Blythe Masters, CEO, Digital Asset Holdings and Michael Bodson, President and CEO, DTCC
Blockchain technology stands at a tipping point that has shifted from hype to the beginnings of practical and collaborative business applications.
That was among the key insights shared by Blythe Masters, CEO of Digital Asset Holdings (DAH), during her fireside chat with Michael Bodson, DTCC President and CEO, at the Disruptive Technologies Forum 2016 in London.
The event, co-hosted by DTCC and The Centre for the Study of Financial Innovation (CSFI) brought together nearly 150 industry thought leaders, technology experts and policy makers for a half-day of discussions around cloud computing, blockchain and new cyber strategies. Panelists discussed the impact of disruptive technologies on regulatory and policy objectives and collaborative innovations that are helping to move blockchain out from proof-of-concept into production systems.
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Building Bridges with Blockchain Technology
The conversation between Masters and Bodson built upon a similar discussion they held at the DTCC Blockchain Symposium in New York City this past March. With the industry making progress on leveraging the technology since then, the two CEOs focused on the impact of distributed ledgers on the future of the post-trade environment.
Masters noted that blockchain has undergone a “sea change in the past eight to 12 months, which has moved it to becoming a mainstream technology.” She provided a number of examples of the technology's growing maturity, including the “widespread proliferation of consortia that are doing more than just talk.”
“We have seen real signs of genuine collaboration happening in the open source community along with significant amounts of investment,” she continued. “In the last year, there has been about a billion dollars worth of investments which, unlike prior years, has predominately gone into areas focusing on blockchain rather than bitcoin or cryptocurrency-related applications.”
The majority of investments, she noted, is coming not from VCs, but from strategic investors whose intent is to use the technology as opposed to monetizing it.
“We’ve moved through the evangelical marketing phase and are now under contract to deliver systems that actually have to do a real job in the real world,” Masters said. “Not just for commercial entities but for highly regulated, systemically consequential, and accordingly regulated organizations that deal with trillions of dollars notional every day, and who have to take the call from the powers that be - governments and regulators - when things go wrong.
“And that changes everything,” she added.
When Hype Meets Reality
With blockchain now at the development stage of coding and building commercial applications, Bodson asked Masters to give some perspective on people’s understanding of the technology, how it’s going to be rolled out and its true potential.
One of the things that have changed this past year, according to Masters, is that good, sensible questions are being asked about the risks associated with rolling out DLT to the financial services industry. “We’ve all been persuaded of the potential benefits, the eradication of inefficiency, the greater transparency, the improved speed, the corresponding reduction in risk,” she said. “But let’s be honest, there are new risks when you do anything differently for the first time.
“The current infrastructure works,” Masters added. “That is why these infrastructures don’t get replaced on a whim. But, the reality is that financial markets evolve incredibly fast. They’ve evolved spectacularly rapidly in the aftermath of the financial crisis, principally because of regulatory reform.”
She noted that blockchain represents, for the first time in a decade or so, the opportunity to spend money on functionality that is genuinely new and genuinely additive.
“To be the entity that can provide the infrastructure to connect those points, ultimately, will radically cut costs in terms of messaging, radically reduce fails and error rates, and in the process, and radically reduce cost and capital requirements,” she said.
She applauded DTCC’s work for being on the cutting edge of the blockchain movement. “You have the pipes, you have the relationships, you have the credibility, you have the regulatory framework,” she said. “If you add to that the infrastructure that enables everyone in the ecosystem to do their job better, quicker, cheaper, faster, less capital, less risk, and keep the regulators happy, that’s an enormous opportunity.
“I wouldn’t be anywhere else if I were in your shoes,” she added.
Bodson noted that while regulatory focus on blockchain has intensified, there remains skepticism among regulators about potential benefits of blockchain.
Masters responded that the industry and regulators learned a lot from the 2008 financial crisis. “I definitely used the lessons that I had learned in living through the financial crisis, living through the subsequent financial regulatory reform, working as the chair of SIFMA and the GFMA and running credit policy and being a CFO at JP Morgan and looking after regulatory policy,” she said. “I learned that there was a power to this technology that I thought was under exploited and under explored.”
Masters noted that one of the lingering issues of the regulatory reform globally in the aftermath of the financial crisis was that it inadequately analyzed the potential for unintended consequences. As a result, she said, a lot of what was well intentioned actually became incredibly onerous, inefficient and, in some cases, introduced new risks that we have yet to see unravel, and are still very much lurking out there to day.
Masters acknowledged that the financial services sector, despite what is written in the press and heard from politicians, is a tremendously vibrant and valuable and critical part of our world, and that it’s at risk of being profoundly damaged from within and from without.
“I have great respect for why things work the way they work, and what could be improved upon reasonably, and what can’t just change on a whim or be eradicated,” she said. “Having the opportunity to work on solutions that could help avoid the need for that, or make the outcome a better one for, ultimately, the people that we exist to serve, which we often forget, is very gratifying.”