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FMIs Collaborate to Address Challenges in Digital Asset Evolution

by Tareq Sikder
  • The released paper discusses challenges in the digital asset evolution.
  • It highlights the importance of addressing scale and interoperability for the industry's transformation.
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Three financial market infrastructures (FMIs), namely DTCC, Clearstream, and Euroclear, have jointly released a paper discussing the current state of the digital asset evolution within the industry.

The paper underscores the need for increased collaboration to address existing challenges within the ecosystem, including fragmented standards, regulatory disparities, limited integration with institutional-grade payment systems, and segmented liquidity pools, all of which hold back the further digitalization of global financial markets.

Challenges Stalling Global Financial Market Digitalization

The paper emphasizes that without resolving these issues, the financial market's transformation toward digital assets is likely to face slowdowns. It particularly highlights two critical constraints: scale and interoperability, which require immediate attention.

Jens Hachmeister, the Managing Director and Head of Issuer Services & New Digital Markets at Clearstream, expressed the institution's role in facilitating the industry's transition by modernizing infrastructure and promoting standards across distributed ledger technology (DLT) protocols and smart contract languages to enhance interoperability among ecosystems.

The paper points out that years of smaller-scale deployments have resulted in isolated liquidity pools on proprietary DLTs, hindering growth. In 2023, 74% of DLT projects in the capital markets involved fewer than six participants. Current digital asset initiatives lack uniformity in standards, settlement and custody processes, and governance of smart contracts and DLT protocols. These challenges, if left unaddressed, will perpetuate fragmentation, contradicting the efficiency goals initially set for DLT adoption.

Philippe Laurensy, the Head of Group Strategy of Product Management and Innovation at Euroclear Group, expressed FMI's commitment to embracing blockchain

and digital assets, emphasizing the role of FMIs in unlocking the business potential of digital assets by creating a resilient ecosystem.

Industry's Growing Need for Trust and Standardization

Jennifer Peve, the Managing Director and Global Head of Strategy & Innovation at DTCC, stated: “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 $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 standardized connectivity

in their respective ecosystems – the role FMIs like DTCC have played for decades – to drive digital asset adoption.”

As FMIs, DTCC, Clearstream, and Euroclear have pledged to collaborate with the industry to reduce connectivity costs and establish consistent operating standards across processes, platforms, and digital assets. This collaborative effort aims to advance the adoption and scale in the digital asset landscape, ultimately promoting the efficiency and growth of financial markets.

Three financial market infrastructures (FMIs), namely DTCC, Clearstream, and Euroclear, have jointly released a paper discussing the current state of the digital asset evolution within the industry.

The paper underscores the need for increased collaboration to address existing challenges within the ecosystem, including fragmented standards, regulatory disparities, limited integration with institutional-grade payment systems, and segmented liquidity pools, all of which hold back the further digitalization of global financial markets.

Challenges Stalling Global Financial Market Digitalization

The paper emphasizes that without resolving these issues, the financial market's transformation toward digital assets is likely to face slowdowns. It particularly highlights two critical constraints: scale and interoperability, which require immediate attention.

Jens Hachmeister, the Managing Director and Head of Issuer Services & New Digital Markets at Clearstream, expressed the institution's role in facilitating the industry's transition by modernizing infrastructure and promoting standards across distributed ledger technology (DLT) protocols and smart contract languages to enhance interoperability among ecosystems.

The paper points out that years of smaller-scale deployments have resulted in isolated liquidity pools on proprietary DLTs, hindering growth. In 2023, 74% of DLT projects in the capital markets involved fewer than six participants. Current digital asset initiatives lack uniformity in standards, settlement and custody processes, and governance of smart contracts and DLT protocols. These challenges, if left unaddressed, will perpetuate fragmentation, contradicting the efficiency goals initially set for DLT adoption.

Philippe Laurensy, the Head of Group Strategy of Product Management and Innovation at Euroclear Group, expressed FMI's commitment to embracing blockchain

and digital assets, emphasizing the role of FMIs in unlocking the business potential of digital assets by creating a resilient ecosystem.

Industry's Growing Need for Trust and Standardization

Jennifer Peve, the Managing Director and Global Head of Strategy & Innovation at DTCC, stated: “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 $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 standardized connectivity

in their respective ecosystems – the role FMIs like DTCC have played for decades – to drive digital asset adoption.”

As FMIs, DTCC, Clearstream, and Euroclear have pledged to collaborate with the industry to reduce connectivity costs and establish consistent operating standards across processes, platforms, and digital assets. This collaborative effort aims to advance the adoption and scale in the digital asset landscape, ultimately promoting the efficiency and growth of financial markets.

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