Specialist ISSA insights
What has changed in DLT since we spoke this time last year?
"Things have changed and yet they have not changed that much.
What we see clearly is that there are still quite an amazing amount of resources going into DLT. We see companies going live with DLT.
Yet the development to really move DLT at scale into production is still ongoing - and has not moved the dial much yet.
Yes, we see an uptake, but we see an uptake from very, very low volume - meaning that there is still quite a bit of a way to go for the industry."
We've effectively proven as an industry there is some value to extract, and therefore that will keep the investment cycle rolling.
I think there are always leaders and laggards, but I think the majority of the industry is moving from hype to delivery.
We're now seeing the hype being more about "Another X people have joined a certain network" and we're seeing that happen more and more.
How are the benefits of DLT materialising today?
One of the pieces of work we're doing at ISSA is about ISO 20022 and APIs and how you use them more efficiently - and we have come to the same conclusions as the DLT team.
This is easier where you haven't got a solution that exists at the moment and where the processes are heavily manual.
I think the ability to leapfrog a generation and give people access to real-time data, which is totally reconciled with their counterparts and custodian and anybody else on the various nodes, that's the game changer.
The benefits are different for different entities and they're not consistent across all asset classes either
Are you trying to replace your existing infrastructure? Or are you trying to do something new?
I think those who've been most successful have either done new products or new markets - where they've found a real game-changer
Should we be concerned by the range of different DLT journeys going on?
The survey shows that there is a range of different focuses from an asset class point of view - meaning that people's entry point is different.
But the underlying capabilities that you develop for those different asset classes are quite transposable and re-utilizable.
There are some inherent, underlying capabilities that you develop by doing one asset class or one use case that are reusable in others.
I think it's driven by self-interest - this is a race to who gets a viable answer and once you've got a viable answer, changing the asset class, underpinning it, that's probably not as hard.
For FMIs now specifically, the challenge is how do you merge this new business with your core?
You want to profit from the developments you made for unregulated assets by applying them to regulated assets. But this is a continuous challenge, how do you set yourself up so you do not run into regulatory problems?
What about connecting DLT to the old rails and to legacy infrastructures?
It's less of a constraint. I would say it's more of a necessity, especially if you're dealing with regulated assets.
Integrating new products or solutions into your legacy is something people have been doing for decades. I'm young enough to remember equity derivatives starting, when the big question was how are we going to get these assets into our legacy systems?
And people did it. We smashed them in various ways but you managed to solve for the problem.
It probably was fairly clunky as it started, but over the 2, 3, 4 years as the products took off, then those interfaces became slicker, more standardized.
This is something that the engineers and the data scientists within banks have been doing for years.
What about the cash leg?
Using old rails for the cash leg sounds risk management - when it comes to how you integrate DLT with your legacy.
The legacy is the RTGSs and those payment systems - and so taking away that complexity and allowing it to focus on the asset side is decent project management actually.
It's either central bank money or at the worst, it is a stablecoin backed by the fiat collateral held at the central bank.
And apart from that, nobody is really that interested.
CBDC will be great to have, but can we do it without it? Yes, we can
We now have a fully regulated, DLT-based payment system up and running in the UK. It's not a stablecoin kind of environment and it's backed by central bank money. I think that's a fantastic achievement for the industry.
What is important in all of this is really the lead from the central banks, taking the leadership to push for solutions (whether it is CBDC, Fnality-like solution or any other that is regulated and controlled by them)
That public-private partnership to make the solution really successful and get the entire benefits I think is extremely important
Getting ready for Defi
From what we've seen in the survey, people are investing in Defi. They're not investing huge amounts, but they're investing enough to make me think, "Oh, maybe I should actually get my head around what is going on."
Not enough thought has been put structurally in trying to understand how DeFi might be used - and whether the concepts of DeFi might be used within the regulated markets or not.
The real principles of DeFi and how you are going to use it, have not fully been absorbed yet by the industry.
