Although distributed ledger technology (DLT) offers the potential for significant market-wide transformation, market participants are still far from adopting this technology at scale at a market-wide level, according to a new report by the World Economic Forum (WEF) in partnership with Boston Consulting Group (BCG) – Digital Assets, Distributed Ledger Technology, and the Future of Capital Markets,
The research is based on eight workshops, just under 200 interviews with executives from leading financial services and fintech firms, and an anonymised survey from over 60 firms,
It breaks down the market opportunities and technical enablers across six asset classes and adjacent product lines—equity and debt markets, securitised products, derivatives, securities financing, and asset management.
“Following several years of intense hype, examples of use cases where inefficiencies and challenges are being solved with blockchain are starting to emerge across capital markets,” said Matthew Blake, head of the future of financial services, World Economic Forum.
He added, “With the future for blockchain in financial services still being defined, a nuanced look at the opportunities this technology offers right now is particularly important for the financial services industry.”
Kaj Burchardi, Managing Director, BCG Platinion, said “Distributed Ledger Technology has come of age as it begins to enhance efficiencies, reduce operating costs, and create new business models in capital markets, but the use cases and solutions are respective to each asset class,” said.
He added, “Whilst this makes sense from a commercial perspective, it has led to a complex patchwork of initiatives. For capital markets to unilaterally adopt DLT, they will require cross-institutional alignment to realise the game-changing market opportunities it can offer.”
Aside from regulatory hurdles, the paper highlights the importance of institutions and markets attempting parallel DLT and legacy infrastructures to effectively manage costs and risks.
In addition, the report says that realising the anticipated benefits of DLT will require significant restructuring of roles, processes and operations, potentially introducing new risks as markets adjust.
To achieve these goals, it recommends the need for market-wide data standardisation, breaking down traditional organisational siloes for capital markets firms to deliver valuable tech products to clients, and a call for regulators to continue fine-tuning their approach to encouraging innovation and avoiding global fragmentation.
In the end though the report concludes that “the coming years are likely to see increasing digitisation of markets, including more DLT use cases going live. Nevertheless, there is still little market-wide agreement on how DLT will ultimately be used and whether it will fundamentally reshape all elements of the capital markets.”
©Markets Media Europe 2021
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