1. Digital assets in 2022:
the headlines
With so much happening in the world of DLT and digital assets this year, what are the core points that everyone needs to bear in mind?
Our research highlights three key themes.
Live DLT usage has grown by 400% since 2021
2022 is unmistakeably the year that we’ve “gone live” with DLT. In 2021, we reported that 8% of respondents were using DLT in a live, production environment. This year, that number has risen to 32%.
Whilst it may be unlikely that one-third of the capital markets is live in production today with DLT, the key indicator here is the massive upsurge in interest. Given a consistent survey respondent base year-on-year, the fact that four-times as many firms are now ‘live in production’ with DLT is a powerful statement. Given the large volumes of scoping and building in 2020/21, we are now beginning to see returns on our investments.
With as many people in ‘building’ phase as there are live (32% each), there is little doubt that this current momentum will continue well into 2023.
And where are these live deployments?
Predominantly in Asia-Pacific and Europe, where 34% and 32% of respondents are live in production respectively. Whilst high-profile cases of DLT build-outs in Australia (with ASX), Germany (with Deutsche Boerse’s D7) and Switzerland (with SDX) have captured many headlines over the last year, digital innovation is continuing at pace at a more micro-level in Singapore, Hong Kong, the United Kingdom and Germany – where providers continue to take their first steps in transforming whole ecosystems (in bonds and collateral, funds and derivatives) in their respective markets.
That only 13% of those in North America are live with DLT is likely an accident of timing – given that a further 44% of North American respondents (mostly Financial Market Infrastructures, or FMIs) are in ‘building’ phase still – meaning that any regional gap is likely to be closed in the very near future.
Today's digital assets are not tomorrow's
Today
Today’s DLT momentum is clearly behind two core asset classes: crypto currencies and (corporate) bonds.
With twice as many live deployments or pilots in these asset classes as any other, the weight of our investments leading into 2022 has centred on adding crypto-currency capabilities to our current product stacks; and to using bonds as a centrepiece for experimentation and early market efficiencies.
But that is set to change quickly.
Tomorrow
Looking ahead, there is far more in the works than just crypto and bonds.
Securitised assets and (Listed) Equities look set to lead a much more diversified production agenda in the coming months, with Private Equity, Green Bonds and Private debt all also coming to the fore in large numbers.
As our understanding and experience of DLT matures, we are moving away from the generic concept of "digital assets" towards more targeted and specific applications of the technology in different classes.
When today’s planned projects have all gone live, we should expect to see DLT being used in large volumes across all seven of the asset classes mentioned above – taking our understanding of the technology’s benefits to a significantly more granular, asset class level.
DLT in 2022: the end of the beginning?
“But how and where can I see DLT happening?” Despite the large volumes of development projects coming into production, there are still many market participants who are removed from the milestones that are being surpassed daily (in terms of digital asset volumes and trading), especially on the buy-side.
Yes, custodians are heavily into building out crypto custody; FMIs are evidencing the benefits of tokenising bonds; and brokers are reducing issuance complexity in structured finance. But are their clients (either institutional or wealth) really seeing the benefits yet? Our survey indicates that they aren’t – especially on the buy-side. Whilst intermediaries (including custodians, brokers and FMIs) see the role of DLT in their firms today as being highly important (scoring 6 out of 10 on average); investors are only half as enthusiastic (rating DLT’s importance at 3.8 out of 10 on average).
This gap difference highlights the important juncture that we are at today with digital assets. We have invested heavily and are building out platforms that look set to transform numerous asset class ecosystems. But we have not yet reached a point where those platforms are delivering benefits at a market-wide scale.
“Getting blockchain / DLT projects to production at scale is where the value is realized. Partners that can help meet enterprise-grade requirements and accelerate blockchain rollout will be critical to success. VMware is a proven technology partner with an enterprise blockchain platform for ecosystem networks, multi-party applications and digital assets.”
(Josh Lory, VMWare)
