The Composer Manifesto 2.0

The following problem statement was the motivation behind the Composer Manifesto, published over four years ago:

Holding a variety of assets across different strategies is pretty normal these days — and if modern portfolio theory is correct, it’s also a good thing, thanks to the benefits of diversification. But in order to invest in different types of assets today, these assets often need to be maintained in multiple accounts. This situation leads to two sources of entropy:

- The need to execute buy and sell orders in multiple accounts to go from current positions to target allocations.

- A growing number of siloed data sources to pull from, wrangle and aggregate to get an idea of consolidated portfolio performance.

The proposed solution to this entropic state of affairs, which remains our vision today, is referred to as the Great Decoupling in the manifesto:

To adapt to these and future changes, Composer’s architecture decouples data, logic, and trade execution. Specifically, Composer is a single logic layer that takes an arbitrary number of data providers as input and sends instructions as output to an arbitrary number of brokerages, exchanges, and/or custodians.

The challenge is that many of the asset classes we want to include in a Composer symphony are highly illiquid and indivisible. For example, we list real estate as one of the asset classes we want to be able to “execute” on in the above diagram; in practice, this restricts our clients to real estate ETFs, as physical real estate just does not play well with our current architecture. How do you buy and sell fractional dollar amounts of a house in real time?

However, everything changes with tokenization: suddenly, what could be dismissed as a hand-wavy vision is now very much a possibility. Tokenization is the act of converting rights to an asset (whether physical or digital) into a tradable, programmable token recorded on a distributed ledger (eg “onchain”). For background context on tokenization, S&P Global has a great primer. From the vantage point of traders and investors, the central benefits of tokenization are instant settlement, perfect divisibility, 24/7 liquidity, and interoperability with standard crypto protocols.

The first traditional assets to be tokenized are equities; Robinhood just announced tokenized equities to be launched in Europe as of this writing. But we should anticipate other assets on the horizon, including private credit, startup equity, and real estate. Eventually, we can imagine any investable asset moving onchain - including carbon credits, collectibles, and infrastructure projects.

The proliferation of tokenized assets will bring us closer to the realization of Sharpe’s global market portfolio - a portfolio that contains every single asset in the entire investable asset universe, weighted in proportion to its total market capitalization.¹ Sharpe argued that, thanks to being maximally diversified, the global market portfolio should lead the best risk adjusted returns of any possible investing strategy. In practice, even Sharpe acknowledged that implementing such a portfolio was an impossibility - an impossibility, that is, before tokenization.

Whether or not the global market portfolio is the optimal investment strategy can be debated, and it’s not something that Composer really has an opinion on, as we’re not in the business of giving investment advice. What is undeniably electrifying is the ability to offer the broadest possible investable asset universe to our customers - and let users pick and choose which assets to hold, along with the logic to trade in and out of said assets.²

Tokenization will bring far more to choose from, and more choice in the context of strategy creation will ultimately be a good thing - if the additional entropy from more choice can be wrangled. Thankfully, Composer is built from its very foundations to not only absorb additional entropy, but to evolve and improve from it. Who knows, maybe you’ll discover the strategy that puts the global market portfolio to shame.