Transformation of digital assets will likely slow, if fragmented standards are not addressed, says DTCC, Clearstream and Euroclear
18 September 2023 United States
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“The industry-wide transformation of digital assets will likely slow, unless fragmented standards are addressed,” according to DTCC, Clearstream and Euroclear.
The trio of companies made the statement in a paper commenting on the state of the industry’s digital asset evolution.
In the paper, the companies called for “increased collaboration to progress an ecosystem that currently includes fragmented standards, varying regulatory treatment, limited integrations with institutional-grade payment rails, and siloed liquidity.”
These are all “limiting factors” for the further digitalisation of global financial markets, they affirm.
While the last several years have seen a growing number of initiatives seeking to establish digital asset-based solutions, the companies suggest that two constraints in particular – scale and interoperability – must be addressed as priorities.
Years of smaller deployments have resulted in sub-scale, isolated pools of liquidity on proprietary distributed ledger technologies (DLTs), creating obstacles to growth, they outline.
In 2023, 74 per cent of DLT projects across the capital markets involved fewer than six participants. Today’s digital asset initiatives are also highly disparate, with varying standards and propositions related to settlement and custody processes and inconsistent approaches to the supervision and governance of smart contracts and related DLT protocols.
“These challenges, if unaddressed, will perpetuate a fragmented landscape, and run counter to the very efficiencies of DLT that the industry set out to capture initially,” the companies say.
As financial market infrastructures (FMIs), DTCC, Clearstream and Euroclear have said they will bring their expertise in innovation to drive industry transformation to address these challenges.
To advance adoption and scale, they have all pledged to collaborate with the industry to reduce the costs of connectivity and enable consistent operating standards across processes, platforms and, of course, digital assets.
Jennifer Peve, managing director, global head of strategy and innovation at DTCC, states: “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 US$16 trillion over the next 15 years, now is the time to assess what is needed to propel advancement.
“While we have all accelerated our learnings and identified the benefits of — and constraints related to — DLT on a smaller scale in recent years, there is broad recognition of the growing need for well regulated, neutral players to provide trust, resilience and standardised connectivity in their respective ecosystems — the role FMIs like DTCC have played for decades — to drive digital asset adoption.”
Jens Hachmeister, managing director, head of issuer services and new digital markets at Clearstream, says: “New technologies and digital assets will transform the financial industry. 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.”
Philippe Laurensy, head of group strategy, product management and innovation at Euroclear Group, comments: “FMIs have a long legacy of supporting technological innovation. Today, the pace of change is consistently accelerating and alongside our partners, we wholeheartedly embrace the promising potential of blockchain and digital assets.
“FMIs play a pivotal role in helping to unlock the true business value of digital assets through our robust, resilient ecosystem. By providing leading edge analysis with our peers, we can continue to pave the way for further advancements and bring ground-breaking solutions to the market which are aligned to Euroclear’s purpose to innovate to bring safety, efficiency and connections to financial markets for sustainable economic growth.”
The trio of companies made the statement in a paper commenting on the state of the industry’s digital asset evolution.
In the paper, the companies called for “increased collaboration to progress an ecosystem that currently includes fragmented standards, varying regulatory treatment, limited integrations with institutional-grade payment rails, and siloed liquidity.”
These are all “limiting factors” for the further digitalisation of global financial markets, they affirm.
While the last several years have seen a growing number of initiatives seeking to establish digital asset-based solutions, the companies suggest that two constraints in particular – scale and interoperability – must be addressed as priorities.
Years of smaller deployments have resulted in sub-scale, isolated pools of liquidity on proprietary distributed ledger technologies (DLTs), creating obstacles to growth, they outline.
In 2023, 74 per cent of DLT projects across the capital markets involved fewer than six participants. Today’s digital asset initiatives are also highly disparate, with varying standards and propositions related to settlement and custody processes and inconsistent approaches to the supervision and governance of smart contracts and related DLT protocols.
“These challenges, if unaddressed, will perpetuate a fragmented landscape, and run counter to the very efficiencies of DLT that the industry set out to capture initially,” the companies say.
As financial market infrastructures (FMIs), DTCC, Clearstream and Euroclear have said they will bring their expertise in innovation to drive industry transformation to address these challenges.
To advance adoption and scale, they have all pledged to collaborate with the industry to reduce the costs of connectivity and enable consistent operating standards across processes, platforms and, of course, digital assets.
Jennifer Peve, managing director, global head of strategy and innovation at DTCC, states: “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 US$16 trillion over the next 15 years, now is the time to assess what is needed to propel advancement.
“While we have all accelerated our learnings and identified the benefits of — and constraints related to — DLT on a smaller scale in recent years, there is broad recognition of the growing need for well regulated, neutral players to provide trust, resilience and standardised connectivity in their respective ecosystems — the role FMIs like DTCC have played for decades — to drive digital asset adoption.”
Jens Hachmeister, managing director, head of issuer services and new digital markets at Clearstream, says: “New technologies and digital assets will transform the financial industry. 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.”
Philippe Laurensy, head of group strategy, product management and innovation at Euroclear Group, comments: “FMIs have a long legacy of supporting technological innovation. Today, the pace of change is consistently accelerating and alongside our partners, we wholeheartedly embrace the promising potential of blockchain and digital assets.
“FMIs play a pivotal role in helping to unlock the true business value of digital assets through our robust, resilient ecosystem. By providing leading edge analysis with our peers, we can continue to pave the way for further advancements and bring ground-breaking solutions to the market which are aligned to Euroclear’s purpose to innovate to bring safety, efficiency and connections to financial markets for sustainable economic growth.”
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