By Marco Kessler, Head Product & Business Development, Digital Assets, SIX.
Digital assets no longer sit as a separate asset class outside of capital markets. They have become a fully integrated part of “TradFi”. Over the past few years, the technologies that underpin crypto are now being integrated with the core financial plumbing of capital markets.??
Major financial institutions are moving tokenisation from pilots into market infrastructure: BNY is targeting 24/7 settlement for conventional and tokenised US Treasuries, Citi has launched tokenised depositary receipts for private company shares, and DTCC has processed tokenised DTC-held assets across collateral, repo, margin and other post-trade use cases with participants including BlackRock, Goldman Sachs and JPMorgan.??
With comparable frameworks, global alignment means the industry can more effectively design digital assets projects that can work across borders. But for the asset to mature further, greater integration between digital and traditional at the infrastructure level is required.??
Greater regulatory clarity has helped create an environment that is willing to validate digital assets in real-world settings. Switzerland was one of the first countries to enact crypto-native regulation which created a mature marketplace. Now with MiCA in the EU and the GENIUS Act in the US, there is broad alignment on best practices.??
For scaling to lead to results, market infrastructure needs to adapt to DLT, tokens and wallets. Firms are not looking to build a parallel set of rails to existing markets. A single unified Central Securities Depository that can handle both traditional and digital assets brings with it the benefits of utilising digital assets technology with the regulatory and governance standards of traditional assets.??
Tying digital and traditional market infrastructure together will enable digital assets to growth at scale. A single infrastructure governed by a common ruleset reducing fragmentation and complexity. Most banks are unlikely to invest in the development, operation, and maintenance of parallel infrastructures.??
A key step towards a merged infrastructure is common standards. Digital assets now sit in the same familiar regulated environment institutional investors are well-accustomed to. Digital assets are now inheriting – and benefiting from – the decades of proven standards in asset safety, governance, and operational resilience built in capital markets.??
Digitally native products, such as digital bonds, are given the same legal status as debt issued on traditional venues. Importantly, securities issued digitally adhere to established FMI and Intermediated Securities regulation, meaning firms are well-versed in the regulation and do not need to learn a separate framework.??
Handling crypto and digital assets also requires adaptation. CSDs holding digital assets must be able to handle crypto-native features like staking. In future, that might extend into using tokenised assets to back traditional transactions.??
The path towards tokenisation??
The industry’s embrace of digital assets has been rapid. It was only five years ago that crypto was seen as an asset that sat outside capital markets.??
Global investment banks and asset managers are testing the feasibility of DLT-based solutions in markets such as private assets, repo and money market funds as well as issuances of digital bonds, both corporate and sovereign.??
Tokenisation opens the door to modernisation. There are the well-known benefits of greater automation and efficiency as well as enabling 24/7 trading but also new opportunities. Bonds can have smart contracts tied directly tied to the security, enabling easier coupon payments, while DLT securities could be settled in real-time, eliminating counterparty and operational risks.??
It is creating possibilities that previously were technically impossible or prohibitively expensive using legacy technology. For example, buying or selling private assets involves limited trading windows with restrictions on how much can be sold and who the buyer could be. If issued on a chain, these assets can be more easily controlled, with restrictions and information programmed right into the token.??
There are promising use cases, such as the ability to trade repo intra-day with time precision and high settlement confidence or expanding what assets can be used as collateral, but without common treatment, digital assets will struggle to scale.
The potential benefits will be outweighed if institutions need to run separate systems and compliance procedures. The end goal is making transactions between traditional and digital assets as seamless as possible and that ultimately for traders the distinction is meaningless.??
Post-trade and the underlying infrastructure must lead these developments in order for front office use cases to take off. FMIs serve as a critical partner in deepening digital assets into trad-fi workflows, providing the trusted anchor that underpins safety, governance, and operational resilience at scale.
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