According to a new report from the Global Financial Markets Association (GFMA), using distributed ledger technology (DLT) in traditional markets could save up to $100 billion annually or more.
The traditional finance sector lobby group, along with international consulting firm Boston Consulting Group (BCG) and others, asked regulators and traditional financial institutions to take a more serious look at the technology’s benefits in a May 16 report.
A distributed ledger is a catch-all term for a system that keeps track of transactions and digital data. A blockchain is a subset of a distributed ledger. “Distributed ledger technology holds great promise for driving growth and innovation,” said GFMA CEO Adam Farkas. “This potential should not be ignored or prohibited in areas where regulatory oversight and resiliency measures already exist.”
According to the report, using distributed ledgers to streamline collateral processes in derivatives and lending markets could save an additional $100 billion. Furthermore, using smart contracts to automate and strengthen clearing and settlement processes could save $20 billion per year in overhead.
Overall, clearing and settlements stand to benefit the most from some level of DLT implementation, followed closely by custody and asset servicing. According to BCG analysis, primary and secondary trading are less likely to be significantly impacted by the technology; however, tokenization in these markets may result in better risk mitigation and deeper liquidity.
Internationally, DLT is becoming more widely used. Euroclear, a European securities clearing firm with over $40.9 trillion (37.6 trillion euros) in custodial assets, announced on March 23 that it would be looking to integrate DLT into its settlements process.
However, there is still much room for improvement when integrating DLT into pre-existing financial systems. The Australian Securities Exchange abandoned plans to update its 25-year-old clearing and settlements system with DLT in November last year, leaving a $170 million hole in its books.
The GMFA report comes just two months after Citi investment bank predicted a $5 trillion global market for blockchain-based tokenized assets by 2030.
