Key Advantages of Blockchain in Capital Markets

Key Advantages of Blockchain in Capital Markets

By Capital Markets CIO Outlook | Thursday, November 12, 2020

A cryptocurrency ‘token’ that performs as a proxy to the transaction would almost instantly be transferred to the beneficiary wallet, confirming the ledger update as well as constituting settlement.

Fremont, CA: Blockchain, or Distributed Ledger Technology (DLT) has recently gained popularity. The use of blockchain/DLT technology differs across sectors, but there is one thing in common – the prospect of an immutable, decentralized, secure, and consistent way of organizing as well as sharing data. However, blockchain does not update passive data entries across digital records that require to reconcile the same changes. It also supports refined ‘smart contracts.’

In short, blockchain enables a group of independent entities to share common data sources that are securely and automatically reconciled between participants. In a more complex system such as capital markets, where transactions require buyer, seller, broker, clearance, settlement, and additional parties like regulators and liquidity providers, the potential efficiencies the technology presents are evident.

Key benefits of blockchain/DLT in capital markets:

Faster Settlement Times: In modern digital trading architecture, that assets are traded instantly. But these transactions can take a longer time to clear and settle. A blockchain settlement solution reduces the time required for that. A cryptocurrency ‘token’ that performs as a proxy to the transaction would almost instantly be transferred to the beneficiary wallet, confirming the ledger update as well as constituting settlement.

Streamlined Processes: The same would be applicable across various institutions and other entities that perform different functions of a single process that involve one data set that needs to be reconciled across databases. This will also help fulfill regulatory requirements with the united data model also ideal for reporting. Auditors and regulators could even be given direct blockchain access.

Operational Improvements: Instruments’ standardization and data formats that blockchain trading needs would make many of the current middle and back-office processes in capital markets unnecessary.

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