How DTCC Is Leveraging Blockchain for Capital Market Efficiency | The Future Is On Spotlight Series

Summary

Nadine Shakar and Dan Dony from DTCC Digital Assets discuss the transformative potential of blockchain in unifying global financial markets. They emphasize the importance of compliance, safety, and soundness in digital infrastructure. The script highlights three key impacts: enhancing private markets, enabling product structuring through tokenization, and automating collateral management. The vision is a future where digital rails create accessible, efficient, and democratized financial markets.

Takeaways

• 🌐 Blockchain technology has the potential to unify various financial markets, making them more accessible and efficient.
• 🚀 The DTCC (Depository Trust & Clearing Corporation) is playing a significant role in the digital transformation of financial markets, aiming to create a unified market infrastructure for digital assets.
• 🛠️ A multifaceted approach is being taken to tokenize the entire life cycle of assets, prioritize compliance, and ensure the safety and soundness of markets.
• 🏦 The impact of blockchain is broad, with private markets, product structuring, and collateral management being key areas where significant changes are anticipated.
• 📈 Private markets can become more efficient and liquid through blockchain, allowing better management of asset life cycles and blending with public markets.
• 💼 Product structuring with blockchain enables the creation of new financial instruments and strategies, such as direct indexing and asset-backed tokens.
• 💎 Automation of collateral management can lead to instant settlement of transactions, releasing value locked in balance sheets and improving bank efficiency.
• 📊 The growth of digital financial markets is expected to be substantial, with estimates of $15 trillion in assets on blockchain rails by 2030.
• 🔐 Interoperability between legacy systems and new blockchain rails is critical for the adoption of digital assets and the continuation of innovation in ledger technologies.
• 🌟 The future vision includes a democratized, efficient, and accessible financial market, with blockchain technology acting as a trusted party and benefiting all ecosystem participants.

Q & A

What are 'rails' in the context of the financial markets as discussed in the transcript?

'Rails' refer to the systems and infrastructures used for conducting transactions in different markets, such as cash, commodities, and securities. These rails are currently separated by jurisdictions globally, but blockchain offers the potential to unify them.

How does blockchain help in unifying financial markets?

Blockchain enables different transaction rails, such as cash, commodities, and securities, to come together on a unified platform. This makes the markets more accessible and efficient, removing traditional barriers imposed by jurisdictional separations.

Who are the key speakers in the video, and what roles do they play?

The key speakers are Nadine Shakar, the Global Head of DTCC Digital Assets, and Dan Doney, the Managing Director of DTCC Digital Assets and former founder of Securency. They both discuss DTCC's role in digital assets and blockchain technology in financial markets.

What is DTCC’s approach to integrating blockchain in the financial system?

DTCC is taking a multifaceted approach by developing digital products that handle the entire life cycle of tokenization, moving from proof of concepts to production, and working with fintech providers to build a resilient and interoperable infrastructure for digital assets, similar to how traditional assets are handled.

What challenges are currently faced by private markets, according to Dan Doney?

Private markets are disjointed, with many transactions managed by spreadsheets or disconnected systems, making liquidity difficult. Blockchain could streamline the full life cycle of private market assets, opening opportunities for blending private and public markets.

What is the significance of 'product structuring' in blockchain, as explained by Dan Doney?

'Product structuring' refers to the ability to create financial instruments quickly using blockchain. This can be done by embedding a wallet into a token, allowing the token to own other assets or positions, which streamlines the creation of new financial products.

How can blockchain improve collateral management in financial markets?

Blockchain can automate collateral management processes, including repo, securities lending, and margin transactions. This automation can lead to instant settlement, freeing up value and improving efficiency for financial institutions.

What role does tokenization play in the future of financial markets?

Tokenization, supported by blockchain technology, allows the conversion of assets into digital tokens. This can enhance efficiency, accessibility, and liquidity in markets, and is projected to lead to $15 trillion worth of assets being on blockchain rails by 2030.

What barriers are currently preventing financial institutions from adopting blockchain technology?

Many financial institutions are hesitant to adopt blockchain because they have heavily invested in their legacy technology systems. There is also a lack of standardized data, and many institutions feel intimidated by the complexity of blockchain technology.

What is the importance of data standardization in blockchain markets?

Data standardization is crucial for blockchain-based assets to be meaningfully managed and analyzed. Currently, different tokens and assets lack uniformity in their data, making it difficult for institutions to manage portfolios and assess risk efficiently. DTCC is working to introduce mechanisms that standardize this data across markets.

Outlines

00:00

🌐 Unifying Global Financial Markets with Blockchain

Nadine Shakar, the global head of DTCC Digital Assets, and Dan Dony, the managing director of DTCC Digital Assets, discuss the transformative potential of blockchain technology in unifying cash, commodities, and securities transaction rails across global jurisdictions. They highlight the importance of DTCC's role in creating a unified market and the multifaceted approach to bring the industry together. This includes product development with a focus on tokenization, moving from proof-of-concept to production, and collaborating with fintech providers to build a resilient, scalable, and interoperable digital asset environment. They emphasize the need for compliance and safety in digital infrastructure, aiming to become the digital financial markets of the future.

05:00

📈 Impact of Blockchain on Financial Markets

The speakers highlight three significant impacts of blockchain on financial markets. First, private markets, which are often disjointed and managed inefficiently, can become more liquid and integrated with public markets through blockchain rails. Second, product structuring is revolutionized by the ability to embed wallets into tokens, allowing for the creation of new financial instruments and direct indexing strategies. Third, the automation of collateral management processes can lead to instant settlement of transactions, significantly improving the efficiency and performance of financial institutions. They also discuss the importance of regulatory certainty and the role of retail and institutional adoption in driving the blockchain movement forward.

10:03

🔄 Interoperability and the Future of Financial Markets

The conversation focuses on the importance of interoperability between legacy systems and new blockchain rails. The goal is to create an accessible and interoperable financial ecosystem that meets institutional requirements for accounting, risk management, and ease of use. The speakers discuss the challenges of scaling blockchain to handle global market demands, the threat of quantum computing, and the need for data standardization. They also emphasize the importance of education and providing safe environments for institutions to experiment with digital rails. The future vision includes a world with unified markets that are open, efficient, accessible, and democratized, where technology serves as a trusted party, and the end consumer benefits from reduced inefficiencies and increased access to high-value investments.

Keywords

💡Blockchain

Blockchain is a decentralized digital ledger that records transactions across multiple computers in a secure and verifiable way. In the context of the video, blockchain is portrayed as a transformative technology that can unify various financial markets, making them more accessible and efficient. The script mentions how blockchain can manage the life cycle of private market assets efficiently, indicating its potential to streamline financial processes.

💡Tokenization

Tokenization refers to the process of representing assets, such as commodities or securities, as digital tokens on a blockchain. The video highlights tokenization as a way to manage the entire life cycle of assets, emphasizing compliance and safety. It also suggests that tokenization can lead to the creation of new financial instruments and strategies, such as direct indexing, which can democratize access to sophisticated investments.

💡Interoperability

Interoperability is the ability of different systems or components to work together. In the script, it is mentioned as a critical enabler for bridging legacy systems with new blockchain rails. The goal is to create an environment where digital and traditional financial systems can coexist and interact seamlessly, which is essential for widespread adoption of digital financial markets.

💡Private Markets

Private markets refer to financial markets that are not publicly traded, often involving transactions managed by spreadsheets or disconnected systems. The video discusses how blockchain can revolutionize private markets by efficiently managing the full life cycle of assets, thereby improving liquidity and enabling transactions that were previously difficult or impossible.

💡Collateral Management

Collateral management involves the process of securing loans by using assets as guarantees. The script explains that automating collateral management processes can lead to instant settlement of transactions, releasing significant value locked in balance sheets and improving the efficiency and performance of financial institutions.

💡Regulatory Standards

Regulatory standards are the rules and guidelines set by regulatory bodies to ensure the safety, soundness, and integrity of financial markets. The video emphasizes the importance of meeting the highest regulatory standards when building digital financial market infrastructure, which is crucial for gaining trust and confidence from institutional investors.

💡Quantum Computing

Quantum computing refers to the use of quantum bits to perform complex calculations at speeds远超传统 computers. The script mentions that quantum computing is likely to pose a threat to current blockchain implementations by 2030, necessitating the development of post-quantum technologies to ensure the security and integrity of digital financial systems.

💡Data Standardization

Data standardization is the process of developing and implementing uniform data formats and structures. In the context of the video, data standardization is highlighted as a key challenge for blockchain markets. The lack of standardized data makes it difficult to find and understand tokens, which is essential for risk management and portfolio management. The video suggests introducing mechanisms for data standardization to allow for better understanding and management of blockchain-based assets.

💡Resilience

Resilience in the context of the video refers to the ability of digital financial infrastructure to withstand shocks and maintain functionality. It is mentioned as a key attribute for a tier one setup, which aims to create a digital environment that is robust, scalable, and interoperable, ensuring the safety and soundness of financial markets as they transition to digital rails.

💡Democratization

Democratization in the video refers to making financial markets and investments more accessible to a broader range of people. By using technologies like blockchain and tokenization, the video suggests that it is possible to lower the barriers to entry for private markets and sophisticated investments, thereby democratizing access to financial opportunities.

💡Compliance

Compliance refers to adherence to laws, regulations, and standards. The video emphasizes the importance of compliance as a first priority in the financial industry, especially when moving towards digital infrastructure. Compliance is integral to ensuring the safety and trustworthiness of digital financial systems, as highlighted by the speaker's emphasis on 'compliance first' in their approach to building digital assets.

Highlights

Blockchain enables the unification of cash, commodities, and securities markets, making them more accessible.

Nadine Shakar is the global head of DTCC Digital Assets, discussing the potential of blockchain in financial markets.

Dan Dony, Managing Director at DTCC Digital Assets, emphasizes the importance of compliance and safety in digital markets.

DTCC aims to create a unified digital infrastructure for the financial industry.

Tokenization is a key focus, with an emphasis on compliance and safety.

The goal is to move from individual proof-of-concepts to production-ready solutions.

Collaboration with fintech providers is crucial for building resilient digital asset infrastructure.

Private markets are expected to benefit significantly from blockchain technology.

Blockchain can streamline product structuring and create new financial instruments.

Automation of collateral management processes can lead to instant settlements and释放巨额价值.

Regulatory certainty is aiding institutional adoption of digital assets.

Retail investors are leading the way, with institutions following.

Blockchain use cases aim to increase efficiency in financial processes.

Interoperability between legacy systems and blockchain is a critical enabler for digital transformation.

The market anticipates $15 trillion worth of assets on blockchain by 2030.

Quantum computing is a potential threat to blockchain, necessitating post-quantum technologies.

Standardization of data on blockchain is essential for risk management and portfolio management.

Education is needed to overcome fear and intimidation of blockchain technology.

Interoperability is crucial for bridging legacy systems with new blockchain technologies.

Unified markets will lead to fairer and more open financial systems.

The technology aims to democratize access to high-value investments.

Blockchain technology can act as a trusted party without replacing existing market participants.

The end consumer is expected to be the winner as digital rails become more accessible and efficient.

Transcripts

we have separated cash rails and

commodities rails and securities

transaction rails we have markets that

are separated by jurisdictions globally

blockchain makes it possible for all of

these rails to come together and for us

to have unified markets which makes them

much more

[Music]

accessible my name is Nadine shakar I'm

the global head of dtcc digital assets

I'm Dan dony and I am the managing

director C

of dtcc digital assets and formerly the

founder of securency

[Music]

we think the potential is huge I mean

we've been at this game now for about 10

years there's been a lack of a unifying

organization a center of gravity if you

will to bring the industry all together

and that's where dtcc comes in to this

process so we are looking at a

multifaceted approach to try to bring

the industry together one by rolling up

the products that Dan and his team um

are building so that is really looking

at the entire life cycle um of

tokenization so it's really the entire

life cycle uh where Dan and the team

have done some amazing things and he

always talks about its compliance first

which is really important in our

industry and also as part of dtcc right

we look after the safety and soundness

of the markets and we intend to do that

as we move forward with digital

infrastructure the second component is

really creating environment ments where

we can finally move away from these

individual one-offs proof of Concepts

and start to move into production and

then the third component is working

again with the industry um and the

fintech uh providers out there to build

what's called a tier one uh setup which

is resilient but the whole idea is to

really do for digital assets what we do

for uh traditional assets and and have a

resilient scalable and interoperable um

environment so that is what we're

striving to do we want to be the digital

financial markets of the future uh and

that is the strategy that we're pushing

forward

[Music]

on the impact is Broad but I'm going to

highlight three specific cases that we

think are really the the next few years

will be dominated by these cases the the

first is private markets so private

markets in in general are very

disjointed many private Market

transactions occur really managed by

spreadsheets in most cases and some

cases by systems that are disconnected

and uh dissimilar this makes liquidity

in private markets very difficult and

transactions that might involve even

lending or borrowing against assets are

virtually impossible on blockchain Rails

that really changes everything where the

full life cycle of private Market asset

can really be managed efficiently and

that will open things and really blend

private markets with public markets the

second case I think is is important is

product structuring there's a technology

and a relatively new approach in

blockchain which is the ability to take

a token and embed into the token a

wallet so the concept of an asset which

can own other assets or positions well

that's what product structuring is

really all about is taking for example a

long position and hedging creating a new

Financial instrument those can be

created very quickly in this new model

it also includes direct indexing so you

can take and put put a wrapper around an

indexing strategy and allow folks either

individually or as small groups to

effectively create own funds their tax

advantages it's more efficient wrapper

as you take those strategies and you'll

see a lot of innovation in products

thanks to this this power of blockchain

the third and maybe the most

consequential here in the short run is

the use and automation of collateral and

collateral management

processes most transactions are actually

repo transactions Securities lending

transactions uh margin transactions

actually those dominate the market

volume on a daily basis and if you can

automate the entire collateral

management flow and then automate these

individual processes what you free up is

instant settlement of these transactions

for financial institutions and the

impact of that is a massive release of

value that's locked in their balance

sheets even

intraday and that can have a a major

impact on the bank's efficiency and

performance on the order of millions of

dollars a day there's a substantial

driver there and once you open those

markets to tokenization and automation

everything else

[Music]

follows so as one famous Bostonian once

said the institutions are coming the

institutions are coming right and we're

starting to see progress uh where more

certainty in the market is helping

institutional um adoption such as the

approvals of fit 21 other instruments

both eth and Bitcoin uh spot ETFs those

have been super helpful in uh in pushing

the movement forward it just shows you

there's pinned up demand it is it is

pushing through there's a couple of

things that are a little bit different

about this this is the first time in our

history where we've seen actually retail

lead and institutional follow but uh the

certainty that we're getting right now

from the Regulatory and the legal

framework is helpful and we'll continue

uh hopefully to see that progress also

the use cases that Dan uh talked about

they they have a commod denominator here

is um they bring more efficiency into

the the process right we we know how to

manage collateral we know how to do all

these things firm like dtcc or most

middle and back offices have done

historically is really the bridge

between the inefficiencies of the

markets the front and the back office

this technology blockchain accentuated

by tokenization um helps uh free up

these processes create more efficiencies

both on the cost as well as on the

revenue side and also create capital

efficiencies all those are primed for

any institutional provider whether

you're investor or a provider of

services they've got to be attractive uh

to look at now the secret though is you

can't do uh the same old thing with new

technology right this is also an

invitation and opportunity to reimagine

and revisit your operating models your

processes and if you do that we will

hopefully see adoption we will see

volume and then these efficiencies uh

will be as as as simple was that um as

they pop up in their uh

[Music]

environment the growth of these these

markets really underscores what I think

everyone is seeing that by 2030 they're

anticipating on the order of $15

trillion do worth of assets on

blockchain Rails and far more

transactions per day based on on that

assets under management under blockchain

well having a financial Market

infrastructure that can handle those

assets that is that meets the highest

regulatory standards of a CMU of a

systemically important Financial market

utility that's a challenge so things

like being able to handle the scale of

us or even Global markets blockchain and

its current form blockchain

implementations can't handle that scale

uh we know that in that time frame

Quantum Computing is likely to be a

threat and we'll need postquantum

technologies in that time frame another

big uh shortcoming of blockchain markets

as they stand today is a lack of data

standards so their standardized

interfaces erc20 being a great example

of something that's transformed the way

that a simple wallet that you can

download can interact with any token

that's issued but the problem is there's

no standardization of the data so if you

were to attempt to find a token let's

say you're interested in in South

American mining interests there are a

bunch of tokens out there you can't find

them you don't know what they mean what

they represent so if you have this on

your balance sheets and you're trying to

understand your portfolio and risks

there is no standardized data so we're

introducing a mechanism for data

standardization that allows you to take

isda standards and and other mechanisms

so that you can look at blockchainbased

assets you can look at wallets and

understand what they mean and and

perform traditional risk management and

portfolio Management Solutions this will

open up Financial Market markets to the

kinds of uh Financial modeling that

large institutions expect in addition to

everything that Dan said those are the

big problems that need to be solved they

are a more pressing immediate problem um

and the one that we find the most is

people don't know where to start there

is still an overwhelming I don't know if

it's fear or intimidation about the

technology despite the fact it's been

around for quite a bit of time so

there's a lot of work that needs to be

done around education you also have a

lot of financial institutions that have

sunk billions in their technology so

telling them to throw it all away for

new digital rails that's uh that's a

hard pill to swallow as well so a lot of

the work that Dan and the team have done

has been to create these infrastructures

that actually can bring the old and the

new together what we're doing at dtcc is

also providing safe environments where

they can go in and experiment and

understand how that impacts their

operating models their business models

and be able with high confidence go to

their management teams or their boards

and try to put the the case of why they

should be looking at digital we know

digital is not the cure to the common

cold not everything's going to be

tokenized but whatever can be tokenized

should be tokenized and we would like to

be part of that support infrastructure

to allow them to better understand what

it is understand the financials

understand the risks and hopefully uh

make educated decisions as they move

forward so there's the short term that

we're dealing with in a lot of the

medium to longer term challenges that

Dan and the team are trying to resolve

[Music]

Ting's point is a good one that uh

interoperability this ability to to

bridge between Legacy systems and the

new blockchain rails is is a critical

enabler it's it's you shouldn't have to

make a choice to go to the digital world

and then never come back or to stay

where you are and a big part of that is

again making these Technologies

accessible and interoperable so they

have to meet the accounting risk

management strategies of of Institutions

they have to be easy if I have to teach

my mother how to use a wallet in order

to invest it's just not going to happen

practically and easily so a lot of the

technologies that we're building outs

that are being built across the industry

are designed to simplify make it easy

for folks to enter and what you see in

terms of interoperability is there's a

proliferation of ledgers what we expect

is innovation will continue in Ledger

Technologies for indefinitely in order

to be able to meet the scale

requirements that that we just mentioned

you'll see that ledger Technologies

there will be many this is why chain

Link's role is so very important is we

expect that there'll be many ledgers and

and there's a need to move value between

the ledgers and especially the need to

move data between ledgers so ultimately

to get to True consensus and remember

dtcc is the consensus model for us

markets we just happen to do it in now

t+1 ultimately to do it in t plus 0 that

means we need to get to Common meaning

when when transactions settle we all

have to know that they mean the same

thing and if we're Target is is near

instantaneous settlement then data has

to agree across all of these ledgers and

this is why our partnership with chain

link is so very important because this

allows us to write data once and have it

proliferate across all of the networks

to move value freely between whatever

the the best Ledger technology is of the

day so that we can meet the high volume

requirements that are coming and we

continue to innovate as Ledger

Technologies grow I see markets being

becoming unified so we have public

separated public and private markets we

have separated debt and and equity

instruments we have separated cash rails

and commodities rails and securities

transaction rails we have markets that

are separated by jurisdictions

globally blockchain makes it possible

for all of these rails to come together

and for us to have unified markets which

makes them much more accessible as as

needen mentioned individuals don't get

easy access globally to investment

opportunities and so by bringing all of

these marketplaces together making

transactions extremely efficient we're

able to get to to markets that are more

fair and more open in the

[Music]

future I dream of a of a world that is

totally open efficient accessible

uh democratized uh and that's what I

love about this technology it offers

goodness across the board whether it's

on the cost side the capital efficiency

side on the revenue side but it also

makes a lot of these sophisticated high

value Investments uh accessible to a lot

of people right uh which is something we

don't have that luxury Dan originally

talked about private markets being uh a

good use case today the the minimums to

enter these markets is pretty high

they're highly uh

expensive to to manage and run so all

all these um Technologies allow us to

truly democratize access uh to the best

uh investment Minds that are out there

and hopefully achieve um Financial um

Equity uh going through that but it also

allows us to as a as an industry we've

we've been if you will the bridge uh in

trying to um eliminate inefficiencies in

the market I think the technology right

now uh will will help us achieve that

and lastly I think the technology

becomes the trusted party uh which also

doesn't mean that U and that's really

important it doesn't mean that anybody

disappears from the ecosystem I think

our roles change whether you're whatever

whatever role you play um and I do

believe there's there is room for

everybody there's rooms for the fintex

there are rooms uh for intermediaries as

well as the banking institutions it's

just I think our roles will change and

um and at the end of the day I think the

end consumer is the winner here so

everything that we aspire to make sure

that U it's accessible it's safe it's

scalable it's re reliable I think these

digital rails allow us to do that

especially if we can also integrate it

with whatever doesn't tokenize and

remains on uh Legacy organization being

able to give that client uh the client

an amazing experience at the end of it

that's where I think uh our markets will

be heading so they'll be safe they'll be

secure they'll be compliant scalable

resilient um and accessible to all

[Music]