DLT in Capital Markets: A Strategic Assessment of Opportunities and Risks – A Report by the Global Financial Markets Association

The Global Financial Markets Association (GFMA) has released a comprehensive report examining the opportunities and challenges presented by Distributed Ledger Technology (DLT), including DLT-based Securities and associated activities across the securities lifecycle.

The report, developed in collaboration with GFMA member firms, incorporates the insights of industry practitioners at the forefront of DLT use cases research and application worldwide.

The report indicates that innovation in distributed computing and data encryption, embodied in DLT and the emerging digital asset ecosystem, could have a fundamental impact on the next major wave of capital market developments. The technology is seen as a potential catalyst for operational efficiency, cost savings, product innovation, broader market access, and new liquidity pools.

The current focus is ensuring that DLT applications meet regulatory requirements and mitigate any potential risks associated with the use of this new technology. Several jurisdictions are introducing sandboxes or pilot regimes to facilitate firms’ experimentation with and issuance of DLT-based products. Live use cases in capital markets, profiled in the report, are already beginning to capitalize on opportunities and deliver benefits to clients while remaining compliant with existing rules and regulations.

The emergence of DLT and the digital asset ecosystem represents a critical juncture. As regulators worldwide formulate policy to govern the ecosystem, it is crucial to ensure stability and protections for market participants in digital asset markets. The report aims to guide policymakers and market participants in identifying regulatory, supervisory, and risk management practices that not only offer stability and protections but also permit the industry and economy to leverage the benefits of DLT.

Despite the growing momentum behind DLT use cases, there is yet to be widespread adoption of DLT-based Securities. DLT-based issuances have been largely experimental, and liquidity in Primary and Secondary Markets remains significantly below the levels expected in the long term. The report warns that siloed approaches and diverging regulatory regimes could hinder progress towards a broader, coordinated DLT-based ecosystem.

To foster confidence among industry participants, the GFMA underscores the need for cross-industry consensus. This consensus should aim to promote development around specific use cases and encourage stakeholders to proactively shape the emerging ecosystem in its foundational phase of development. In response, the GFMA and its members have proposed five calls to action to overcome existing adoption barriers and further the development of DLT-based capital markets. These calls to action are targeted at industry participants and regulators alike.


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DSF Launches to Promote DLT Adoption and Provide Grant Support

As part of its efforts to promote the adoption of DLT, the DSF will provide support through grants to its university network. The organization has also opened its first call for grant proposals, offering up to $5 million for eligible organizations or individuals.

The DSF is supported by the open-source public ledger project Hedera, which will lend its expertise in DLT to the DSF University Network. This partnership will enable the DSF to empower academics and education in various universities, drawing from its own experiences and the challenges it has faced.

Paolo Tasca, chairman and co-founder of the DSF, expressed his excitement over the potential breakthroughs that may come from the organization’s efforts. He believes that unlocking the potential of DLT will lead to a better future for everyone. The DSF aims to drive innovation, foster new collaborative models between academia, industry, and government, and promote the responsible adoption of DLT in business and society.

Nikhil Vadgama, the director and co-founder of the organization, also commented on the launch. According to Vadgama, the DSF has an opportunity to empower academics and education in various universities, drawing from its own experiences and the challenges it has faced. The DSF has developed grant programs that are specifically designed to address the needs of the DLT community.

The DSF University Network includes prestigious institutions such as the Indian Institute of Technology Madras, the London School of Economics, the National University of Singapore, University College London, and the University of Zurich. These institutions are at the forefront of DLT research and are uniquely positioned to drive innovation and foster collaboration between academia, industry, and government.

In addition to providing grant support, the DSF will also focus on promoting the responsible adoption of DLT in business and society. The organization recognizes the potential of DLT to transform industries and improve the lives of people around the world. However, it also acknowledges the need for responsible adoption to ensure that the technology is used ethically and with the best interests of society in mind.

In conclusion, the launch of the DSF is a significant development in the world of DLT. The organization’s focus on promoting adoption and providing grant support to its university network, combined with its partnership with Hedera, has the potential to drive innovation and foster collaboration between academia, industry, and government. The DSF’s efforts to promote responsible adoption of DLT in business and society are also commendable and will ensure that the technology is used ethically and for the greater good.


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European Central Bank Considers Rolling Out Blockchain-Powered Bank Transactions

The European Central Bank (ECB) seeks to be ahead of the game by studying how blockchain-based bank transactions will enable more money control even if lenders change to distributed ledgers.

Fabio Panetta, an ECB board member, pointed out that it was fundamental to avert a situation where liquidity and trading would become fragmented if banks were allowed to settle amongst themselves or utilize stablecoins. 

Panetta added:

“Despite the uncertainties surrounding DLT’s potential, we want to be prepared for a scenario where market players adopt DLT for wholesale payments and securities settlement.”

Market participants can use distributed ledger technology (DLT) to verify transactions since a copy of them is kept rather than depending on a trusted party like a central bank. Per the report:

“On top of a digital euro for consumers, the ECB is looking at how it could let banks settle wholesale transactions between them on a distributed ledger, rather than the central bank’s own.”

Based on the popularity of cryptocurrencies like Bitcoin (BTC) and the underlying blockchain technology, the ECB is one of the global central banks eyeing digital currencies.

For instance, the ECB launched a public consultation on the proposed Digital Euro, Blockchain.News reported. 

On the part of stablecoins, Panetta disclosed that they could jeopardize monetary supremacy. He said:

“Giving stablecoins the ECB’s backing would outsource the provision of central bank money to private entities, endangering monetary sovereignty.”

Panetta added that the ECB sought solutions to bridge the gap between its Target 2 settlement system and private blockchains

Meanwhile, the ECB raised interest rates by 50 basis points (bps), which brought its deposit rates back to zero from -0.5% in July. The hike was a surprise move as economists had anticipated a smaller hike of 25bps.

Image source: Shutterstock


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HSBC Undertakes Blockchain-based Trade Finance Transacntion for Automotive Sector in the Middle East

Through the Contour platform, HSBC conducted a blockchain-based trade finance transaction between SAIC Motor, a Chinese car manufacturer and Taajeer Group, the exclusive agent for MG cars in Saudi Arabia. 

With its help from the Contour platform, it would significantly increase the speed of dealing with paperwork. HSBC noted that by using distributed ledger technology has the potential to revamp the trade finance sector by slashing transaction times to less than 24 hours from the present five to ten days.

Per the announcement:

“The Contour platform enabled end-to-end digitisation of the credit documentation required for Taajeer to import a shipment of cars from SAIC in a process that is up to 10 times faster than using physical documents.”  

Chaker Zeraiki, the head of global trade & receivables finance at HSBC UAE, stated:

“Our digitizing at scale means making customers’ lives easier and, with Contour it means we’re cutting costs, reducing risk and speeding up trade. Bringing these benefits to the automotive sector and Saudi Arabia are a measure of our international connectivity and our global leadership in trade banking.” 

Contour seeks to digitize the worldwide trade finance industry worth $53 billion through decentralized technology by integrating digital networks across present fragmented ecosystems and trade routes as a blockchain trade finance network.

Carl Wegner, Contour’s CEO, pointed out:

“This transaction marks an important milestone in the Middle East’s automotive sector, proving that distributed ledger technology is successfully transforming the trade finance ecosystem.”

The blockchain-powered trade finance transaction is a first of its kind on Saudi Arabian soil, and it is seen as a stepping stone towards the nation’s Vision 2030 initiative of becoming a regional trade hub. 

HSBC has emerged as a notable facilitator of blockchain-based trade transactions. 

For instance, the leading British multinational investment bank and financial services holding company partnered with Wave to execute a blockchain-powered trade between China and New Zealand, Blockchain.News reported. 

Image source: Shutterstock


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Britain Eyes Becoming a Crypto Hub, Upgrading the Market by Adopting DLT

In pursuit of becoming a global crypto hub, the United Kingdom seeks to revamp the traditional financial market using distributed ledger technology (DLT), according to the finance ministry, as reported by Reuters. 

By live testing crypto blockchain technology in activities like settlement and trading of bonds and stocks, the UK intends to make the financial market more efficient and innovative for users. 

Per the report:

“In financial markets, the trading of stocks, bonds, and other assets traditionally involves three distinct activities of trading, clearing, and settlement. Using DLT could change this and allow financial assets such as bonds or stocks to be issued in hours rather than days or weeks.”

DLT projects will be tested using a financial market infrastructure dubbed “sandbox” from next year, according to the ministry’s director-general for financial services, Gwyneth Nurse. “A sandbox will allow testing new regulatory best practices and making permanent changes to ensure market users benefit,” Nurse added.

Nurse also pointed out that the Bank of England and the finance ministry were delving deeper into the digital pound as a public consultation was expected later this year. 

The sandbox is expected to be rolled out simultaneously with the stablecoin regulation.

It seems a race against time for global governments to put up guardrails in the stablecoin arena following the shocking collapse of the algorithmic TerraUSD (UST) stablecoin, which triggered the loss of approximately $60 billion.

Meanwhile, In Asia, Japan recently passed a law stipulating that stablecoins would only be issued by licensed banks, trust companies, and registered money transfer agents to protect investors. 

Image source: Shutterstock


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MetaWeek to Take Place in Dubai on March 7-10, 2022, Shaping the Future Trends for Metaverses and Blockchain

Investors, NFT artists, blockchain brightest minds, DeFi experts and DAO representatives will converge to UAE for a week-long event with a full-scale trailblazing digital and physical networking experience. Community leaders will discuss what will define the development of blockchain space and the upcoming realm of Metaverses. 

Organised by NexChange Group, MetaWeek will take place at the Le Meridien Dubai Hotel & Conference Centre from 7th to 10th of March, 2022. Accumulating the most discussed digital topics of the year, a whole week-long event will include multiple side events. MetaWeek will culminate on the 8th and 9th with its core event, the 2-day MetaWeek summit featuring immensely anticipated speakers from the Arabian Gulf region and all over the world.

Breaking barriers between digital and physical space, Metaverse is best described as a virtual world with highly sophisticated visual and art experience and crypto-based DeFi backbone, filled with communities, and powered by interoperable blockchain networks. Inside a Metaverse, users can share and store an unlimited amount of data, use self-sovereign IDs, play games and earn & trade digital assets, create limitless digital art pieces and play with NFTs and virtual goods, launch marketplaces – you name it. What’s more important, this virtual world is also owned and governed by the communities, giving them an opportunity to vote, rank, change and track decision patterns and govern their digital realm without any centralised power. 

Alongside Metaverses, essential financial and non-financial applications of blockchain will be covered during MetaWeek. Blockchain masterminds, NFT creators, DeFi spearheads, AI forerunners, artists, gaming tycoons, data analysts, and other experts interested in creating and nurturing the Web 3.0 with the help of the blockchain world will converge to Dubai for a major Meta Week event, which will combine high-level offline networking and content experience.

Juwan Lee, Founder, Chairman NexChange Group: “2021 brought us an extremely attractive market opportunity for launching Metaverses, that may bring an annual revenue of over $1 trillion. It’s a pivotal moment for us to determine the key players in this new global real-life game that is powered by the most impactful technology of today, blockchain.”

Key topics to be debated at the conference:

● Metaverse nature battle: private VS public, centralised VS decentralised
● Right ownership and privacy: who owns the data?
● Governance challenges and ways to achieve peace: algorithms, smart contracts, etc.
● Decentralised architecture of blockchain & metaverses: need for speed and interoperability standards
● DAOs evolution: cloud cities and crypto states
● Blockchain 4 FinTech: sandboxes and real life use cases
● Corporates & metaverses: how to compete with decentralised world
● DeFi payment services as a financial backbone for digital world and for financial inclusion in the real world
● AR/VR major metaverse use cases
● NFTs and their real value: what’s beyond the hype?
Digital Identities for real world and for metaverses
● GameFi, play-to-earn and prospects of gamification
● How will cryptocurrencies & digital assets evolve with metaverses
● Market opportunities for Web 3.0: is it really worth $1 trillion
● Investment priorities for metaverses and blockchain
● Creators economy & capitalism

NexChange Group is a venture builder and media platform specializing in Blockchain, FinTech, HealthTech, AI, and Smart Cities. 

For more information on the registration, speakers, agenda and partnerships, please visit  https://www.themetaweek.com/ or contact: info@nexchange.com


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EU’s ESMA Wants Public Input on Proposed DLT Regulation

The European Union’s Securities and Markets Authority (ESMA) has called on concerned market stakeholders to comment on its proposed regulation bordering on the use of Distributed Ledger Technology (DLT) for use in securities trading and settlement.

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Dubbed the “call for evidence,” the ESMA said it seeks feedback from stakeholders on the need to amend the RTS on pre-and post-trade transparency and data reporting requirements in the context of the DLT Pilot.

According to the notification published by the ESMA, the DLT pilot is not completely finalized; however, there is a political agreement between the EP and the Council to establish the framework. On this ground, the regulator wants public input prior to finalizing the regulations for the European Commission to approve.

The Call for Evidence is targeted at trading venues, securities settlement systems, and entities that are considering operating under the DLT Pilot and for market participants that plan to use DLT market infrastructures. The deadline for submission of comments was slated for March 4. The ESMA hopes by its timeline. The DLT Pilot will be implemented across each EU member state by early 2023.

The European Union is very upfront about regulating the digital currency ecosystem and the unique technologies that are affiliated with the industry. While The ECB issued a report regarding stablecoins and describes these assets as “digital units of value that are not a form of any specific currency (or basket thereof) but rather, by relying on a set of stabilization tools,” which try to minimize the volatility of their prices, the EU’s apex bank is concerned with the lack of sweeping regulations governing the use of these assets.

Other countries, including the United States, share this sentiment. While many watchdogs do not dispute the innovative nature of these crypto-assets and their underlying technologies, surveillance and advocacy to regulate the space have grown in recent times.

Image source: Shutterstock


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From DeFi year to decade: Is mass adoption here? Experts Answer, Part 3

Tristan is the core contributor to Zeta Markets, an under-collateralized DeFi derivatives platform, providing liquid derivatives trading to individuals and institutions alike.

“We’ve seen a Cambrian explosion in the DeFi ecosystem in 2021, with peak TVL approaching $300 billion vs the 2020 peak of $21 billion. This sounds like the growth surely has to slow. Yet, DeFi still represents just a fraction of CeFi trading volumes.

At Zeta, we see a clear opportunity for more and more CeFi infrastructure to be built on-chain in a permissionless manner. This will unlock innovative products that have previously been impossible to implement. The following has already started to happen:

  • Composability trumps the siloed products of CeFi, which has created really powerful network effects and will continue to do so.

  • DeFi UX continues to improve, DApps on Solana, in particular, are now improving with the looks and feels of CEX products (i.e., Robinhood).

  • On-chain derivatives are still in their infancy but are already showing promise (dYdX surpassing Coinbase in trading volume).

  • On-chain primitives like oracles and order books are now a reality.

DeFi growth sustaining itself and achieving its potential blockchain speed and transaction costs will be critical. CeFi markets rely on speed and deep liquidity. This dependency is already showing some truth, with DeFi expanding outside of the Ethereum ecosystem. We suspect this is a trend that is likely to continue in 2022 and expand the DeFi pie as a whole — cross-chain bridging will be a big theme for DeFi in the years ahead as we move toward a multi-chain world.”

These quotes have been edited and condensed.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.


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From DeFi year to decade: Is mass adoption here? Experts Answer, Part 2

Sameep is the founder of QuickSwap, a decentralized exchange on Polygon that allows users to swap, earn, stack yields, lend, borrow and leverage, all on one decentralized, community-driven platform.

“My answer here will be similar to the last one. Absolutely — in 2020 and 2021, DeFi experienced mass growth. More and more people realized the importance of having their money work for them. Institutions and retail investors started staking their crypto to earn more of it, but as more people (and bots) started using various blockchain networks, those networks became congested, and gas fees (on some of them) went through the roof. These rising costs then made the barrier of entry too high for those who only have small amounts to work with.

Just like crypto itself, for DeFi to continue gaining adoption, big-name, trusted protocols need to launch on sidechains that offer low transaction costs, like Polygon. We already saw several behemoths like Aave and Compound come over in 2021, and they brought lots of liquidity and users with them. As more big players embrace interoperability and function on multiple chains, gas fees will decrease across the board, which will give more people the opportunity to adopt cryptocurrency and DeFi.”


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From DeFi year to decade: Is mass adoption here? Experts Answer, Part 1

Dominik is the co-founder and chairman of the Iota Foundation, an open-source distributed ledger and cryptocurrency designed for the Internet of Things.

“The biggest difference between crypto in 2017 and crypto in 2022 is the establishment of tangible business models and use cases within our ecosystem thanks to DeFi. We no longer have to wait for external parties such as large companies to drive adoption. We can do it ourselves with applications that introduce much-needed innovation to the base level of our economy — finance.

2021 has been a tremendous year for early-stage validation and growing excitement toward DeFi’s potential. But it’s still early stages. DeFi isn’t yet comparable to fintech companies like Revolut or N26 (2 million to 5 million monthly active users) or established Web2 finance players like PayPal (361 million active users). It’s anyone’s game, since no DApp in the crypto space has achieved mass adoption.

Going into 2022 and equipped with the right layer-one networks, we’re aiming for mass adoption. To achieve that, we need to eradicate the entry barriers for buying and selling crypto through regulated fiat bridges (such as banks), overhaul the user experience, reduce fees (anything above $0.1 is not acceptable), and provide the right guide rails so everyone can easily and safely participate in the decentralized economy (such as custody solutions, decentralized identity and secure wallets).

DeFi is legitimizing crypto and decentralized economies. Traditional financial institutions are already starting to participate. In 2022, we will only see an uptick in usage and adoption.

The beauty of permissionless innovation is that we are able to rapidly evolve as an ecosystem to find the best possible solutions. DeFi is the rapid innovation playground we needed to finally upgrade the finance sector with technologies that will empower everyone to participate in the global economy.”


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