White Paper – Creating Financial Market Infrastructure for Digital Assets: Securing Cryptocurrency and Digital Asset Trading
To reach their potential, digital asset markets need the full participation of institutional investors. They in turn need digital asset markets to recognise the limitations of bilateral trading and develop essential centralised clearing and settlement infrastructure that has been long trusted upon in traditional finance to make markets more efficient, safer and predictable. This White Paper explores the key benefits of centralised clearing and why it matters for the future of institutional participation in digital assets.
Successful settlement underpins every trade in any marketplace, and digital assets are no exception. Neither the philosophy of decentralised finance nor its implementation through blockchain and other decentralised ledger technology (DLT) can solve for fundamental market requirements, nor does their adoption force a market to become decentralised in every aspect.
The lack of central clearing in digital asset markets means that all trading is bilateral. This creates capital inefficiencies and high risk of exposure to unregulated counterparties and failure of trades.
Centralised clearing is proven to be essential for the smooth operation of traditional markets because it ensures settlements complete and confers other benefits to participants, including netting (up to 98% reduction in settled quantities), improved capital allocation and risk mitigation.
As Flow Tradersā Global Head of Risk, Tamara Maris-Mravunac says:
āFor institutions, risk management when entering the digital asset space can be challenging. By leveraging the benefits of the traditional finance ecosystem, particularly central clearing, it provides counterparties with the ability to mitigate their risk and ensure they can operate within their risk appetite framework.
Flow Traders believes ClearTokenās central clearing solution will contribute to improving the digital asset market structure, effectively addressing some of today’s challenges.ā
Market participants should not forgo the traditional benefits of centralised clearing when seeking to access decentralised finance. Without the right market infrastructure, market liquidity is compromised, limiting the potential of the new generation of digital assets.
ClearToken intends to offer a fully regulated central counterparty (CCP) to transpose the tried and tested principles of clearing and settlement in traditional finance to digital asset market structure.