“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.”
In a significant development for the digital asset industry, three major financial market infrastructures (FMIs) – DTCC, Clearstream, and Euroclear – have released a paper outlining the current state of the industry’s digital evolution.
This collaborative initiative aims to address the challenges faced by the digital asset ecosystem, including fragmented standards, regulatory variations, limited integrations with institutional payment networks, and isolated liquidity pools. These challenges are perceived as impediments to the broader digitization of global financial markets.
Digital evolution may stall without addressing scale and interoperability
Despite a growing number of initiatives in recent years, the paper suggests that industry-wide transformation may stall without addressing critical constraints, particularly scale and interoperability.
Scale: The proliferation of smaller deployments has led to sub-scale, isolated liquidity pools on proprietary Distributed Ledger Technology (DLT) platforms. Many DLT projects in the capital markets involve fewer than six participants, hindering growth potential.
Interoperability: The digital asset landscape is marked by diversity, with varying standards and propositions related to settlement, custody processes, and governance of smart contracts and DLT protocols. This lack of consistency threatens to perpetuate fragmentation and hampers the efficiency gains expected from DLT.
“Growing need for well-regulated, neutral players to provide trust, resilience, and standardized connectivity”
Recognizing the need for industry-wide collaboration, DTCC, Clearstream, and Euroclear are leveraging their expertise in innovation and industry transformation to address these challenges. Their collaborative approach aims to reduce connectivity costs and establish consistent operating standards across processes, platforms, and digital assets.
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.”
DTCC, Clearstream, and Euroclear’s collaboration extends to both traditional and new market participants. Their joint efforts will foster market dialogue on essential characteristics of DLT networks, data access, privacy, and smart contracts.
Ultimately, this collaboration seeks to enhance interoperability, promote the adoption of standards, bolster operational resilience, and drive meaningful change across the digital asset industry.
