The Modular
Blockchain Fund
The Modular Blockchain Fund (the “Fund”) was jointly developed by Modular Asset Management and asset class expert Lightbulb Capital. It is long-only strategy in liquid cryptocurrencies. We are not currently accepting subscriptions in the Modular Blockchain Fund and are running the strategy with a closed pool of committed capital. We continue to research, refine and prove our investment strategy while testing service providers through a variety of market conditions. We will open the fund to external institutional investor subscriptions when we judge that confidence in the asset class, investment strategy and institutional infrastructure support the fund launch.
We combine our experience as a regulated fund manager with latest market insights, research and investment experience in blockchain.
Our proprietary and forward-looking investment process allocates capital to tokens that power the best smart-contract platforms and aims to outperform the cryptocurrency asset class.
Background
Sustainability and cryptocurrencies are two dominant investment themes of our times. We believe they are compatible. We have built an institutional quality Fund infrastructure which in future may help institutional investors gain asset class exposure while minimizing operational risk.
Please click here to enquire about The Modular Blockchain Fund.
Investment Thesis
The strategy’s core investment thesis is based on two pillars:
-
Blockchain technology has enormous potential but is still in its infancy and commercial adoption is limited; and
-
Sustainability considerations will be key drivers of capital allocation and technology adoption decisions over the medium term.
We identity and invest in the tokens which power the best blockchain platforms to outperform the broader market.
Investment Universe
We base our core belief in the potential of decentralised blockchain-based technologies on their ability to:
#1
Increase the efficiency of a wide range of economic transactions by removing the need for intermediaries.
#2
Increase financial inclusion and stimulate economic growth by providing an efficient and accessible means of storing and transferring value to the underbanked.
#3
Enable simple mechanisms for proving ownership and transferring a wide range of assets ranging from intellectual property to health records to real estate, art, collectibles and financial securities.
#4
Enable a proliferation of valuable decentralised finance applications
Three types of cryptocurrencies
We subcategorise crypto currencies into 3 basic buckets:
Payment tokens
that may or may not come with a “store of value” proposition, such as Bitcoin or Dogecoin. These have no programmability. Payment tokens currencies currently account for most of the market capitalisation among the top 100 existing cryptocurrencies.
Blockchain-based decentralized
smart-contract platforms
on which entrepreneurs and large corporations alike can
build applications. Examples include Ethereum (ETH) and Polkadot (DOT). These comprise the second largest category of cryptocurrencies.
Decentralized Applications (DApp) tokens
which power specific applications built on smart contract platforms. These are currently a significant but much smaller subset of the cryptocurrency market. Examples include Uniswap (UNI) and Basic Attention Token (BAT).
We believe that a significant portion of the economic potential to be derived from broader adoption of Web 3.0 applications will accrue to Blockchain-based decentralized smart-contract platforms.
These “Layer 1” platforms enable entrepreneurs and large corporates to build a wide range of applications.
We view these as the operating systems required to exploit the power of blockchain – the "Microsoft Windows" of a more decentralised future economy that can scale fast because of network effects. This segment of the market offers investors a macro exposure to the proliferation of blockchain based technologies.
For this category of cryptocurrencies, we believe that sustainability considerations will be an important driver of mass adoption and long-term success.
Investment Methodology
We base our approach to portfolio construction on a combination of investment filters and sustainability factor modelling, specific to the idiosyncratic characteristics of smart contract platforms.
Our investment filters include:
01
we filter out tokens with insufficient market capitalization.
Market Capitalization
02
based on average trading volume over a given period of time.
Liquidity
03
trading and custody solutions must be available from our carefully selected service providers.
Investable
04
we avoid platforms which are unnecessarily energy inefficient.
CO2
05
we will not invest in unproven “new to market” tokens.
Unproven
Following this basic investment filter methodology we apply our assessment model to the remaining investable universe.
The model, created in collaboration prominent academic advisors, aims to assess the likelihood of long-term success for each smart contract platform token. Tokens are reviewed and scored on both qualitative and quantitative factors such as (but not limited to):
Characteristic | Sustainability Lens |
|---|---|
Energy utilization/efficiency | Environmental |
Extent of adoption | Social |
Speed and volume of transaction capability | Social |
Inequality | Social |
AML Background / history | Social |
Integrity of transaction confirmation mechanism (Consensus) | Governance |
Transparency of ownership structure and control | Governance |
We have developed over 25 proprietary metrics to score and monitor our universe of investible assets against these measures.
Portfolio construction, rebalancing and trading
Based on the scores generated by our model, we invest in a concentrated, long-only basket of the most promising assets within the eligible token universe. We continually seek to identify assets with the most potential through our rigorous investment research.
We conduct portfolio rebalancing regularly and we seek to add alpha in periods of market volatility with opportunistic trading.
DISCLAIMER
Digital Assets. The investment characteristics of Digital Assets (which term includes, but is not limited to, virtual currencies, crypto-currencies, and digital coins and tokens), generally differ from those of traditional currencies, commodities or securities. Importantly, Digital Assets are not backed by a central bank or a national, supra-national, quasi-national organization or corporate entity, any hard assets, human capital, or other form of credit. Rather, Digital Assets are market-based: a Digital Asset’s value is determined by (and fluctuates often, according to) supply and demand factors, sentiment, market rumours, changes in regulators, unforeseen market developments or news stories, the number of merchants that accept it, and the value that various market participants place on it through their mutual agreement, barter or transactions. Investment in Digital Assets is not suitable for every investor.
Not an ESG, Sustainability or similar fund. There is no industry consensus regarding the metrics to determine those designations for the relevant asset class (digital assets) yet. While MAM integrates certain metrics in its proprietary model which align to traditional environmental, social and governance (ESG) and sustainability metrics, the fund is not and does not claim to be an ESG, Sustainability or similar fund nor will MAM or the fund have the relevant governance, disclosure or reporting standards typically associated with ESG, Sustainability or similar funds.