Given your expertise in digital securities, could you explain what blockchain brings to the table for the financial industry?
Certainly. Blockchain serves as the backbone of innovative financial solutions. It enables the secure recording, sharing, and synchronization of data across multiple locations without the need for a central authority. This technology therefore revolutionizes how assets can be held, exchanged, and transferred on the network. Instead of relying on siloed centralized settlement systems and intermediary ledgers that needs to be reconciled, DLT enables a digital asset agnostic 24/7 platform empowering various financial processes, from securities issuance to settlement, trading, and asset servicing. By adopting blockchain in securities markets, we can unlock significant savings, automate settlement and corporate actions, tap into new liquidity pools and enable financial innovations all while fostering a more interconnected and efficient ecosystem.
Those benefits sound substantial. Can you provide examples of the potential savings and efficiencies that blockchain can bring to the financial industry?
The adoption of blockchain in securities markets has the potential to generate substantial savings. For instance, it can free up more than $100 billion annually in collateral outstanding in areas like derivatives and securities lending. Implementing smart contracts to automate settlement and corporate action processes can reduce operational costs by $15-20 billion. It is not only about savings, though, but also new opportunities; at a larger scale, DLT can unlock new liquidity pools, such as the projected $16 trillion global market for tokenized illiquid assets by 2030. It also enables innovative investment and financing paradigms based on the efficient aggregation of tokenized assets. Essentially, blockchain offers a technological leap in the post-trade landscape, encompassing custody, asset transfer, and settlement, and establishes a global, asset-agnostic trading and settlement platform accessible worldwide.
You’ve outlined the potential benefits of blockchain in finance. What are the main obstacles hindering its widespread adoption by traditional financial institutions?
One significant challenge is the need for universal and forward-looking regulations. Currently, the legal framework is often domestic and tailored to specific assets, hindering global adoption. To create a truly global ecosystem, we need asset-agnostic and activity-based regulations that transcend borders and asset types. Additionally, the absence of international standards and solutions for Universal ID and verifiable credential schemes poses another obstacle. Collaboration between tech-savvy banks, regulators, industry bodies such as the Global Digital Finance and relevant standard bodies such as the Global Legal Entity Identifier Foundation and/or the Digital Token Identifier Foundation is essential to establish unified frameworks for Universal IDs and other identifiers, enhancing security and enabling seamless integration.
Change management within financial institutions can be a barrier when adopting new technologies. How do you see financial institutions overcoming this challenge?
Change management is indeed a significant internal barrier. Financial institutions will need to not only adapt their operations and technology but also undergo a transformation of their entire business model. This transformation involves embracing instant settlement, cross-border operations, and, potentially, 24/7 services. It also means accepting the departure of some existing revenue streams that rely on market inefficiencies that blockchain solutions aim to eliminate. Financial institutions must remain agile, visionary, and open to this transformation to navigate the paradigm shift successfully.
In conclusion, what is your outlook for the adoption of blockchain in finance in the next 5-10 years?
I’m optimistic about the adoption of blockchain in finance over the next decade. While there are challenges, they are not insurmountable. The industry is increasingly recognizing the long-term value of blockchain technology and tokenisation. The key lies in addressing global standardization and change management. Once these challenges are tackled, we can look forward to a future powered by blockchain that will reshape the financial landscape, fostering efficiency and interconnectedness across the sector.
Thank you, Alexandre!
SDX is licensed by Switzerland’s financial market regulator, FINMA, to operate an Exchange and a Central Securities Depository (CSD). SDX offers issuance, listing, trading, settlement, servicing, and custody of digital securities. SDX is committed to working with partners, members, and clients to promote and build out a new market structure for digital assets globally.