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  5. Digital Assets and DLT Remain On track to Deliver for Capital Markets

Digital Assets and DLT Remain On track to Deliver for Capital Markets

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18 October 2023
Patrick Wegner

In the last two weeks, two new developments in the digital asset and DLT space have occurred. ONYX reported their first collateral settlement using tokenized shares in money market funds (MMFs) between Blackrock and Barclays. In this transaction, the tokenized collateral network was used to tokenize shares in an MMF and transfer them to Barclays as collateral (variation margin). According to ONYX, this was apparently done in around 2 seconds compared to previous hour-long processes.

In a second announcement, Broadridge announced they had signed up Swiss investment bank UBS to their sponsored repo solution built on their distributed ledger repo (DLR) platform. This offering is an extension of Broadridge’s ability on the platform, reported earlier in the year, where it already transacts over 1 trillion USD a month in traditional repo.

Celent has followed the Digital Asset and DLT space for a few years and saw it as a significant theme for 2023. The benefits of the technology have been heralded by many, including lower cost, speed, and security benefits. Indeed, a recent Strategy and Spending survey of sell side participants by Celent has shown Digital Assets, Blockchain, and DLT as technologies seen as potentially the most transformative by the industry. This focus is despite the continued fragmented, and in some cases outright hostile, environment to certain aspects of the digital asset space by regulators.

Figure 1: Impact and exploration of use cases for digital assets/DLT

Source: Capital Markets / Sell Side: IT Priorities and Strategy in 2023 | Celent, August 2023

New solutions using digital assets and/or DLT are being announced in many areas. However, these two recent developments are noteworthy as they fall under an area we highlighted in Blogs and past research (see Future of Fixed Income Technology Part 2 and Part 3) as a core value area for digital assets/DLT, namely repo and collateral trading. Indeed, an earlier Oliver Wyman study argued, and Celent agrees, that for assets to go fully digital, the secondary market, especially the ability to finance the transaction and use the assets as collateral, is a vital step.

Figure 2 shows the entire trading life cycle necessary to develop before digital asset use can be accelerated. Celent is under no illusion that there is still a long way ahead in the journey to widespread adoption of Digital Assets and DLT, but these developments are another step in creating the framework for adoption.

Figure 2: Asset Lifecycle

Source: Unlocking the Power of Securities Tokenization, July 2023

Other recent Celent reports on the topic include the advances in the adoption of digital assets and DeFi in financial market intermediaries and traditional financial institutions.

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