FMIs issue industry paper on challenges and opportunities addressing constraints of scale and interoperability
Today, three of the world’s largest financial market infrastructures (FMIs) – DTCC, Clearstream, and Euroclear – released a paper on the state of the industry’s digital asset evolution. The paper calls 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 – all limiting factors to the further digitalization of global financial markets.
While the last several years have seen a growing number of initiatives seeking to establish digital asset-based solutions, the paper suggests that industry-wide transformation will likely slow, unless these challenges are addressed. The paper highlights 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 DLTs, creating obstacles to growth. In 2023, 74% of DLT projects across the capital markets involved fewer than 6 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.
As FMIs, DTCC, Clearstream and Euroclear bring their expertise in innovation and driving industry transformation to address these challenges. To advance adoption and scale, DTCC, Clearstream and Euroclear pledge to collaborate with the industry, ultimately reducing the costs of connectivity and enabling consistent operating standards across processes, platforms, and digital assets themselves.
Jennifer Peve, Managing Director, 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.”
Jens Hachmeister, Managing Director, Head of Issuer Services & New Digital Markets at Clearstream, said: “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, commented: “Financial market infrastructures (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 is aligned to Euroclear’s purpose to innovate to bring safety, efficiency, and connections to financial markets for sustainable economic growth.”
By engaging with traditional and new market participants, DTCC, Clearstream and Euroclear’s unique collaboration will help to advance the digital asset ecosystem by driving and encouraging market dialogue on the required characteristics of DLT networks, data access, privacy and smart contracts, and ultimately enabling greater interoperability, broad adoption of standards, enhanced operational resilience, and a more robust case for change across the industry.
