What steps should capital markets firms take to build their business cases for a world of native and tokenized assets as the technologies mature? A new report from Finadium assesses the Canton Network and Ethereum as options for securities settlement, along with strategies for preparing for implementation.
There have been notable improvements in securities settlement and post-trade processing in recent years including the North American adoption of T+1, European regulations to ensure settlement discipline, and regulatory reporting initiatives that can only be met with integrated data that in turn support efficient trades processing. Still, the current model involves a high level of manual effort and friction, especially when moving assets globally. The securities industry has been experimenting with distributed ledger technology (DLT) as a way to solve these problems.
This report evaluates the Canton Network, the DLT “network of networks” built using DLT developed by Digital Asset, and the Ethereum public blockchain ecosystem as mechanisms for securities settlement and post-trade processing.
Interoperability has been one of the key challenges preventing firms from scaling DLT. The Canton Network claims to offer a breakthrough in solving this problem, but the securities industry has seen DLT pilot projects for over a decade now. Ethereum, a public decentralized ecosystem, presents another option, although concerns remain about stability, security, privacy and regulatory treatment. Why could now be different for crossing through into adoption and daily use?
Meanwhile, traditional financial services firms are growing their businesses in crypto and tokenized assets. The sell-side is ramping up issuance of tokenized bonds and stablecoins. Large buy-side firms like BlackRock and Franklin Templeton have launched bitcoin and Ethereum ETFs and tokenized money market funds. While still a small part of the broader financial industry, DLT-based financial instruments that can be used by the general public is a realistic prospect.
The securities finance industry has seen slower than anticipated uptake of private permissioned DLT networks. While Canton and Ethereum show promise and may solve an important piece of the jigsaw, they are only one part of the wider puzzle.
Based on conversations with market participants, this report provides an independent evaluation of the Canton Network and Ethereum for securities settlement and post-trade processing and offers practical guidance on how financial firms should prepare for adoption. It should be read by any market participant in securities processing and post-trade across any product that could be impacted by DLT.
A direct link to the report for Finadium research clients is here
For non-subscribers, more information is available here.