Sunday, June 23, 2024

DTCC, Clearstream, and Euroclear Develop Framework to Advance Adoption of Digital Assets

Today, three of the world’s largest financial market infrastructures (FMIs) – DTCC, Clearstream, and Euroclear – in collaboration with Boston Consulting Group (BCG), unveiled a blueprint for establishing an industry-wide digital asset ecosystem to drive acceptance of tokenized assets.

By 2030, the tokenization of global illiquid assets is projected to be a $16 trillion business opportunity. However, progress on institutional adoption has reached an inflection point as firms continue innovating in silos, with small-scale initiatives that fail to progress or prioritize broad ecosystem development. The paper, “Building the Digital Asset Ecosystem,” looks to shift the industry’s focus by defining six principles to promote the successful adoption of tokenization and digital asset securities (excluding cryptocurrencies). It also details a comprehensive set of risk management controls to underpin the future of digital markets.

The six principles are intended to serve as a roadmap for the industry to come together and develop comprehensive standards for the digital asset marketplace. They include:

  • Legal Certainty – ensuring operations comply with law,
  • Regulatory Compliance – encouraging alignment with regulatory frameworks,
  • Resilience and Security – developing robust infrastructure capable of resisting disruptions while protecting sensitive data,
  • Safeguarding Customer Assets – implementing governance via smart contracts to manage assets securely,
  • Connectivity and Interoperability – facilitating transactions and flexible settlements across diverse networks,
  • Operational Scalability – striving for efficiency and cost-effectiveness through standardization.

“While many firms recognize that blockchain holds enormous promise to deliver cost savings, capital efficiencies and reduced risk, the industry needs to pivot and demonstrate tangible results and value generation,” said Nadine Chakar, Managing Director, Global Head of DTCC Digital Assets. “We have a unique opportunity to transform the financial system, but it will require collaboration across a wide cross section of firms to build the infrastructure, standards, controls and governance to underpin digital markets. We are proud to lead this conversation and will use this paper as a springboard to build consensus and drive efforts forward.”

“New technologies bear immense potential to bring financial markets to the next level of efficiency, speed and safety,” said Jens Hachmeister, Managing Director, Head of Issuer Services & New Digital Markets at Clearstream. “To make this evolution a sustainable one, we need industry-wide collaboration and unified standards to overcome current challenges and drive the seamless integration of digital assets in the global financial ecosystem. As financial market infrastructures, we are developing the foundation for future digital markets for the benefit of our clients and all market participants.”

“Through a true collaborative effort, we have developed a plan to demonstrate the potential of digital assets,” said Philippe Laurensy, Managing Director and Head of Product, Strategy & Innovation, Euroclear. “Our objective is to create innovative solutions that will address the evolving needs of our customers and drive industry advancements which includes clients having the flexibility to create space on their balance sheets through tokenisation, therefore leading to new business opportunities. This collaboration is a testament to our commitment to innovation, and we look forward to the exciting opportunities that lie ahead and the positive impacts to be made for our clients and the global market.”

The partnership between DTCC, Clearstream, and Euroclear draws on decades of shared experience providing infrastructure for global capital markets, as well as a vast network of client relationships, and a strong track record of supporting market evolution. The latest paper builds upon efforts by the FMIs last year to galvanize market participants globally on establishing a digital asset ecosystem, with the issuance of a whitepaper titled “Advancing the Digital Asset Era, Together.”

In addition to the six core principles, the latest paper also presents a list of controls to help firms mitigate risks such as asset mismanagement or insufficient controls to govern smart contracts. Recommended controls include defining who can access smart contracts, and maintaining a comprehensive record of digital asset events/transactions.

The FMIs collaborated with BCG, which conducted an analysis including reviews of approximately 100 regulations and whitepapers across multiple jurisdictions, and over 20 interviews with key market participants and technology vendors.

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