News about asset servicing of digital assets

Asset classes will be transferred to the blockchain following a “path of least resistance”, according to research from the Fidelity Center for Applied Technologies (FCAT) revealed at the ISITC Summit Boston.

The finding was revealed by Laureen Ouellet, research analyst at FCAT, during the panel ‘Path to Transitioning Markets to Blockchain Based Infrastructure’.

While there is a significant amount of research on the benefits of blockchain, little has been provided on how the industry can actually achieve it, Ouellet said, explaining the motivation behind the research. The interview consisted of 50 global market participants who are bringing the blockchain into the financial markets.

FCAT suggests that private assets will be the first class to move to the blockchain, followed by those with fewer intermediaries that therefore require less coordination to transfer the underlying technology. This second transfer phase includes tripartite repo and centrally cleared swaps, Ouellet elaborated.

The third and final phase will include public equity, mutual funds and securities, Ouellet said. These assets already have efficient systems, and with blockchain in its infancy, there are questions surrounding whether it will be able to support the scale and complexity of these classes.

Another speaker raised the point that although blockchain is a topic discussed both in the financial industry and in the mainstream media, the industry is still unsure whether the technology is ready to be used. They went on to highlight the importance of separating technology and assets, stressing that blockchain and DLT are not the same. Oullette added that there are a number of types of blockchain and processes that markets can use.

Considering the possibility of traditional assets moving into the crypto space, a third speaker highlighted the need for a closer alignment of crypto and cash. A crucial difference between the two markets is that crypto runs on a 24/7 system, while traditional banking does not. This asymmetry can make access to information and cash more difficult, a particular problem in light of more jurisdictions starting to use CBDCs.

In terms of what will allow traditional finance to move to the blockchain, one speaker cited “accessibility, context, data availability and valuation” as key areas of focus.

FCAT’s global approach revealed that greater regulatory clarity in Singapore and Switzerland has given firms in these jurisdictions more confidence in the compliance of their products. However, there are also firms in these areas trying to disrupt the newly established systems – blockchain-based infrastructure is still a developing problem.

When discussing the future of blockchain adoption, Ouellet stated that according to FCAT’s interview findings, firms’ blockchain initiatives are not being driven by consumer demand — the shift is not necessarily something that will affect customers’ day-to-day operations, but is instead a “tech play” for businesses.

One panelist questioned whether the US government will embrace blockchain, or continue to reduce investment and involvement in the technology, “chasing it offshore”. Ouellet commented that “US regulators work at their own pace,” and predicted that the country will not be rushed into establishing regulatory frameworks by the efforts of other jurisdictions.