The Distributed Ledger will Change the Financial Markets

Distributed ledger technologies (DLT) have the power to reshape how we use and interact with physical and digital assets and to transform economies. We foresee a future of frictionless transactions where any asset, whose ownership can be digitally recorded and verified, can be invested in, easily transferred or used as collateral 24/7. This will significantly increase the velocity of the deployment of capital in markets.

As well as removing the need for paper certificates and scanned copies of title documents to any asset or security which may currently take hours, days or weeks to verify and register, there are many other benefits which moving to the new DLT technology bring that make the change worthwhile:

  • Data audit trails, immutability and multiple party redundancy
  • Shared views of databases allow all participants to stay up-to-date in real-time
  • Ability to share systems with auditors and regulators
  • Federated data reduces risk market wide solvency risks associated with system operators
  • Facilitating fractionalisation of assets.

The resulting reduction in operational risk (and therefore overhead) cannot be overstated, resulting in increased trust and far lower cost of overall implementation. This is all whilst increasing democratisation of access to the market.

However, whilst crypto currencies have been at the forefront of the digital asset experiment and many purists advocate the permissionless systems as the backbone of a decentralised finance model, it is impossible to imagine that prudential regulators would allow the title to trillions of dollars of existing securities or government-controlled databases of assets to exist on a public blockchain that could risk the misappropriation of assets.

Therefore, it seems undeniable that market participants must be subject to clearly established regulation and legal frameworks to operate at scale and some of the concepts that currently exist to bring trust and capital efficiencies to traditional financial markets will become commonplace in digital asset markets.

ClearToken believes that the most pivotal link in the market will be centralised clearing to provide the means for financing, collateral management and ensure delivery of digital assets. Only when this is delivered will institutions be able to participate, and the huge benefits to be gained will begin to unfold.