Adena Friedman, chair and chief executive of Nasdaq, said the U.S. equities market needs to preserve its incredible depth of liquidity and speed of trading, with just between 10 and 20 microseconds of latency, despite four to five billion messages every day. However, she believes blockchain can make a huge difference over time in post-trade by improving the time to settlement and the nature of the securities upon settlement. In addition, Friedman said blockchain offers a more immutable record, allows better tracking of ownership over time, and could also modernize corporate actions and investor voting. “There is a lot of potential that comes from placing securities into a new technology that we think will underpin markets,” she added, “but that is an evolution, not a revolution.”
Billy Hult, chief executive of Tradeweb, said the firm had backed blockchain in the last year and a half. He agreed with Friedman that the technology has potential to modernize settlement and enable 24/7 fixed-income trading. “Part of unleashing that next wave around velocity of trading is going to be figuring out a more efficient way around collateral management and settlement.” In August this year Tradeweb helped execute the first real-time, fully on-chain financing of U.S. Treasuries against the USDC stablecoin, with the trade settling on-chain via delivery versus payment using smart contracts.
Yuval Rooz, co-founder and chief executive of Digital Asset, agreed the value of the technology lies in post-trade and connecting assets more efficiently, without jeopardising liquidity. He highlighted that institutional players will only move on-chain if privacy issues are solved. Mike Cagney, co-founder and executive chairman of Figure, said people use the technology for transactional efficiencies and potential liquidity benefits; however, he argued that blockchain’s biggest transformation will be on the financing side through more efficiently connecting capital sources and users bilaterally through on-chain DeFi (decentralized finance) protocols. Since 2018 Figure has originated over $22bn in on-chain home equity lines of credit and about $66bn in trading volume, with blockchain-driven cost reductions.
Don Wilson, founder and chief executive of market maker DRW, highlighted that digital assets can trade 24/7, but this requires 24/7 collateral movement. He said: “The two major unlocks are the ability to move collateral instantaneously 24/7 and the ability to borrow more efficiently against your assets.” Friedman argued that instant settlement sounds amazing and takes an enormous amount of overnight risk out of the system but netting is critical for the functioning of equities markets, and interoperability will be essential for universal adoption.
Leave a Reply