Today Euroclear announced a new initiative for tokenized collateral with DLT firm Digital Asset.
Collateral mobility is viewed as one of the killer use cases for DLT and tokenization. One example is for margin requirements, where cash is often used to meet urgent needs. If non-cash assets are used, it takes too long for settlement. However, if the collateral is tokenized in a legally compliant way, it can be transferred instantly.
This can also result in more stable markets. The UK’s 2022 gilts crisis is often cited as an example. Most major UK life insurers suddenly had to post margin, so they all liquidated government bonds for cash simultaneously, causing a downward price spiral. Had they been able to instantly provide tokenized gilts as collateral, the gilts markets would have calmed down comparatively quickly.
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