DLT’s growth path in 2023
What does the evolution of DLT and digital assets look like in 2023? Where are we doing better – and where are we focusing our efforts?
The end of pilots
In a further sign of DLT’s growing maturity, only 36% of projects in 2023 were pilots of proof-of-concepts (4% fewer than in 2022), against 39% of projects that are now being run as revenue-generating (either paid MVPs or larger-scale, multi-client deployments).
With only a third of projects now centred on experimentation, the age of discovery with digital securities is beginning to draw to a close, especially for FMIs (who have the lowest numbers of pilots in the industry in 2023).
With much of their experimentation behind them, many industry infrastructures are either moving on to scale out their DLT capabilities (e.g. in structured products, debt, private markets, etc.) or looking to build future DLT-connectivity into their existing projects.
Moving away from crypto? Not everywhere
In the context of live deployments, the last year has also seen a marked shift in the balance of our digital asset (and crypto-currency) projects – versus DLT. Across North America, Asia-Pacific and Europe, DLT is now considered to be more important to firms of all profiles than digital assets – as regulatory cooling in the US and diminished market sentiment take effect. Across much of the world the platform is more important than the product.
Yet that is not a global conclusion. Across Africa, the Middle East and Latin America, the integration of digital and crypto-assets into financial ecosystems continues at pace – well ahead of DLT workflow platforms. With significant investor liquidity now held in digital wallets across these regions, FMIs, service providers and regulators are keen to ensure that digital liquidity in these markets can connect to the traditional markets.
DLT – still learning about cash
If five asset classes are ready to scale (see above), we seem less ready on the funding leg. With over 27% of projects run in this space with the objective of learning and development, cash and payments are the most experimental areas today. Leading this learning and development are FMIs (47% of whose project loads are focused on this), significantly ahead of custodians and brokers (23% and 21% respectively). We appear to have made significant progress in creating and transferring securities but, as we do so, the intricate complexities of managing the cash leg (ranging from balance sheet treatment to counterparty risk, disclosure and connectivity) have become clearer.
DLT and Securities Finance – an excellent match
One area where the value of DLT is extremely clear is in securities finance – where 63% of firms believe that DLT can have a major impact on existing workflows. Given the wide range of highly complex and time-critical processes today (across securities lending, repos and collateral management), DLT’s value in supporting the automation of today’s manual processing is increasingly accepted – and visible.
With 14 of the world’s largest banks cooperating with up to ten DLT-based platform providers to generate over USD50 billion in daily turnover, this is one area where concrete signs of a digital ecosystem are starting to show.
“Distributed ledger technology is transforming global repo market infrastructure. We are empowering leading financial institutions with the ability to dramatically increase liquidity while lowering risk and operating costs.”
(Horacio Barakat, Head of Digital Innovation at Broadridge)
…but still slow to reach the portfolio
By contrast, DLT’s impacts still seem to be struggling to reach the portfolio. With bonds and equities amongst the least performing assets in 2023 (23% of projects in these assets returned below-expected returns and 5% significantly below expectations), it is no surprise that 33% of investors are disappointed by their DLT projects.
Whilst we are making great progress in defining and realising the operational savings agenda for banks, DLT’s benefits appear to resonate less with portfolio managers and investors – who are most focused on bid-offer spreads and liquidity.
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