Bridges to be developed between traditional digital assets
The next few years should bring increased tokenization and the building of bridges between traditional and digital assets.
Martin Weithofer, Digital Securities – EMEA Sales at SIX Digital Exchange, said: “Building bridges between digital and traditional assets will be an exciting development over the next two, three to four years.
Weithofer spoke at a panel organized by FIX Trading Community on the evolution of platforms and technology on July 13.
He added that another trend would be tokenized cash, which has many use cases, such as collateral for crypto derivatives.
SDX, which was built with blockchain technology, was launched in November last year with the issuance of the world’s first digital bond in a fully regulated environment.
Alisa DiCaprio, chief economist at R3, which builds blockchain for regulated financial institutions on its Corda platform, said during the panel that she expects to see an expansion of the type of digital assets in the market.
“It’s unclear which tokens will succeed, but they will continue to grow,” she added. “Interoperability will also evolve much faster.”
Basu Choudhury, head of partnerships and strategic initiatives at OSTTRA FX & Securities, a network operator in the wholesale derivatives market, told the panel that his pipe dream is to see a peer-to-peer market in repo. and securities lending built on DLT – but that’s five to ten years away.
“It’s the Holy Grail,” added Choudhury. “That’s the power of DLT and what it could bring to financial markets.”
Choudhury doesn’t expect intermediaries to disappear, but said financial market intermediaries are changing.
“You don’t need a single vendor because the participants in the digital asset network validate and confirm this single source of truth,” he added. “There will be a leaner IMF than what you have traditionally seen.”
SDX is the world’s first fully regulated digital asset exchange and central securities depository and Weithofer said the site aims to offer an integrated trading, settlement and custody infrastructure based on distributed ledger technology. He said the mitigation of settlement risk is one of the obvious efficiencies, as SDX uses atomic swaps where settlement only occurs if trades are pre-funded, so securities and payments are exchanged instantly.
“Having digital stocks and bonds on DLT creates the opportunity to create smart securities with data, such as ESG or corporate actions,” he added.
Choudhury said that in traditional markets, institutions are using credit intermediation and there is some interesting work being done in digital assets to develop this functionality.
Weithofer continued that there are many experiments and innovations in digital assets that are likely to find their way into the traditional space.
“At the moment there are different islands and we could build bridges between them,” he added. “Maybe in a few years we will see native digital products and non-digital products combined on one platform.”
Choudhury continued that FIX messaging is important in traditional securities and therefore can provide standardization and a bridge between old and new asset classes.
Laurence Jones, Co-Chair of the Global Post-Trade Task Force and Regional Director Americas at FIX Trading Community, moderated the panel and said that FIX already has many crypto providers using FIX messaging, especially for execution.
“When the post-trade process is fully defined, there will need to be some level of FIX messaging,” he added.
Jones continued that FIX needs to launch some standards for the digital asset space.