Interview with Mathias Studach on SDX’s achievements and future plans

In this interview, we’re speaking with Mathias Studach, Head of Finance, Risk and Org. Dev. at SDX and one of the company’s founders, to find out more about what SDX has achieved since 2018 and how he sees the future unfolding.

SDX is the first fully FMI-regulated and integrated trading, settlement and custody financial markets infrastructure built on blockchain technology. Our origin story began back in 2018 when our parent SIX Group identified Distributed-Ledger-Technology (DLT) and its underlying Digital Assets as a potential game-changing technology paradigm for financial markets infrastructures. They saw the potential in tokenizing assets and covering the full value chain on this new distributed ledger technology to leverage efficiency gains in settlement and post-trade processing. We subsequently embarked on the journey to deploy a fully regulated central securities depositary (CSD) and digital assets exchange based on DLT technology.

Hi Mathias! Let’s jump straight in. What do we need, in terms of a roadmap and outcomes, to build the digital marketplace of the future? And what does this mean for the wider industry and digital market participants?

To understand this, we need to go back to 2018, when SIX Group originally announced the establishment of SDX. At the time, the cryptocurrency exchanges were the main factor driving the evolution of new digital marketplaces. However, they focused on crypto assets in a space with very little to no regulation. At the same time, some incumbents in the financial industry were starting to realize that there was a demand and a real potential for leveraging DLT and the tokenization of traditional assets. They started to include digital assets in their strategies as they looked ahead to the next few years of growth.

In this nascent landscape, SIX Group saw the potential for SDX to position itself as a first-mover in digital markets infrastructure and as building a bridge between the traditional financial services industry and the newly evolving digital asset ecosystem. There was also an early recognition of the cost and revenue drivers at play in terms of the adoption of DLT into financial market processes and technology. When we start to leverage DLT to streamline and automate post-trade processes, we can better enable our clients – such as banks – not only to reduce their costs and improve business process efficiency but also to implement new and innovative business models and offer new types of products and services. And that’s what we’ve achieved in going live with SDX last year: we’ve laid the foundations of digital bonds and digital equities markets, and we’ve transformed the entire value chain from trading through to settlement and custody using DLT.

What are some of SDX’s concrete achievements and deliverables to date, and how have they helped develop digital asset markets further?

SDA has achieved an incredible amount in a short space of time, and what’s genuinely significant about it, as I’ve said, is that we’ve managed to touch and transform every element of the value chain. For example, last year, we obtained two licenses from FINMA, the Swiss regulator: one allows us to operate a stock exchange, and the other is a central securities depository (CSD) license. It’s important to note that the security settlement and custody system behind our CSD is built on DLT, and that is an entirely novel innovation. We have onboarded our first three clients, all large Swiss banks, including Credit Suisse, UBS and ZKB. We also issued the world’s first listed digital bond on a regulated stock exchange, which settles in our DLT-based CSD and is also fully fungible with a traditional issuance of the same bond – this was hugely successful, with the digital bond portion being 2/3 of the total issuance size. We’ve also worked with the Swiss National Bank on two CBDC-related projects, Project Jura and Project Helvetia. Project Helvetia Phase 1 showed that wholesale central bank digital currency (wCBDC) can be issued onto the SDX platform and can be used to settle tokenised assets in central bank money. Phase 2 focused on the end-to-end integration of wCBDC and expanded on Phase 1 by adding commercial banks to the experiment and integrating wCBDC into the core banking systems of the central bank and commercial banks; and running transactions from end to end. Project Jura was about cross-border wholesale CBDC settlement. We worked with both the Swiss National Bank and Banque de France and explored the direct transfer of Euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single DLT platform operated by SDX. We’ve also announced the Asian Digital Exchange – ADX – our joint venture in Singapore with SBI, which will focus on crypto and crypto-asset trading, settlement and custody. And we are now working on enhancing our crypto service offering in Switzerland, focusing on custody and staking services.

It’s probably an understatement to say that you’re busy! So what has been the main takeaway from all these projects, pilots and experiments, now that you can look back on all of this work with some hindsight and perspective?

Our main takeaway is that it works! Our digital bond issuance, for example, was the first real-life use case in which a digital bond was issued on a regulated FMI, using a DLT-based CSD for settlement. There was so much work involved in getting to that point, and we had the opportunity to build our systems and capabilities from scratch using DLT. Nevertheless, we also need to interface with our clients’ existing banking infrastructure and work through all the non-technological components, such as the digital asset’s legal, regulatory, and tax treatment. We quickly learned that it was critical to involve not only the banks but also the issuers and investors from an early stage, to ensure that there was a clear shared understanding and a high level of trust throughout the process – and it was a learning process for us all. We had fantastic feedback from our participants, which was a great takeaway from my perspective. We were testing out new concepts that had never been possible before, such as atomic settlement – in which trade execution and settlement occur simultaneously – which have massive potential to reduce or eliminate counterparty risk and market risk. It has been incredibly rewarding to see these concepts being successfully proven.

How will you continue to build on this work? What’s next for SDX?

That’s an excellent question. For a start, we’ll seek to increase the size of the menu on offer. Firstly, we’re increasing the number of participants in the SDX ecosystem, additionally onboarding banks and financial institutions, which then become members of the SDX exchange and the SDX CSD. Secondly, it’s about loading the current platform with additional volume. In addition to digital bond issuances, we’re also looking for the first digital equity issuance. We are working closely together with the wider DLT and digital asset ecosystem because there are a lot of great players out there who have implemented some fantastic business models but are in need of a trusted business partner who can help them navigate and fulfil the regulatory angle. So for us, this is a great play where we can collaborate with companies that have to innovate functioning business models and support each other to bring liquidity onto the SDX platform simultaneously. We also want to enhance our capabilities as a platform to fully leverage the benefits that DLT is promising in the post-trade area. This includes enhancing smart contracts to automate corporate action and settlement processing. And last but not least, we need to keep exploring and pushing the frontiers of new areas. The ecosystem that began to emerge five years ago with cryptocurrencies now encompasses NFTs, the metaverse, Web 3.0, and all sorts of exciting new capabilities. There’s so much momentum, and I don’t think that will stop in the near future. We’ve got to stay on top of all of this and continue to cement our place in this new world.


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