Today the World Economic Forum (WEF) published a report in conjunction with BCG Platinion exploring the use of blockchain and distributed ledger technology (DLT) for digital assets with a focus on institutional digital asset adoption.
The paper is less about crypto-assets and more about the use cases for DLT across various traditional asset classes. These range from equity, debt and securities financing to derivatives, asset-backed securities and fund administration.
Overall, the report is optimistic about the development of digital assets, but it highlights some headwinds. The one that stands out is the lack of an industry-wide vision of the future in most jurisdictions.
“Following several years of intense hype, examples of use cases where inefficiencies and challenges are being solved with blockchain are starting to emerge across capital markets,” said Matthew Blake, Head of the Future of Financial Services, World Economic Forum.
“With the future for blockchain in financial services still being defined, a nuanced look at the opportunities this technology offers right now is particularly important for the financial services industry.”
Numerous institutional digital asset projects are now live or will go into production in the coming year. The WEF concludes that there are significant benefits from removing redundancies across capital markets and automating low value-added tasks. Smart contracts can reduce counterparty risks by removing complexity and, in some cases, the need for intermediaries. And there’s potential for lucrative new business models.
However, to achieve these benefits, market-wide standardization is a necessary precondition, As is a minium-viable ecosystem to get a solution into production.
The changes that DLT will bring to capital markets will see shifts in roles. Whether or not incumbents or newcomers take on new roles remains to be seen.
The report concludes with a series of questions. These include:
- Will institutional and retail investor interest in cryptocurrencies translate into demand for digital- native securities?
- Will growth in DeFi applications spill into the mainstream capital markets?
- Will investors expect a fundamentally different experience with digital securities?
- How can regulators work together to ensure that fragmentation in approaches to DLT regulation does not limit innovation or the development of global markets?
Kaj Burchardi, Managing Director, BCG Platinion, notes that the solutions tend to be specific to each asset class. “Whilst this makes sense from a commercial perspective, it has led to a complex patchwork of initiatives. For capital markets to unilaterally adopt DLT, they will require cross-institutional alignment to realize the game-changing market opportunities it can offer.”