A few weeks ago, along with my colleagues, I attended the WFEClear 2024 Conference in Madrid, which focused on clearing and derivatives. Many relevant topics were discussed in the well-attended event and, specifically, I noted the panel on “Practicalities of DLT and Clearing” explored advancements in distributed ledger technology and its potential intersection with central clearing. 

The following points were particularly noteworthy: 

There have now been a few global examples of using DLT for the clearing and settlement of bond products. And it’s kind of working. However, capacity and performance still remain a huge challenge, in that the process takes a multitude of seconds. In order to do anything meaningful on DLT, this needs to be reduced to a millisecond performance. 

Regarding the actual clearing, it was felt that the monetary transfer part of the solution won’t necessarily need to be a digitised currency, whether that be a CBDC or cryptocurrency. It might merely require the updating of current existing payment infrastructure – and SWIFT is indeed working on new messages that are DLT friendly. It will be really interesting to see what approach takes place in the future. 

The discussion also touched on how regulators are gradually becoming accustomed to the idea of bond clearing using DLT technology, although the rules are still lagging behind. Regulators seem to have taken one of two routes: if it looks like a bond, it is a bond; elsewise it is a digitised security. This discrepancy will clearly need to be unified going forward.  

My observation here is that the above performance issues could apply to any asset. Regardless, the potential in tokenised or digitised assets remains vast. The technical evolution is likely to lead to migration of the general financial asset infrastructure becoming DLT-based. As for the use of DLT in payments or currencies, the jury is still out – I remain sceptical about this sector’s shift to DLT. 

If you want to discuss these issues further, please do get in touch by emailing me at hello@exberry.io.