FMIs Collaborate to Address Challenges in Digital Asset Evolution

<p>Three
financial market infrastructures (FMIs), namely DTCC, Clearstream, and
Euroclear, have jointly released a paper discussing the current state of the
digital asset evolution within the industry. </p><p>The
paper underscores the need for increased collaboration to address existing
challenges within the ecosystem, including fragmented standards, regulatory
disparities, limited integration with institutional-grade payment systems, and
segmented liquidity pools, all of which hold back the further digitalization of
global financial markets.</p><p>Challenges
Stalling Global Financial Market Digitalization</p><p>The
paper emphasizes that without resolving these issues, the financial market's
transformation toward <a href="https://www.financemagnates.com/tag/digital-assets/">digital assets</a> is likely to face slowdowns.
It particularly highlights two critical constraints: scale and
interoperability, which require immediate attention.</p><p>Jens
Hachmeister, the Managing Director and Head of Issuer Services &amp; New Digital
Markets at Clearstream, expressed the institution's role in facilitating the
industry's transition by modernizing infrastructure and promoting standards
across <a href="https://www.financemagnates.com/tag/distributed-ledger-technology/">distributed ledger technology
(DLT)</a> protocols
and smart contract languages to enhance interoperability among ecosystems.</p><p>The
paper points out that years of smaller-scale deployments have resulted in
isolated liquidity pools on proprietary DLTs, hindering growth. In 2023, 74% of
DLT projects in the capital markets involved fewer than six participants.
Current digital asset initiatives lack uniformity in standards, settlement and
custody processes, and governance of smart contracts and DLT protocols. These
challenges, if left unaddressed, will perpetuate fragmentation, contradicting
the efficiency goals initially set for DLT adoption.</p><p>Philippe
Laurensy, the Head of Group Strategy of Product Management and Innovation at
Euroclear Group, expressed FMI's commitment to embracing <a href="https://www.financemagnates.com/terms/b/blockchain/">blockchain</a> and digital
assets, emphasizing the role of FMIs in unlocking the business potential of
digital assets by creating a resilient ecosystem.</p><p>Industry's Growing Need for
Trust and Standardization</p><p>Jennifer
Peve, the Managing Director and Global Head of Strategy &amp; Innovation at DTCC,
stated: “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 $16
trillion over the next 15 years, now is the time to assess what is needed to
propel advancement."</p><p>"While we have all accelerated our learnings and identified
the benefits of and constraints related to DLT on a smaller scale in recent
years, there is broad recognition of the growing need for well-regulated,
neutral players to provide trust, resilience and standardized <a href="https://www.financemagnates.com/terms/c/connectivity/">connectivity</a> in
their respective ecosystems – the role FMIs like DTCC have played for decades –
to drive digital asset adoption.”</p><p>As
FMIs, <a href="https://www.financemagnates.com/tag/dtcc/">DTCC</a>, Clearstream, and Euroclear
have pledged to collaborate with the industry to reduce connectivity costs and
establish consistent operating standards across processes, <a href="https://www.financemagnates.com/tag/platforms/">platforms</a>,
and digital assets. This collaborative effort aims to advance the adoption and
scale in the digital asset landscape, ultimately promoting the efficiency and
growth of financial markets.</p>

This article was written by Tareq Sikder at www.financemagnates.com.