The little-known secret of crypto-reconciliation, as well as other topics

This webinar, hosted by Douggie Melville-Clarke, head of data science at Duco, a global data automation firm and featuring David Gallagher, head of custody operations at Fidelity Digital Assets, and Mike Walsh, director of institutional operations at BlockFi, on the topic of ‘Closing the Gap between TradFi and Crypto’, provided me with some valuable insights.
Even if it is not well defined, Crypto and Web3 are part of a social and organizational movement against Digital Feudalism that is gaining momentum.

To be honest, my own personal journey into this field began with an awareness of the potential for a financial markets disruption rather than from a cryptocurrency trading perspective. Since 2016, one thing that has been consistent is the steep learning curve that has resulted from the proliferation of new initiatives and the evolution of storylines.
To be sure, this is a domain that is heavily influenced by emotion, particularly in the case of cryptocurrency, but also in the case of tales and myths. And, boy, do I like dispelling urban legends.
So, one of the fallacies that is circulating is that we would be able to do away with reconciliation. These sorts of efficiencies would be much appreciated by the back office, middle office, and huge wirehouses alike (except the authorized intermediaries themselves).

Assume for a moment that you are one of the organizations that provides cryptocurrency-related services. To interact with blockchains, you will, of course, require technological means. You’ll need technology that can keep up with the most recent versions of blockchains, which are updated on a regular basis (e.g. in the case of Bitcoin Blockchain every 10 minutes). As a service provider working in this field, you must ensure that you have the appropriate amount of automation in place to handle this new sort of reconciliation using the most recent blockchain technology available. Determine the risk controls that you are comfortable with based on the sort of service that you are providing (custody, prime brokerage, secondary market trading, investment products, and so on) before beginning. Because cryptocurrency markets have no natural downtime (they are open 24 hours a day, seven days a week), your automated processes and technological infrastructure must be capable of providing 100 percent uptime capacity. To be sure, as a business, you can impose daily brief downtime (such as the 30 minutes provided by FTX for checks and balances, but none during essential periods) for checks and balances.
Among the crypto asset classes, the practice of Reconciliation is evolving away from engaging with approved intermediaries in a batch processing mode and toward interfacing with blockchains in a virtually real-time, 24-hour manner. Syncing with the most recent blockchain version.
Being a part of the cryptocurrency asset class provides a fantastic business learning opportunity. Essentially, it may be thought of as a digitally native approach to become an internally sustainable API-driven firm (Banks should steal the 2002 Bezos internal memo).
Generalized interaction with open-source technology presents excellent prospects to assist financial organizations in their shift from batch processing to virtually real-time processing.
Digital assets, which are mostly comprised of cryptocurrencies for the time being, are assisting the institutional space in the development of API technology to avoid the need for batch-style operations. Consequently, they are one step closer to meeting the real-time data requirements of the digital economy.
Following the resolution of low-hanging technical “quirks,” such as allowing your technology to accommodate the 18 decimals required for cryptocurrency prices (as opposed to the 8 decimals required for traditional financial assets), you will need to put in place an API architecture that is appropriate for your needs. These APIs will allow you to operate a node on a blockchain, [1] interface with any blockchain, stay current with the technology that is always being developed, and bridge the gaps between the many blockchains, amongst other functions. You must also ensure that this technology is scalable, given the fact that the universe is expanding at an accelerated rate.
Both David Gallagher and Mike Walsh emphasized that businesses in the cryptocurrency area must think strategically about interoperability with a three-month horizon at the very least, as well as with tech assistance and tech contacts that can help them stay up with the market’s rapid evolution.
In addition to its inherent strength and uniqueness, the bitcoin asset class benefits from a developing ecosystem of Blockchain Data professionals that specialize in on-chain data. It is constantly expanding and gives new business options, including developing or deploying APIs to communicate with them, as well as developing or utilizing technology that links the many blockchains.
You can listen to the complete webinar recording by clicking here.
My condensed takeaways are as follows, which you may use to contemplate and remark on:
Traditional techniques of managing the movement of funds between fiat currencies and cryptocurrencies are still in use.
Among the crypto asset classes, the practice of Reconciliation is evolving away from engaging with approved intermediaries in a batch processing mode and toward interfacing with blockchains in a virtually real-time, 24-hour manner. Syncing with the most recent blockchain version.
Being a part of the cryptocurrency asset class provides a fantastic business opportunity to collaborate with open-source technologies. Essentially, it may be thought of as a digitally native approach to becoming an internally viable API-driven organization and making the shift from batch processing to virtually real-time processing.

We want greater communication inside the cryptographic realm in order to be able to trace and audit collateral in real time. This is a significant potential as well as a significant challenge. Remember that DeFi is built on over-collateralization, and as more firms develop financial products in conventional wrappers, we must ensure that the collateral can be maintained safely and in real time, 24 hours a day, seven days a week.
Regulation is a very essential problem, and more and more firms are collaborating with regulators to co-create the standards for the sector. This is a dynamic process that differs from jurisdiction to jurisdiction, but there is a broad sense of solidarity among the participants, who believe that a rising tide will lift all boats.
Duco is a customer of mine, and the thoughts expressed in this essay are entirely my own. My thoughts are not intended to be taken as investment advice.
[1] The consensus process of a blockchain is critical to the operation of a node on that network. Nodes and miners are both essential components of the blockchain network’s operation and complement one another, although they operate in different ways. More information may be found here.