A joint report recently published by Nasdaq and market research firm The ValueExchange observes a “fundamental shift” in tokenised collateral and blockchain-based collateral management. Titled “Making the case for tokenised collateral”, the paper finds that 52% of the firms surveyed have plans to manage live tokenised collateral by the end of 2026.
The study gathered opinions from 203 market participants across the globe, covering investment banks, custodians, prime brokers, asset managers and CCPs.
70% of respondents report that settlement matching and delivery issues are currently daily occurrences. Industry workarounds are thus common, with 35% of respondents revealing that they post more than half their collateral overnight to ensure timely delivery. On average, firms maintain about 7% excess collateral as a buffer against possible failures.
Missed opportunities
Due to these safeguards, about 25% of collateral is not renumerated. Tier 1 firms, defined as those with more than US$100 billion in assets under management (AUM) hold about US$36.8 billion in non-renumerated collateral. According to the study, tokenisation will be able to mobilise US$4.8 billion of the non-renumerated collateral, leading to an increase in annual interest earnings of US$346 million.
Other benefits of tokenised collateral management include:
• 12% reduction in operating costs due to fewer exceptions and manual interventions
• 11.6% reduction in collateral buffering requirements
• 8.1% reduction in risk weighted asset (RWA) costs
• 7.8% reduction in overnight funding costs
• 3.2% improvement in overall collateral optimisation efficiency
Delayed gratification
The benefits of tokenised collateral management will not be felt immediately, because tokenisation is not an overnight transformation, states Daniel Upbin, vice president of ETD Clearing Strategy & Solutions at Nasdaq.
In a commentary about the study, Upbin notes that the key constraints to institutional adoption include the complexities of managing dual infrastructures, where both traditional and tokenised assets must be handled in parallel; capital and risk issues due to the lack of legal clarity and consistent risk models; fragmented liquidity; and the expectations of 24/7 operations.
Taking ownership
Referring to the report’s conclusion that tokenised collateral can only scale if tokens represent the underlying security, Gerard Smith, vice president and head of Post Trade Product Strategy writes that “a CSD-issued asset with full legal equivalence is existential to tokenisation”.
With that in mind, he believes that there are three main priorities for CSD: to establish digital issuance frameworks that preserve finality, build cross-chain connectivity without fragmenting asset identity, and to manage dual worlds – both traditional and digital – with operational frameworks that can service both under a unified set of rules.
