DLT could propel financial markets towards $100b annual savings

A recent Global Financial Markets Association (GFMA) report suggests that traditional markets could save more than $100 billion per year by implementing distributed ledger technology (DLT).

The report, published on May 16, urges regulators and financial institutions to consider the advantages of this technology seriously.

DLT, an umbrella term encompassing systems that record transactions and digital information, includes blockchain as a specific type of distributed ledger.

“Distributed ledger technology holds promise for driving growth and innovation. This potential should not be ignored or prohibited where regulatory oversight and resiliency measures already exist.”

Adam Farkas, CEO at GFMA

The report highlights potential savings of $100 billion by leveraging distributed ledgers to streamline collateral processes in derivatives and lending markets. Furthermore, using smart contracts to automate clearing and settlement processes could reduce overheads by $20 billion annually. 

The most significant impact of DLT adoption is predicted to be on clearing and settlement systems, closely followed by custody and asset servicing. While primary markets and secondary trading might experience a more modest transformation, introducing tokenization in these markets could bolster risk mitigation and enhance liquidity to new heights.

DLT adoption gains traction among TradFi players

The study reflects a growing wave of enthusiasm among traditional finance players eager to integrate DLT into their operational frameworks.

Notably, Euroclear, a distinguished Brussels-based firm specializing in clearing and settlement, is on the verge of launching an avant-garde DLT bond trading platform.

Furthermore, the European Central Bank is actively exploring ways to bolster the interaction between its financial settlement systems and decentralized technology.

Nevertheless, incorporating DLT into existing financial systems poses its fair share of challenges and room for refinement.

In a notable setback last November, the Australian Securities Exchange had to abandon its plans to modernize its 25-year-old clearing and settlement system with DLT, resulting in a significant financial setback of $170 million.

The GFMA report arrives on the heels of a prophecy by Citi investment bank, which estimates that the global market for blockchain-based tokenized assets could soar to an astounding $5 trillion by 2030.