VIDEO | The promise of digital ledger technology (DLT) in transforming financial markets is closer to becoming a reality. Experts in trading and financial infrastructure during the session “The current practice, and promise, of DLT in trading” at PostTrade 360° Nordic 2024 believe that the adoption of DLT will significantly reduce market inefficiencies, drive liquidity, and enhance profitability—particularly in complex, illiquid asset classes like real estate.
Robert Barnes, co-CEO of BPX, sees tremendous potential in applying DLT to real estate, an asset class valued at over US$400 trillion. “Real estate is three times the size of the global equity market, yet it remains highly illiquid and difficult to access,” Barnes explained. BPX’s new platform aims to tokenise real estate assets, offering investors more flexibility. By enabling real estate tokens to be traded on a marketplace or used in collateralised lending, Barnes hopes to eliminate liquidity bottlenecks. “If investors need to redeem their units, instead of waiting months to sell a building, they can take a unit that just represents the temporary liquidity needs and put that into the repo market. This way they suddenly have removed all the selling pressure on the asset class,” he added.
Reducing friction
The ability to bring greater liquidity to illiquid assets like real estate is just one of the many ways DLT is poised to enhance market efficiency. Barnes emphasised the need for reducing friction across financial processes, a theme echoed throughout the session. “If we could optimise and reduce friction in post-trade, we could grow very quickly. This is what we achieved with the electronification of equity markets,” he said, drawing comparisons to his experience at UBS and the London Stock Exchange.
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Matthias Müller, chief commercial officer at BX Swiss, echoed Barnes’ optimism but pointed out the complexities of integrating DLT with traditional financial systems. He discussed the challenge of achieving delivery-versus-payment (DVP) on a public blockchain, ensuring that cash and assets can be settled without counterparty risk. “We solved this by creating a DVP smart contract on the public blockchain,” Müller explained, describing how BX Swiss worked with major Swiss banks to establish an RTGS link that seamlessly integrates with the national clearing system. This allows banks to continue using their existing cash management systems while benefiting from DLT.
Atomic settlement
The conversation also touched on the potential for atomic settlement—instant settlement of trades—especially in light of incidents like the GameStop saga. Olaf Ransome, director at 3C Advisory, noted that atomic settlement could have mitigated some of the liquidity issues faced by retail investors. “In those retail instances, if the infrastructure had allowed it, we could have avoided disenfranchising investors,” he said. However, the panelists acknowledged that while atomic settlement offers potential benefits, it is not a panacea. As Martin Watkins, CEO of Montis Group, put it, “There are trade-offs to consider, such as the benefits of netting positions over time. It’s about finding the right balance between immediacy and broader market needs.”
Watkins emphasised that Montis is building infrastructure to support both digital and conventional assets, ensuring that financial instruments can coexist under the same legal frameworks. “Whether it’s a digital asset or a traditional security, we’re building the infrastructure to settle it. The fact that stablecoins or crypto can be turned into securities is fantastic—it gives investors protection and gives us the ability to settle on the infrastructure instantly,” Watkins explained.
Optimistic
Looking ahead, the panelists were optimistic about DLT’s future. They pointed out that legal frameworks are evolving to accommodate digital assets. Barnes referenced recent developments, including the UK Law Commission’s recognition of digital assets with property rights and the ICMA’s new digital annex, which supports intraday settlement. “The law is now in our favour,” Barnes said, calling on the financial industry to embrace DLT more fully.
Panellists:
Robert Barnes, Co-CEO, BPX
John Hallahan, EMEA Head, Business Solutions and Advisory, Fireblocks
Matthias Müller, CCO and member of the Executive Board, BX Digital
Martin Watkins, Chief Executive, Montis Group Limited
Moderator:
Olaf Ransome, Director, 3C Advisory
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