Today the DTCC, Clearstream and Euroclear published a paper outlining how they can help the securities industry embrace digital assets and the benefits of adopting DLT. While recognizing that DLT offers major benefits, they highlight the current fragmentation challenges around liquidity and standards as well as a lack of scalability. And they believe they can help with coordination.
They have a point. There are an ever increasing number of DLT solutions each operating in a silo. Some of them have quite a bit of scale in terms of volumes. But very few digital securities solutions have broad adoption. Others claim a large number of participants, but a little digging often reveals a smaller number generating most of the transactions.
A key point is that most are not interoperable, creating new silos of liquidity. It’s ironic because that’s one of blockchain’s biggest potential benefits. Interoperability is not just about technology but also standards.
“We are at an inflection point as an industry when it comes to DLT and digital assets. With digital assets forecasted to grow in value to around $16 trillion over the next 15 years, now is the time to assess what is needed to propel advancement,” said Jennifer Peve, Managing Director, DTCC. “There is broad recognition of the growing need for well-regulated, neutral players to provide trust, resilience and standardized connectivity in their respective ecosystems – the role FMIs like DTCC have played for decades – to drive digital asset adoption.”
The threat of DLT to FMIs?
The three organizations are the largest financial market infrastructures (FMIs) in the sector. And blockchain is potentially a threat to them. After all, they currently are the record keepers for the bulk of the world’s securities trades. And blockchains are ledgers.
However, market infrastructures – new or old – are the natural ones to run regulated blockchains. And there’s most definitely a need for better coordination in the industry.
“New technologies and digital assets will transform the financial industry,” said Clearstream’s Jens Hachmeister. “As a neutral financial market infrastructure, we are uniquely placed to help the industry’s transition efforts by modernising infrastructure and driving the adoption of standards across DLT protocols and smart contract language that will lead to better and faster interoperability between ecosystems.”
We analyzed the pros and cons in a separate piece.