DLT and Digital Assets in the real world
DLT and Digital Assets in the real world
Once overhyped and then written off after the 2022 Crypto Winter, Distributed Ledger Technology (DLT) and digital assets are now experiencing a resurgence. Despite their volatility, these technologies are nearing a tipping point in adoption within Securities Services, though several challenges remain. Julia McKenny, CEO of the International Securities Services Association (ISSA), discussed these issues at PostTrade 360 in Stockholm with industry leaders including Horacio Barakat, Julien Clausse, and Barnaby Nelson.
We have previously reported that in 2020, only 4% of financial institutions were involved in DLT and digital asset projects, but this number has surged to 36%, according to the latest ‘DLT in the Real World’ Report by The Value Exchange and ISSA. Despite the setbacks from the FTX collapse and the crypto winter, the technology has shown resilience.
The paper discusses the numerous applications for DLT and digital assets based on the Value Exchange’s research. To that end, we note:
- found that 72% of organisations had issued a digital asset in the past year
- 60% are providing digital asset custody solutions
- over the next year, 56% plan to pledge tokenized securities as collateral, and
- 51% intend to launch tokenised funds
Tokenization aims to increase asset velocity, enhancing liquidity and capital benefits. For instance, tokenized money market fund units can be pledged as collateral in real-time, freeing up previously trapped cash. The Value Exchange noted that 58% of firms found tokenised assets superior to traditional ones. Despite all the upside, the paper is realistic and speaks to significant barriers that remain, such as the lack of liquidity in the tokenised securities market and questions about the return on investment. The high costs of implementing these technologies, coupled with industry headwinds, are substantial. Interoperability issues and the absence of standardised regulation further impede progress.
Please take a read of the write up. I am sure you will enjoy it.