Last month, I joined other leading blockchain executives during the Arca Labs’ “Finance on the Blockchain” event, one of the first digital asset securities educational events that unites leaders in the blockchain and traditional finance industries.
Related: Building a Digital Marketplace
Our conversation touched on a number of key issues surrounding the digital asset landscape.
Roadblocks
Part of our discussion centered around three main challenges of breaking into the digital asset space.
First, given the relative newness of blockchain and crypto assets, the industry is challenged with talent sourcing. Firms are also coming up with creative programs to train existing employees to help them come up to speed quickly. Second, the financial industry is highly regulated, making it slower to adopt emerging technologies compared to the fast-break world of digital assets, and with it comes the compliance costs which can be even higher than technology costs. And third, there’s the logistical and interoperability hurdles that come into play when working within existing infrastructures to support both the traditional and digital marketplace while keeping costs down.
Opportunities
Despite the challenges, there are certain advantages to traditional financial services firms entering this new space.
For example, traditional firms have a deep talent pool with an understanding of risk and how financial markets operate. With that comes a well-established, fundamental approach to investing, along with knowledge of trading and operational issues. In addition, the added measure of safety in offering new products and services due to familiarity with regulatory and legal issues can create comfort to regulators. While regulatory frameworks can run at a slower pace, they provide an additional layer for the safety and security of clients.
Forging Ahead into the Digital Asset Space
Moving into 2022, firms are continuing to integrate digital assets into their lineups, including new settlement and payment platforms, tokenization and delivery of assets.
DTCC remains committed to innovation around digital assets and is focused on Project Ion as a standalone equity clearance platform. Utilizing blockchain to support a T0 cycle, Ion will parallel the existing infrastructure to support bilateral trades and help the industry move toward real-time settlement.
There are also intentions to launch the Digital Securities Management platform for private markets, providing maximum flexibility for firms and also supporting Reg A and Reg D securities. The firm’s top areas of innovation interest include digital settlement, supporting CBDCs and the broad impact of DeFi on the financial industry.
Given the challenges and opportunities that come with entering this complex digital asset landscape, our success in the space is predicated on balancing innovation with protecting and transforming the global markets – it’s at the heart of what we do every day for the financial services industry. We keep a close eye on niche markets and business models that shape the future of our business. And as we think about new models, we need to consider how we can deliver solutions that clients require most—ones that are better, faster and less expensive to address business needs—while maintaining safety and security of the financial system.