With a market capitalisation of $200 billion, crypto assets – tokens and crypto currencies issued on distributed ledgers – are on a trajectory to establish a new asset class. Momentum in building beyond Initial Coin Offerings (ICOs), with a variety of tokens, i.a. providing an alternative to start-ups and small and medium-sized enterprises financing. Intricate eco-systems are emerging as crypto assets continue to expand.
As crypto markets grow, ensuring investor rights protection, safety and robustness, as well as overall efficiency is increasingly presenting its challenges. To enable further growth, crypto markets are increasingly looking for financial market infrastructure (FMI) like roles and pieces of infrastructure to create the safe and efficient environment that issuers, investors and financial institutions look for.
Given our proximity to the safe and efficient functioning of today’s capital markets, the CSD Working Group on DLT (including over 15 CSDs, SWIFT and other organizations), working under the auspices of the International Securities Service Association (ISSA), developed a thought paper on the matter of infrastructure in the crypto and distributed ledger environment.
We believe FMIs hold a unique position to consider supporting crypto markets, offering investor protection, preventing market fragmentation, and making it possible for financial institutions to connect and service the crypto world. Accordingly, some of future’s FMI- roles and infrastructure will fall within our natural remit of bringing safety and efficiency.
The Distributed Ledger Technology (DLT) environment in which crypto assets are typically issued, has the potential to service crypto and traditional financial instruments in a different and more efficient way. We have a particular position to accompany financial institutions in this transition, leveraging our experience in business and technical standards, as well as in communication. As such, we can enable interoperability and avoid market fragmentation to the benefit of capital market functioning.
Involving FMIs in a variety of governance and operational roles can contribute to increasing trust of investors, raising quality of the ecosystem infrastructure which underpins the new asset class. By that means, FMIs will help crypto-asset markets to grow more quickly.
The report has been released on 12th October and is available for download on ISSA’s website.
Stephen Lindsay, Head of Standards at SWIFT: “Whenever financial transaction data is shared it’s important that all participants in the business process understand it in the same way. As industry value chains get longer, with ever more actors and technologies involved, the industry needs common technology-independent business data standards to ensure this shared understanding and to maintain data integrity. The emergence of new and varied crypto-assets only reinforces the need for clear, unambiguous and agreed definitions. SWIFT, which has deep experience in the standardization of business data through ISO 20022 and other standards, is delighted to collaborate with the CSDs WG on DLT to explore and define the standards required for the industry to manage crypto-assets safely.”
Eddie Astanin, Chairman of the Executive Board, National Settlement Depository, said: “NSD was one of the initiators of the CSD working group. Digitalization is quickly and dynamically changing the financial market landscape. Therefore, we see new opportunities and perspectives in servicing digital assets in our clients’ interests, and these activities go in line with our mission – to be providers of high tech infrastructure solutions. NSD’s plans for developing digital technologies fit harmoniously into the national program of digitalization of the Russian economy. We are sure that joint efforts and studies of the working group of CSDs which are uniquely placed in local and global financial markets will result in the synergistic effect for investors who are already conducting transactions with digital assets or those planning to enter this new and inspiring market.”
Boris Tomaž Šnuderl, President and CEO said: "We are proud to be members of the ISSA CSD Distributed Ledger Technology Working Group that prepared this study. KDD, as a smaller and agile European Central Securities Depository, has been given the opportunity to co-create technological development in the global financial industry with new innovative solutions. The implementation of DLT/Blockchain technologies and the opportunity to support the vibrant market of crypto assets by the KDD as an established market infrastructure, promotes further development of the Slovenian financial market and ensures its integration into a modern and increasingly digital international financial market."
Chief Executive of ADX, Rashed Al Blooshi said: “We are delighted to be a member of ISSA CSD Distributed Ledger Technology Working Group and contribute to the creation of the Crypto-asset Infrastructure study. The crypto-asset market is advancing at an astonishing pace in the region and we are proud not only to be contributing, but also to be positioned at the leading edge of this regional transformation. At ADX, we embrace new and innovative business and technology and are always looking to capitalize on new advancements in the Fintech, and in this case crypto assets, to benefit both our investors and stakeholders alike. Our approach comes in line with Abu Dhabi Government plans that seeks to strengthen the digital transformation in the Emirate and represents one of our goals to develop a financial market that is safe, transparent, efficient, and is driven by adhering to international best practices.”