1. Illustrative (D-) Applications of Blockchain to Fintech
Dynamic Currency Overlay Management
2-Nov-2018

2. Currency Overlay Management
Overview – Key Questions
What is the main aim of currency management?
Risk Reduction or
Return Enhancement
React to currency market dynamics?
Yes  Dynamic Strategy
No  Static Strategy
Dynamic currency strategy
Discretionary or
Systematic (model based)

3. Currency Overlay Management
Overview – Different Risk Premium Drivers
Short term factors Long term factors
Momentum
Yield (Carry)
Currency movements do not systematically penalise for harvesting higher foreign yield
Relative Value
The tendency for relatively cheap currencies to outperform relatively expensive currencies
The tendency for recent relative performance to continue in the near future … …
Systematic Currency Management
Identify risk factors with good risk premium (risk vs reward)
Isolate and capture selected risk factor through a trading strategy

4. Currency Overlay Management
The Theory vs. the Practice
THEORY
Lower cost FX hedging strategy
Discipline in the management of FX exposure
Benefits from upside / Mitigate downside
PRACTICE
Benchmarking difficult
No market place for overlays
In case of failure: Quants create new backtests
OUTCOME => TRUST PROBLEM
Curve fitting
Selection bias
No traceability
Decision based on pears to apples comparison
AVERAGE BACKTEST
Time
ACTUAL RESULTS
GOOD
Time
BAD
UGLY

5. How Can one Solve this Trust Problem?
Step 1: Create a Common Market Place with a Standard Protocol for Signal Processing
Signals provided on a daily basis by leading quantitative funds
Standard scaling [- 1;1]
Benchmark defined by the client
Execution defined by the client
Possibility to re- combine different providers v
Intelligence Provider 1
Intelligence Provider 2
Intelligence Provider n
Fintech 1.0
Intelligence Seeker 1
Intelligence Seeker 2
Intelligence Seeker n

6. How can one solve this trust problem?
Step 2: Encrypted Investment Intelligence in a Public Ledger – Blockchain-proofed Audit
From (FIN) content provider to protocol provider (TECH)
Blockchain- proofed
Traceability
No selection bias
Survivorship bias?
Clean database to run machine learning
Intelligence Provider 2
Intelligence Provider 1
Intelligence Provider n
Fintech 2.0
Intelligence Seeker 1
Intelligence Seeker n
Intelligence Seeker 2

7. How can one solve this trust problem?
Step 3: Cooperations to scale – The usage of Smart Contracts
Scale through cooperations
Different types of usage:
Different Markets
Different Models
Daily vs. Monthly
Thresholds
Complex Contracting Process supported by a convenient smart contract protocol
Blockchain agnostic
Crypto-Exchanges
Endowments
Intelligence Provider 2
Intelligence Provider 1
Intelligence Provider n
Fintech 3.0
Intelligence Seeker 1
Intelligence Seeker n
Intelligence Seeker 2
Traditional Exchanges
Asset Managers