In Capital Markets, DLT Is Moving from Experimentation to Commercialization

GENEVA— According to a new report by the World Economic Forum in partnership with Boston Consulting Group (BCG), titled Digital Assets, Distributed Ledger Technology, and the Future of Capital Markets, financial institutions and technology providers are launching Distributed Ledger Technology (DLT)-based projects after years of experimentation.

The report—developed from eight global workshops and more than 100 interviews with executives from leading financial institutions, fintechs, regulators, and adjacent industries—illustrates that products enabled by DLT (i.e., immutable distributed databases like blockchain that ensure data is consistent, accurate, and up to date across participants), are becoming a reality across a range of asset classes and jurisdictions. However, total disintermediation and wholesale digital transformation remain far from being realized.

Market forces, supported by regulatory and technical developments, are pushing participants in capital markets to consider using DLT to enhance efficiencies, reduce operating costs, and create new business models. DLT is proving to be particularly well suited for:

• Optimizing balance sheet management through faster and more efficient capital and liquidity deployments
• Automating or eliminating manual processes such as data reconciliations
• Removing non-value-adding counterparty risk and complexity

“Following several years of intense hype, examples of use cases where inefficiencies and challenges are being solved with blockchain are starting to emerge across capital markets,” said Matthew Blake, Head of the Future of Financial Services, World Economic Forum. “With the future for blockchain in financial services still being defined, a nuanced look at the opportunities this technology offers right now is particularly important for the financial services industry.”

While institutions are deciding where to invest across a range of strategic choices, their competing incentives and divergent visions of the future may be inhibiting the ability of DLT solutions to reach scale. Transforming markets at scale will require new collaborative ways of thinking and working across the industry, as well as a thoughtful digital product and ecosystem strategy. The report also finds that other market-wide headwinds will continue to inhibit DLT adoption, including the need to restructure business processes, challenges related to legacy systems, and ongoing regulatory and legal clarification needs.

The report breaks down the market opportunities and technical enablers across six asset classes and adjacent product lines—Equity Markets, Debt Markets, Securitized Products, Derivatives, Securities Financing, and Asset Management. It also assesses the potential benefits and challenges inhibiting wider adoption. In each asset class, specific trends are emerging.

“Distributed Ledger Technology has come of age as it begins to enhance efficiencies, reduce operating costs, and create new business models in capital markets, but the use cases and solutions are respective to each asset class,” said Kaj Burchardi, Managing Director, BCG Platinion. “Whilst this makes sense from a commercial perspective, it has led to a complex patchwork of initiatives. For capital markets to unilaterally adopt DLT, they will require cross-institutional alignment to realize the game-changing market opportunities it can offer.”

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

A copy of the report may be downloaded here.