges that trade digital transactional
items such as
digital fund tokens, digital shares of stock, digital bonds, and crypto
currencies. Digital
shares of stock may be of the same class of stock as securities listed on
traditional exchanges.
Ownership of the digital transactional items in Crypto Exchange(s) 150 can be
recorded on
one or more distributed ledgers such as Crypto Ledger(s) 155. Crypto
Exchange(s) 150
receive digitally signed crypto transactions (such as orders, cancellations,
etc.) to effectuate
trades.
[0054] Crypto Ledger(s) 155 are distributed ledgers that record economic
transactions such
as the creation of a digital fund token from two or more digital tokens or a
sale of digital
transactional items in exchange for funds. Crypto Ledger(s) 155 vary per unit.
For example,
Bitcoin uses a distributed public ledger called the block chain. When Crypto
Ledger(s) 155
receive a transaction signed with the proper key from Crypto Fund Creation and
Redemption
Platform 125 and the transaction is verified by network nodes, the Crypto
Ledger(s) 155
move the assets to the proper addressed account (such as manager wallet,
creation wallet,
redemption wallet, customer wallet, committed wallet) by recording the
transaction (such as
adding a block chain into the ledger).
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[0055] Various data stores can be used to manage storage and access to digital
tokens, digital
fund tokens, user information, and other data. The data stores may be
distributed data stores
such as Crypto Ledger(s) 155. The data stores may be a data repository of a
set of integrated
objects that are modeled using classes defined in database schemas. Data
stores may further
include flat files that can store data. Crypto Fund Creation and Redemption
Platform 125
and/or other servers may collect and/or access data from the data stores.
[0056] Fig. 2 illustrates a set of components within Crypto Creation and
Redemption
Platform 125 according to one or more embodiments of the present disclosure.
According to
the embodiments shown in Fig. 2, Crypto Creation and Redemption Platform 125
can
include memory 205, one or more processor(s) 210, fund creation module 215 and
fund
redemption module 220. Other embodiments may include some, all, or none of
these
modules and components along with other modules, applications, and/or
components. Still
yet, some embodiments may incorporate two or more of these modules and
components into
a single module and/or associate a portion of the functionality of one or more
of these
modules with a different module. For example, in one embodiment, fund creation
module
215 and fund redemption module 220 can be combined into a single component.
[0057] Memory 205 can be any device, mechanism, or populated data structure
used for
storing information. In accordance with some embodiments of the present
disclosure,
memory 205 can be or include, for example, any type of volatile memory,
nonvolatile
memory, and/or dynamic memory. For example, memory 205 can be random access
memory, memory storage devices, optical memory devices, magnetic media, floppy
disks,
magnetic tapes, hard drives, erasable programmable read-only memories
(EPROMs),
electrically erasable programmable read-only memories (EEPROMs), compact
discs, DVDs,
and/or the like. In accordance with some embodiments, memory 205 may include
one or
more disk drives, flash drives, one or more databases, one or more tables, one
or more files,
local cache memories, processor cache memories, relational databases, flat
databases, and/or
the like. In addition, those of ordinary skill in the art will appreciate many
additional devices
and techniques for storing information which can be used as memory 205.
[0058] Memory 205 may be used to store instructions for running one or more
applications or
modules on processor(s) 210. For example, memory 205 could be used in one or
more
embodiments to house all or some of the instructions needed to execute the
functionality of
fund creation module 215 and fund redemption module 220.

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[0059] In exemplary embodiments implementing indirect creation of digital fund
tokens,
fund creation module 215 can receive digital tokens into a creation wallet.
The creation
wallet may be controlled by Crypto Fund Creation and Redemption Platform 125.
The
digital tokens may have been created by a clearing bank 135 and placed into a
manager wallet
which is controlled by the fund manager 130. The manager wallet and the
creation wallet
may each have an associated key pair where each key pair includes one private
key and one
public key. The two parts of each key pair are mathematically linked.
[0060] In exemplary embodiments implementing indirect creation of digital fund
tokens, the
transaction transferring the digital tokens from the manager wallet to the
creation wallet can
include an indication of the composition of each fund share, the digital
tokens, and a public
key or address of the creation wallet. The transaction can be signed with the
private key of
the manager wallet to transfer the digital tokens into the creation wallet.
Upon receipt of the
digital tokens and the composition of the fund shares, fund creation module
215 creates
digital fund tokens from the digital tokens by combining the appropriate
quantities and types
of digital tokens.
[0061] Once the digital fund tokens are created, fund creation module 215
transfers the
digital fund tokens from the creation wallet to the manager wallet. The
transaction may
include a public key of the manager wallet and the digital fund tokens and can
be signed with
the private key of the creation wallet.
[0062] The transactions of transferring the digital tokens to the creation
wallet, creating the
digital fund tokens, and transferring the digital fund token to the manager
wallet can be
recorded to a distributed ledger, allowing for transparency in ownership and
composition of
the digital fund tokens.
[0063] Fund redemption module 220 can receive a redemption transaction request
from a
manager. The redemption transaction request may include digital fund tokens
that are stored
in the manager wallet and a public key (for example address) of a redemption
wallet. In
some embodiments, instructions on how to redeem digital securities from the
digital fund
token or information on the composition of the digital fund token are included
in the
redemption transaction request. The redemption transaction request may be
signed by a
private key of the manager wallet.
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[0064] In exemplary embodiments implementing indirect redemption of digital
fund tokens,
fund redemption module 220 can create a transaction to transfer the digital
tokens to the
manager wallet. The transaction can include the digital tokens, a public key
of the manager
wallet, and an indication of the redemption transaction. The transaction can
be signed with a
private key of the redemption wallet. The transactions of transferring the
digital fund tokens
to the redemption wallet, redeeming the digital fund tokens for digital
securities (for example
recording that one less fund share exists and additional digital securities
now exist), and
transferring the digital tokens to the manager wallet can be recorded to a
distributed ledger.
[0065] Fig. 3 illustrates a process for directly creating Crypto Fund shares
from the
underlying assets. An owner of securities can, upon request, send the non-
digital securities to
a fund manager (302). The securities can include various types of stocks,
commodities,
bonds, or other transactional items in various quantities (such as 10,000
shares of security A,
500 shares of security B). The fund manager may agree to creation of fund
shares and
request the manager clearing bank to create digital representations of the
securities (304). By
such agreement and request, the manager clearing bank can hold the non-digital
securities in
an account owned by the manager (306). The manager can request creation of
digital
representations of at least one fund (for example digital fund tokens) (308).
The fund
creation module can create the at least one digital fund token (310) or
another digital
representation of the multiple security asset.
[0066] Upon creation, the at least one digital fund token, including ownership
history, are
recorded to a distributed ledger (312). After the at least one digital fund
token is created, the
Crypto Fund creation module creates a transaction to transfer the at least one
digital fund
token to the manager wallet (314). The transaction can include the digital
fund tokens, a
public address or key of the manager wallet, a description of the digital fund
tokens, and/or
transaction information. The transaction is signed with the private key of the
creation wallet.
The digital fund tokens are transferred after the network nodes of the
distributed ledger verify
ownership of the digital fund tokens and the signature of the creation wallet
(316). The
manager wallet can hold the digital fund tokens (318) or place a sell order to
sell the digital
fund tokens in a secondary market (such as cryptographic exchange or other
ATS) (320), as
desired by the owner. In some embodiments, the digital fund tokens may be
shorted.
[0067] Fig. 4 is a flowchart illustrating a process 400 of directly creating
Crypto Fund
shares. Receiving operation 402 places the underlying securities into escrow.
Creating
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operation 404 creates digital fund tokens (for example Crypto Fund shares).
The digital fund
tokens can be traded via a crypt exchange or ATS. Recording operation 406
records the
creation of the digital fund token on a distributed ledger. In exemplary
embodiments, a
further creating operation creates a transaction to transfer the digital fund
tokens back to the
manager's digital account. The transfer can be effectuated when the
transaction to move the
digital fund tokens is signed with a private key of the digital creation
account and the network
nodes of a distributed ledger agree with the ownership history.
[0068] Fig. 5 illustrates a process for directly redeeming Crypto Fund shares.
The Crypto
Fund shares (for example digital fund tokens) are traded in the secondary
market. A manager
can purchase digital fund tokens by placing a buy order for at least one
digital fund token
(such as on behalf of a customer or the fund itself) (502). Once the at least
one digital fund
token have been purchased by the manager or are otherwise held by the manager,
the crypto
exchange system transfers the at least one digital fund token to the manager's
wallet (for
example fourth addressed account) and such transfer is recorded on the
distributed ledger
(504). The manager may request redemption of the non-digital securities (506).
The fund
redemption module may query the distributed ledger to ensure that the manager
is the
recorded owner of the at least one digital fund token (508). After the
distributed ledger
confirms ownership of the digital tokens (510), the fund redemption module can
redeem the
non-digital securities (512) and transfer the non-digital securities to the
manager (514). Once
the non-digital securities are redeemed and transferred, the at least one
digital fund token is
destroyed (516) and its destruction is recorded on the distributed ledger
(518). Once the
manager receives the non-digital securities (520), the manager may then
transfer the non-
digital securities to the owner of the securities (522). The owner of the
securities can retire
the securities to his or her inventory (524).
[0069] Fig. 6 is a flowchart illustrating a process 600 of directly redeeming
Crypto Fund
shares. In receiving operation 602, a redemption request can be received at a
redemption
wallet. The redemption request may transfer digital fund tokens (for example
Crypto Fund
shares) to the redemption wallet and may further include instructions on how
to redeem the
underlying securities. Redeeming operation 604 may redeem the underlying
securities
composing the digital fund token in exchange for the digital fund token.
Creating operation
606 can create a transaction to release the underlying securities from escrow.
The transfer
can be effectuated when the transaction to move the digital tokens is signed
with a private
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key of the digital creation account and the network nodes of a distributed
ledger agree with
the ownership history. Destroying operation 608 can destroy the digital fund
token once it
has been redeemed.
[0070] Fig. 7 illustrates a process for indirectly creating Crypto Fund
shares. An owner of
securities can, upon request, send the non-digital securities to a fund
manager (702). The
securities can include various types of stocks, commodities, bonds, or other
transactional
items in various quantities (such as 10,000 shares of security A, 500 shares
of security B).
The fund manager may agree to creation of fund shares and request the manager
clearing
bank to create digital representations of the securities (704). By such
agreement and request,
the manager clearing bank can hold the non-digital securities in an account
owned by the
manager (706). The manager can request creation of digital representations of
the securities
(for example digital tokens) (708). The manager clearing bank can create the
digital tokens
(710). The digital representations of the securities can be digital tokens,
where each of the
digital tokens represents one or more shares of a particular security. Upon
creation, the
digital tokens, including ownership history, are recorded to a distributed
ledger (712). The
manager clearing bank can associate the digital tokens with the manager
wallet, which may
be referred to as a first addressed account (714).
[0071] The manager creates a transaction to transfer the digital tokens to a
creation wallet
(for example second addressed account) where the digital tokens will be
committed to a fund
(716). The transaction can include the digital tokens, a public key or address
of the creation
wallet, and an indication of the composition of a fund share, and the
transaction can be signed
by the private key of the manager wallet. After the network nodes of the
distributed ledger
verify the transaction by checking the ownership history and whether the
transaction was
signed by the private key of the manager wallet, the digital tokens are
transferred to the
creation wallet and the distributed ledger records the transfer (718). Prior
to the commit
transaction taking place, the Crypto Fund creation module can verify that the
digital tokens
are associated with the manager wallet by checking the ownership recorded on
the distributed
ledger using the public key of the manager wallet.
[0072] Next, the Crypto Fund creation module can create digital fund tokens
comprised of
specified types and quantities of the digital tokens (720). Thus, each digital
fund token
represents a share of the fund (such as an ETF, mutual fund, index fund,
etc.). For example, a
digital fund token may include 50 digital tokens representing 50 shares of
security A and 100
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digital tokens representing 200 shares of security B. Creation of the digital
fund tokens from
the digital tokens is recorded on the distributed ledger (722).
[0073] After the digital fund tokens are created, the Crypto Fund creation
module creates a
transaction to transfer the digital fund tokens from the creation wallet to
the manager wallet
(724). The transaction can include the digital fund tokens, a public address
or key of the
manager wallet, a description of the digital fund tokens, and/or transaction
information. The
transaction is signed with the private key of the creation wallet. The digital
fund tokens are
transferred after the network nodes of the distributed ledger verify ownership
of the digital
fund tokens and the signature of the creation wallet (726). In some
embodiments, prior to the
transaction, the manager can verify that the digital tokens are associated
with the creation
wallet by checking the ownership recorded on the distributed ledger using the
public key of
the creation wallet. The manager wallet can hold the digital fund tokens (728)
or place a sell
order to sell the digital fund tokens in a secondary market (such as
cryptographic exchange or
other ATS) (730), as desired by the owner. In some embodiments, the digital
fund tokens
may be shorted.
[0074] Fig. 8 is a flowchart illustrating a process 800 of indirectly creating
Crypto Fund
shares. Receiving operation 802 receives digital tokens from a manager wallet
into a creation
wallet. The digital tokens can be digital representations of securities owned
or controlled by
the manager. When the digital tokens are received into the creation wallet,
additional
information regarding a fund share's composition also may be received,
including quantities
and types of securities that comprise each fund share. Creating operation 804
creates digital
fund tokens (for example Crypto Fund shares) by combining the digital tokens
in accordance
with the assigned composition. The digital fund tokens can be traded via a
crypt exchange
or ATS. Creating operation 806 creates a transaction to transfer the digital
fund tokens back
to the manager's digital account. The transfer can be effectuated when the
transaction to
move the digital fund tokens is signed with a private key of the digital
creation account and
the network nodes of a distributed ledger agree with the ownership history.
[0075] Fig. 9 illustrates a process for indirectly redeeming Crypto Fund
shares. The Crypto
Fund shares (for example digital fund tokens) are traded in the secondary
market. A manager
can purchase digital fund tokens by placing a buy order for the digital fund
tokens (such as on
behalf of a customer or the fund itself) (902). Once the digital fund tokens
have been
purchased by the manager or are otherwise held by the manager, the crypto
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transfers the digital fund tokens to the manager's wallet (for example fourth
addressed
account) and such transfer is recorded on the distributed ledger (904). The
manager may
create a transaction to redeem the individual digital securities (for example
digital tokens)
from the digital fund tokens (906). The redemption transaction request may
include the
digital fund tokens, a public address of a redemption wallet (for example
third addressed
account), and instructions to complete the redemption transaction. The
redemption
transaction request can be signed with the private key of the manager's
wallet, transferring
the digital fund tokens to the redemption wallet. After the network nodes
verify ownership
and signatures, the digital fund tokens are transferred from the manager's
wallet to the
redemption wallet and the transfer is recorded on the distributed ledger
(908). In some
embodiments, the manager wallet in the Fig. 7 is the same as the manager
wallet in Fig. 9.
In some embodiments, the creation wallet and the redemption wallet are the
same wallet.
[0076] Next, Crypto Fund redemption module redeems the digital tokens from the
digital
fund tokens, thereby removing the digital fund tokens from the fund and
converting the
digital fund tokens into the individual securities that composed the fund
shares (910). The
redemption transaction can be recorded to a distributed ledger so there is a
history of when
the digital tokens were redeemed from the digital fund token, including the
ownership history
(912). The Crypt Fund redemption module can create a transaction to transfer
the digital
tokens to the manager's wallet (914). Such transaction can include the digital
tokens, a
public key of the manager's wallet, and a notice that the digital token funds
have been
redeemed for the digital securities. The transaction may be signed by the
private key of the
redemption wallet. Once the network nodes have verified ownership history and
the
signature, the digital tokens can be transferred to the manager's wallet and
recorded to the
distributed ledger (916).
[0077] Once the digital securities are in the manager's wallet, or upon
request from the
manager, the manager may request redemption of the non-digital securities
(918). The
manager's clearing bank may query the distributed ledger to ensure that the
manager is the
recorded owner of the digital tokens (920). After the distributed ledger
confirms ownership
of the digital tokens (922), the manager's clearing bank can redeem the non-
digital securities
(924) and transfer the non-digital securities to the manager (926). Once the
non-digital
securities are redeemed and transferred, the at least one digital fund token
is destroyed (928)
and its destruction is recorded on the distributed ledger (930). Once the
manager receives the
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non-digital securities (932), the manager may then then transfer the non-
digital securities to
the owner of the securities (934). The owner of the securities can retire the
securities to his
or her inventory (936).
[0078] Fig. 10 is a flowchart illustrating a process 1000 of redeeming Crypto
Fund shares.
In receiving operation 1002, a redemption request can be received at a
redemption wallet.
The redemption request may transfer digital fund tokens (for example Crypt
Fund shares) to
the redemption wallet and may further include instructions on how to redeem
the digital
tokens that compose the digital fund token. Redeeming operation 1004 may
redeem the
digital securities composing the digital fund token in exchange for the
digital fund token.
Creating operation 1006 can create a transaction to transfer the digital
tokens to a manager
wallet. The transfer can be effectuated when the transaction to move the
digital tokens is
signed with a private key of the digital creation account and the network
nodes of a
distributed ledger agree with the ownership history.
[0079] Fig. 11 is a flowchart illustrating a process 1100 of creating multiple
security asset
shares. Generating operation 1102 generates a first transaction to transfer
digital
representations of securities from a first addressed account such as a manager
wallet to a
second addressed account such as a creation account. The first transaction can
include an
indication of a composition of an exchange traded fund share (or other
multiple security
asset). Signing operation 1104 electronically signs the first transaction.
Creating operation
1106 creates digital fund tokens using the digital representations of
securities such that each
digital fund token is comprised of the composition of an exchange traded fund
share (or other
multiple security asset). Communicating operation 1108 communicates the
creation of the
digital fund tokens in place of the digital representations of the securities
to a distributed
ledger. Generating operation 1110 generates a second transaction to transfer
the digital fund
tokens from the second addressed account to the first addressed account.
Signing operation
1112 electronically signs the second transaction with a private key of the
second addressed
account.
[0080] Fig. 12 is a flowchart illustrating a process 1200 of redeeming
multiple security asset
shares. Generating operation 1202 generates a first transaction to transfer
digital fund tokens
from a first addressed account such as a manager wallet to a second addressed
account such
as a redemption wallet. The digital fund tokens are comprised of more than one
digital
representations of securities. Signing operation 1204 electronically signs the
first transaction
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with a private key of the first addressed account. Redeeming operation 1206
redeems digital
representations of securities from the digital fund tokens. Communicating
operation 1208
communicates the redemption of the digital representations of securities in
place of the digital
fund tokens. Generation operation 1210 generates a second transaction to
transfer the digital
representations of securities from the second addressed account to the first
addressed account.
Signing operation 1212 electronically signs the second transaction.
Computer System Overview
[0081] Embodiments of the present disclosure include various steps and
operations, which
have been described above. A variety of these steps and operations may be
performed by
hardware components or may be embodied in machine-executable instructions,
which may be
used to cause a general-purpose or special-purpose processor programmed with
the
instructions to perform the steps. Alternatively, the steps may be performed
by a
combination of hardware, software, and/or firmware. As such, Fig. 13 is an
example of a
computer system 1300 with which embodiments of the present disclosure may be
utilized.
According to the present example, the computer system 1300 includes an
interconnect 1310,
at least one processor(s) 1320, at least one communication port(s) 1330, a
main memory
1340, a removable storage media 1350, a read only memory 1360, and a mass
storage device
1370.
[0082] Processor(s) 1320 can be any known processor. Communication port(s)
1330 can be
or include, for example, any of an RS-232 port for use with a modem-based
dialup
connection, a 10/100 Ethernet port, or a Gigabit port using copper or fiber.
The nature of
communication port(s) 1330 may be chosen depending on a network such a Local
Area
Network (LAN), Wide Area Network (WAN), or any network to which the computer
system
1700 connects.
[0083] Main memory 1340 can be Random Access Memory (RAM), or any other
dynamic
storage device(s) commonly known in the art. Read only memory 1360 can be any
static
storage device(s) such as Programmable Read Only Memory (PROM) chips for
storing static
information such as instructions for processor(s) 1320.
[0084] Mass storage device 1370 can be used to store information and
instructions. For
example, hard disks such as the Adaptec0 family of SCSI drives, an optical
disc, an array of
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disks such as RAID, such as the Adaptec family of RAID drives, or any other
mass storage
devices may be used.
[0085] Interconnect 1310 can be or include one or more buses, bridges,
controllers, adapters,
and/or point-to-point connections. Interconnect 1310 communicatively couples
processor(s)
1320 with the other memory, storage, and communication blocks. Interconnect
1310 can be a
PCl/PCI-X or SCSI based system bus depending on the storage devices used.
[0086] Removable storage media 1350 can be any kind of external hard-drives,
floppy drives,
Compact Disc¨Read Only Memory (CD-ROM), Compact Disc¨Re-Writable (CD-RW),
Digital Video Disc¨Read Only Memory (DVD-ROM).
[0087] The components described above are meant to exemplify some types of
possibilities.
In no way should the aforementioned examples limit the disclosure, as they are
only
exemplary embodiments.
Terminology
[0088] Brief definitions of terms, abbreviations, and phrases used throughout
this application
are given below.
[0089] The terms "connected" or "coupled" and related terms are used in an
operational
sense and are not necessarily limited to a direct physical connection or
coupling. Thus, for
example, two devices may be coupled directly, or via one or more intermediary
media or
devices. As another example, devices may be coupled in such a way that
information can be
passed there between, while not sharing any physical connection with one
another. Based on
the disclosure provided herein, one of ordinary skill in the art will
appreciate a variety of
ways in which connection or coupling exists in accordance with the
aforementioned
definition.
[0090] The phrases "in some embodiments," "according to some embodiments," "in
the
embodiments shown," "in other embodiments," "embodiments," and the like
generally mean
the particular feature, structure, or characteristic following the phrase is
included in at least
one embodiment of the present disclosure, and may be included in more than one
embodiment of the present disclosure. In addition, such phrases do not
necessarily refer to
the same embodiments or different embodiments.
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[0091] If the specification states a component or feature "may," "can,"
"could," or "might"
be included or have a characteristic, that particular component or feature is
not required to be
included or have the characteristic.
[0092] The term "responsive" includes completely or partially responsive.
[0093] The term "module" refers broadly to a software, hardware, or firmware
(or any
combination thereof) component. Modules are typically functional components
that can
generate useful data or other output using specified input(s). A module may or
may not be
self-contained. An application program (also called an "application") may
include one or
more modules, or a module can include one or more application programs.
[0094] The term "network" generally refers to a group of interconnected
devices capable of
exchanging information. A network may be as few as several personal computers
on a Local
Area Network (LAN) or as large as the Internet, a worldwide network of
computers. As used
herein, "network" is intended to encompass any network capable of transmitting
information
from one entity to another. In some cases, a network may be comprised of
multiple
networks, even multiple heterogeneous networks, such as one or more border
networks, voice
networks, broadband networks, financial networks, service provider networks,
Internet
Service Provider (ISP) networks, and/or Public Switched Telephone Networks
(PSTNs),
interconnected via gateways operable to facilitate communications between and
among the
various networks.
[0095] Also, for the sake of illustration, various embodiments of the present
disclosure have
herein been described in the context of computer programs, physical
components, and logical
interactions within modern computer networks. Importantly, while these
embodiments
describe various embodiments of the present disclosure in relation to modern
computer
networks and programs, the method and apparatus described herein are equally
applicable to
other systems, devices, and networks as one skilled in the art will
appreciate. As such, the
illustrated applications of the embodiments of the present disclosure are not
meant to be
limiting, but instead are examples. Other systems, devices, and networks to
which
embodiments of the present disclosure are applicable include, for example,
other types of
communication and computer devices and systems. More specifically, embodiments
are
applicable to communication systems, services, and devices such as cell phone
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compatible devices. In addition, embodiments are applicable to all levels of
computing from
the personal computer to large network mainframes and servers.
[0096] In conclusion, the present disclosure provides novel systems, methods,
and
arrangements for creating, redeeming, and trading multiple security assets.
While detailed
descriptions of one or more embodiments of the disclosure have been given
above, various
alternatives, modifications, and equivalents will be apparent to those skilled
in the art without
varying from the spirit of the disclosure. For example, while the embodiments
described
above refer to particular features, the scope of this disclosure also includes
embodiments
having different combinations of features and embodiments that do not include
all of the
described features. Accordingly, the scope of the present disclosure is
intended to embrace
all such alternatives, modifications, and variations as fall within the scope
of the claims,
together with all equivalents thereof Therefore, the above description should
not be taken as
limiting.
Example Embodiments
[0097] Example 1 includes an asset trading system utilizing a distributed
ledger, the asset
trading system comprising: at least one processor; and at least one computer
readable storage
medium having instructions stored thereon, which when executed by the at least
one
processor causes the asset trading system to: when a creation request to
create a digital fund
token representing at least one share of a fund having a plurality of
different assets (i) is
received, (ii) is electronically signed with a private key associated with a
first addressed
account, and (iii) indicates a composition of the at least one share of the
fund: place the
plurality of different assets represented by the at least one share of the
fund into an escrow
account; create the digital fund token, wherein the digital fund token
indicates the
composition of the share of the fund; and record the creation of the digital
fund token on a
distributed ledger.
[0098] Example 2 includes the asset trading system of Example 1, wherein the
instructions,
when executed by the at least one processor further causes the asset trading
system to: when
the creation request to create the digital fund token representing the at
least one share of the
fund having the plurality of different assets (i) is received, (ii) is
electronically signed with
the private key associated with the first addressed account, and (iii)
indicates the composition
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of the at least one share of the fund: prior to creating the digital fund
token, receive
confirmation from the distributed ledger that the plurality of different
assets represented by
the at least one share of the fund are associated with the first addressed
account.
[0099] Example 3 includes the asset trading system of any of Examples 1-2,
wherein the
instructions, when executed by the at least one processor further causes the
asset trading
system to: when the creation request to create the digital fund token
representing the at least
one share of the fund having the plurality of different assets (i) is
received, (ii) is
electronically signed with the private key associated with the first addressed
account, and (iii)
indicates the composition of the at least one share of the fund: prior to
creating the digital
fund token, create a plurality of digital tokens representing the plurality of
different assets;
and record the creation of the plurality of digital tokens on the distributed
ledger; as part of
creating the digital fund token, place the plurality of digital tokens
representing the plurality
of different assets into an escrow state; and record the escrow state of the
plurality of digital
tokens representing the plurality of different assets on the distributed
ledger.
[0100] Example 4 includes the asset trading system of any of Examples 1-3,
wherein the
instructions, when executed by the at least one processor further causes the
asset trading
system to: when a redemption request to redeem the digital fund token
representing the at
least one share of the fund having the plurality of different assets (i) is
received and (ii) is
electronically signed with the private key associated with the first addressed
account: release
the plurality of different assets represented by the at least one share of the
fund from the
escrow account; destroy the digital fund token; and record the destruction of
the digital fund
token on the distributed ledger.
[0101] Example 5 includes the asset trading system of Example 4, wherein the
instructions,
when executed by the at least one processor further causes the asset trading
system to: when
the redemption request to redeem the digital fund token representing the at
least one share of
the fund having the plurality of different assets (i) is received and (ii) is
electronically signed
with the private key associated with the first addressed account: prior to
destroying the digital
fund token, remove the plurality of digital tokens representing the plurality
of different assets
from the escrow state; and record the removal of the escrow state of the
plurality of digital
tokens representing the plurality of different assets on the distributed
ledger.
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[0102] Example 6 includes the asset trading system of any of Examples 1-5,
wherein the
instructions, when executed by the at least one processor further causes the
asset trading
system to: when a transfer request to transfer the digital fund token
representing the at least
one share of the fund having the plurality of different assets (i) is received
and (ii) is
electronically signed with a private key associated with the first addressed
account: transfer
the digital fund token from the first addressed account to a second addressed
account; and
record the transfer of the digital fund token on the distributed ledger.
[0103] Example 7 includes the asset trading system of any of Examples 1-6,
wherein the fund
is one of an exchange traded fund, a mutual fund, an index fund, a bond fund,
a commodity
fund, a currency fund, and a real estate fund.
[0104] Example 8 includes a method of creating and redeeming digital fund
tokens using a
distributed ledger, the method comprising: when a creation request to create a
digital fund
token representing at least one share of a fund having a plurality of
different assets (i) is
received, (ii) is electronically signed with a private key associated with a
first addressed
account, and (iii) indicates a composition of the at least one share of the
fund: placing the
plurality of different assets represented by the at least one share of the
fund into an escrow
account; creating the digital fund token, wherein the digital fund token
indicates the
composition of the share of the fund; and recording the creation of the
digital fund token on a
distributed ledger.
[0105] Example 9 includes the method of Example 8, further comprising: when
the creation
request to create the digital fund token representing the at least one share
of the fund having
the plurality of different assets (i) is received, (ii) is electronically
signed with the private key
associated with the first addressed account, and (iii) indicates the
composition of the at least
one share of the fund: prior to creating the digital fund token, receiving
confirmation from the
distributed ledger that the plurality of different assets represented by the
at least one share of
the fund are associated with the first addressed account.
[0106] Example 10 includes the method of Example 9, further comprising: when
the creation
request to create the digital fund token representing the at least one share
of the fund having
the plurality of different assets (i) is received, (ii) is electronically
signed with the private key
associated with the first addressed account, and (iii) indicates the
composition of the at least
one share of the fund: prior to creating the digital fund token, creating a
plurality of digital
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tokens representing the plurality of different assets; and recording the
creation of the plurality
of digital tokens on the distributed ledger; as part of creating the digital
fund token, placing
the plurality of digital tokens representing the plurality of different assets
into an escrow
state; and recording the escrow state of the plurality of digital tokens
representing the
plurality of different assets on the distributed ledger;
[0107] Example 11 includes the method of any of Examples 8-10, further
comprising: when a
redemption request to redeem the digital fund token representing the at least
one share of the
fund having the plurality of different assets (i) is received and (ii) is
electronically signed
with the private key associated with the first addressed account: releasing
the plurality of
different assets represented by the at least one share of the fund from the
escrow account;
destroying the digital fund token; and recording the destruction of the
digital fund token on
the distributed ledger.
[0108] Example 12 includes the method of Example 11, further comprising: when
the
redemption request to redeem the digital fund token representing the at least
one share of the
fund having the plurality of different assets (i) is received and (ii) is
electronically signed
with the private key associated with the first addressed account: prior to
destroying the digital
fund token, removing the plurality of digital tokens representing the
plurality of different
assets from the escrow state; and recording the removal of the escrow state of
the plurality of
digital tokens representing the plurality of different assets on the
distributed ledger.
[0109] Example 13 includes the method of any of Examples 8-12, further
comprising: when a
transfer request to transfer the digital fund token representing the at least
one share of the
fund having the plurality of different assets (i) is received and (ii) is
electronically signed
with a private key associated with the first addressed account: transferring
the digital fund
token from the first addressed account to a second addressed account; and
recording the
transfer of the digital fund token on the distributed ledger.
[0110] Example 14 includes the method of any of Examples 8-13, wherein the
fund is one of
an exchange traded fund, a mutual fund, an index fund, a bond fund, a
commodity fund, a
currency fund, and a real estate fund.
[0111] Example 15 includes a non-transitory computer-readable storage medium
including a
set of instructions that, when executed by one or more processors, cause a
machine to: when a
creation request to create a digital fund token representing at least one
share of a fund having
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a plurality of different assets (i) is received, (ii) is electronically signed
with a private key
associated with a first addressed account, and (iii) indicates a composition
of the at least one
share of the fund: place the plurality of different assets represented by the
at least one share
of the fund into an escrow account; create the digital fund token, wherein the
digital fund
token indicates the composition of the share of the fund; and record the
creation of the digital
fund token on a distributed ledger.
[0112] Example 16 includes the non-transitory computer-readable storage medium
of
Example 15, wherein the instructions, when executed by one or more processors,
further
cause the machine to: when the creation request to create the digital fund
token representing
the at least one share of the fund having the plurality of different assets
(i) is received, (ii) is
electronically signed with the private key associated with the first addressed
account, and (iii)
indicates the composition of the at least one share of the fund: prior to
creating the digital
fund token, receive confirmation from the distributed ledger that the
plurality of different
assets represented by the at least one share of the fund are associated with
the first addressed
account.
[0113] Example 17 includes the non-transitory computer-readable storage medium
of
Example 16, wherein the instructions, when executed by one or more processors,
further
cause the machine to: when the creation request to create the digital fund
token representing
the at least one share of the fund having the plurality of different assets
(i) is received, (ii) is
electronically signed with the private key associated with the first addressed
account, and (iii)
indicates the composition of the at least one share of the fund: prior to
creating the digital
fund token, create a plurality of digital tokens representing the plurality of
different assets;
and record the creation of the plurality of digital tokens on the distributed
ledger; as part of
creating the digital fund token, place the plurality of digital tokens
representing the plurality
of different assets into an escrow state; and record the escrow state of the
plurality of digital
tokens representing the plurality of different assets on the distributed
ledger.
[0114] Example 18 includes the non-transitory computer-readable storage medium
of any of
Examples 15-17, wherein the instructions, when executed by one or more
processors, further
cause the machine to: when a redemption request to redeem the digital fund
token
representing the at least one share of the fund having the plurality of
different assets (i) is
received and (ii) is electronically signed with the private key associated
with the first
addressed account: release the plurality of different assets represented by
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share of the fund from the escrow account; destroy the digital fund token; and
record the
destruction of the digital fund token on the distributed ledger.
[0115] Example 19 includes the non-transitory computer-readable storage medium
of
Example 18, wherein the instructions, when executed by one or more processors,
further
cause the machine to: when the redemption request to redeem the digital fund
token
representing the at least one share of the fund having the plurality of
different assets (i) is
received and (ii) is electronically signed with the private key associated
with the first
addressed account: prior to destroying the digital fund token, remove the
plurality of digital
tokens representing the plurality of different assets from the escrow state;
and record the
removal of the escrow state of the plurality of digital tokens representing
the plurality of
different assets on the distributed ledger.
[0116] Example 20 includes the non-transitory computer-readable storage medium
of any of
Examples 15-19, wherein the fund is one of an exchange traded fund, a mutual
fund, an index
fund, a bond fund, a commodity fund, a currency fund, and a real estate fund.
31

Representative Drawing