Inside our DLT projects
How are we designing our DLT platforms in 2023? What are the key characteristics and features that we need to have in mind?
A clear DLT journey: 67% of DLT effort is now concentrating on 8 asset classes
If we are reaching the point of scale and consistent returns in five asset classes today, few firms have begun their DLT development journeys there.
More likely they have begun with bonds (or perhaps cash), which continue to see the highest volume of DLT project activity of any asset class. Ideally suited to DLT, they are traded OTC, low-turnover and high volume, highly manual; and they can be experimented with by involving only a small number of partners. As many issuing banks have underlined, if you are going to start your DLT journey anywhere, you should start with bonds – and then move on from there (which is presumably why vanilla- and green-bond projects are being run as much for learning and development as for cost savings in 2023).
Beyond that starting point, two-thirds of the industry then focus on only seven other asset classes – as the clear centre of gravity for DLT development. Having understood the core principles of DLT through their bond experiments, numerous firms (especially custodians) are today applying their knowledge to more complex requirements in mutual funds or securities finance - as natural extensions of their capabilities.
We’re starting to see scale: 26% of projects are now real ecosystems
Whilst the majority of our DLT projects are still limited in scale, we are seeing ecosystems form that are capable of delivering multilateral benefits at scale. With over a quarter of our projects now involving more than 6 organisations (and more than 4 paying clients), digital liquidity pools are starting to form – especially in the 13% of projects that include more than 20 participants.
Leading regulatory, FMI and collaborative initiatives in Asia appear to be driving the majority of this large-scale connectivity – collecting turnover in crypto-currencies and bond issuances as a first step in the journey towards fully digitised trade cycles.
45% want to leverage public blockchains – but not straight away
The institutional world of DLT is still being built primarily on private blockchains. With private blockchains still prevailing in 56% of all projects (and across 12 out of 18 asset classes), the security benefits of closed networks remain highly compelling for today’s IT leaders and project owners.
Yet this changing. In 2022, we were just seeing the beginnings of hybrid models (where blockchains could be public but privacy managed at the application level) and in 2023 these models now make up 31% of project activity.
Across 14 asset classes, the emergence of choice is driving a clear trend towards using more public networks in 2023. Transcending previous ‘institutional vs retail’ distinctions, the availability of privacy and public connectivity now appeals to project and product managers across the industry. The only challenge is how fast regulators, risk and compliance teams can facilitate and support that shift.
“The shift towards public blockchain networks is an exact mirror of what we’ve seen in cloud adoption over the last ten years. Conceptually it’s a no-brainer – but it takes a long time to get everyone on board with the practical details.”
Digital cash: 49% expect live CBDCs by 2026
Since our research began in 2020, Central Bank Digital Currencies (CBDCs) have consistently been seen as by far the most viable means of enabling funding transfers on a blockchain. Various modes of stablecoin have been overlooked, as the majority of firms have opted to wait for central banks to provide the next major leap in DLT’s development path.
In 2023, there appears to be a belief that we don’t have long to wait. The growing scope and sophistication of central bank experimentation across every major currency (including USD, EUR, GBP, CHF, HKD, SGD and CAD) is giving rise to significant expectations of operational delivery within the next three years. Today, half the market expects CBDCs to be operational by 2026, with 65% of firms expecting the European Central Bank by live by then and 61% expecting the Federal Reserve to be in the same position.
And what alternatives do we have? Only in USD and GBP do our respondents see tokenised payment systems to be as or more likely to be used than CBDCs in the near future (with 38% and 45% expecting to use these systems, respectively) – all significantly ahead of the most viable stablecoins (where an average of 17% of firms see these as viable). As 2026 slowly comes into view in our investment planning horizons, we look ready to bet on Central Banks and their digital innovation.
Benchmark your own DLT plans here
How do your own DLT project plans and roadmaps compare with those of your peers? Make sure you use this unique opportunity to benchmark your work with over 350 other specialists today.
Thanks to the extensive reach of our industry-survey, we can provide you with detailed, personalised analytics in your own benchmarking scorecard - as soon as you have completed the online survey. Click below to begin and we will send you your scorecard straight away.