As the crypto world descends into chaos, dedicated teams at financial services companies are quietly going about their business, launching blockchain-based products that solve real-world problems for customers. Some amazing things happen when the technology used to create cryptocurrencies is applied to actual business challenges.
Over the past two years, financial services companies have launched a number of products and services that use distributed ledger technology (DLT). These new offerings have something that many high-profile crypto products lack: practical applications. As we speak, DLT solutions are running in bonds, equities, structured products, mortgages, repo markets, life insurance, annuities, and healthcare claims. These are not blockchain experiments. We’re talking real businesses with established and growing customer bases and hundreds of millions of dollars in annual revenue.
Tokenization and digital assets
Although cryptocurrencies were the first major use case to emerge with DLT, financial services firms were quick to recognize the transformative potential of blockchain. Industry began investing huge sums of money to find new uses for the technology. Driven by these investments, digital assets began to evolve alongside crypto. Some of the earliest successes in digitizing assets were bonds, which proved very conducive to tokenization for a variety of reasons. Looking ahead, industry players see great potential in real estate, funds, collateral and OTC derivatives. In these and other asset classes, the opportunities for DLT are enormous, as it is not just about the simple act of tokenization, but also about digitizing the entire lifecycle of an asset. DLT can create enormous efficiencies here.
While the potential cost savings from these efficiencies has captured the attention and resources of banks, merchants and the rest of the sell-side, the buy-side has been slower to sign off. That is understandable. Sell-side firms see opportunities to derive immediate benefits from DLT applications in internal operations and functions, or from applications involving only one or two counterparties. For the buy-side, the greatest benefits of new technology platforms typically do not materialize until the systems begin to attract enough users to create network effects.
Because of this, some of the most successful DLT use cases to date have been those that deliver significant and immediate benefits to their earliest adopters. These include, for example, Broadridge’s Distributed Ledger Repo (DLR) platform.
Every day, trillions of dollars worth of securities are traded in the global repo market. These transactions are quite complex, which makes them prone to errors, failures, and disputes. Blockchain technology can help simplify and streamline these trades by digitizing the underlying securities in a repo transaction while transferring ownership via smart contracts.
It’s the same approach development teams are taking with DLT applications across asset classes and across the financial services industry. They carefully apply blockchain technology to solve specific problems and eliminate pesky inefficiencies, hoping they can create enough value to attract customers. Contrary to the covers of crypto celebrities, this work may not be very sexy, but it is successful. And even as crypto implodes, these teams will continue to make steady strides — and could one day transform financial services. This is just the beginning. DLT will be as pervasive as relational database technology, Transfer Control Protocol/Internet Protocol (TCP/IP) and, over time, arguably the Internet itself.