Financial market infrastructure (FMI) titans--Depository Trust & Clearing Corporation (DTCC), Clearstream and Euroclear--have issued a comprehensive assessment of the digital asset landscape, calling for greater pan-sector cooperation. The trio pledged to use their expertise to address these challenges, aiming to advance the digital asset ecosystem by improving interoperability, standardisation and resilience.
Digital assets at an inflection point
The report, issued on Monday 18 September 2023, stated that the digital asset sector is at a critical “inflection point,” necessitating urgent action. Despite increasing interest and a growing number of projects focusing on digital assets, the industry faces challenges like fragmented standards, inconsistent regulatory landscapes and inadequate integration with traditional payment systems. According to the report, challenges are stymieing the broader digitalisation of global financial markets.
Need for collaboration and standardisation
The report echoed a call for enhanced collaboration and focused on scalability and interoperability. It detailed how limited-scale implementations of distributed ledger technologies (DLTs) have led to isolated pools of liquidity.
In 2023, 74% of DLT projects in capital markets involve fewer than six parties. Alongside this, vast disparities exist in governance, supervision, and standardisation approaches. The report warned that, if unaddressed, these issues could perpetuate fragmentation and neutralise the efficiencies that DLTs can offer.
Technological innovation: A mixed blessing
The FMIs highlight their role in helping clients integrate emerging technologies like artificial intelligence and DLT into existing operations. While several pilot tests and implementations show promising operational efficiencies, the industry is grappling with divergent approaches and a lack of standardisation.
Instruments like intraday repos, fractionalised bonds and natively issued digital structured products are already providing tangible benefits, stated the report.
Role of regulated players
Jennifer Peve, the managing director and global head of strategy and innovation at DTCC, emphasised the urgency for action. She stated, “With digital assets forecasted to grow in value to around $16trn over the next 15 years, now is the time to assess what is needed to propel advancement.”
The report found that the industry is increasingly recognising the need for well-regulated, neutral players to instil trust, resilience and standardisation across the digital asset ecosystem.
Guardians of the digital asset future
DTCC, Clearstream and Euroclear are leveraging their collective expertise to directly confront these challenges, they claimed. Committed to fostering industry collaboration, they aim to reduce connectivity costs and promote consistent operational standards across digital assets.
Jens Hachmeister, managing director and head of issuer services and new digital markets at Clearstream, and Philippe Laurensy, head of group strategy, product management and innovation at Euroclear Group, reiterated the pivotal role of FMIs in steering the industry towards a digital future.
“FMIs play a pivotal role in helping to unlock the true business value of digital assets through our robust, resilient ecosystem,” commented Laurensy.
Roadmap for the digital asset sector
The collaborative efforts of DTCC, Clearstream and Euroclear are likely to serve as a roadmap for overcoming challenges in the digital asset sector. They aim to initiate market dialogue and stimulate change by establishing benchmarks for DLT networks, data accessibility, privacy and smart contracts, the companies stated.
With growing recognition for standardised and well-regulated players, FMIs are becoming increasingly vital for ensuring resilience and trust in the sector. The report concludes by calling for more collaborative and standardised practices to unlock the full potential of digital assets. “New technologies and digital assets will transform the financial industry,” warned Hachmeister.
The full text of the joint industry paper is available here.