“The industry-wide transformation of digital assets will likely slow, unless fragmented standards are addressed,” according to DTCC, Clearstream and Euroclear. The trio of companies made the statement in a paper commenting on the state of the industry’s digital asset evolution.
In the paper, the companies called for “increased collaboration to progress an ecosystem that currently includes fragmented standards, varying regulatory treatment, limited integrations with institutional-grade payment rails, and siloed liquidity.”
These are all “limiting factors” for the further digitalisation of global financial markets, they affirm.
In a bid to overcome the fragmentation hindering the digital asset landscape, industry heavyweights DTCC, Clearstream, and Euroclear are pooling their expertise to set common standards and promote interoperability.
Years of isolated, sub-scale deployments on proprietary distributed ledger technologies (DLTs) have resulted in liquidity silos, impeding growth, warn the companies. Startlingly, in 2023, a whopping 74 percent of DLT projects in capital markets involved fewer than six participants, underlining the fragmentation issue.
Digital asset initiatives today vary widely in standards and propositions related to settlement and custody processes, while governance of smart contracts and DLT protocols lacks consistency.
The three financial market infrastructures (FMIs) are stepping up to the challenge, leveraging their innovative prowess to foster industry transformation.
They’ve committed to collaborate with the broader industry to reduce connectivity costs and establish consistent operating standards for processes, platforms, and digital assets.
Jennifer Peve, managing director, global head of strategy and innovation at DTCC, emphasizes the urgency, stating, “We are at an inflection point as an industry when it comes to DLT and digital assets. With digital assets forecasted to grow in value to around US$16 trillion over the next 15 years, now is the time to assess what is needed to propel advancement.”
Jens Hachmeister, managing director, head of issuer services and new digital markets at Clearstream, points out, “New technologies and digital assets will transform the financial industry. As a neutral financial market infrastructure, we are uniquely placed to help the industry’s transition efforts by modernizing infrastructure and driving the adoption of standards across DLT protocols and smart contract language that will lead to better and faster interoperability between ecosystems.”
Philippe Laurensy, head of group strategy, product management, and innovation at Euroclear Group, adds, “FMIs play a pivotal role in helping to unlock the true business value of digital assets through our robust, resilient ecosystem. By providing leading-edge analysis with our peers, we can continue to pave the way for further advancements and bring groundbreaking solutions to the market which are aligned to Euroclear’s purpose to innovate to bring safety, efficiency, and connections to financial markets for sustainable economic growth.”
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