Why Financial Institutions should focus on Digital Assets now
Have you ever thought about integrating digital assets institutionally? Find out why getting 'ready' for digital assets is like a marathon and why institutions should get up and running now.
Getting 'ready' for digital assets is like a marathon! Success requires solid preparation, the right tools, and a clear goal to reach the finish line. Beyond having the proper equipment, it’s crucial not to miss the start when everyone else is getting ready. The same principle applies to digital assets. Trever provides the technology and infrastructure you need to get started quickly and achieve success.
The benefits of focusing on Digital Assets
Digital assets are any assets that are issued on the blockchain, such as digital securities, cryptocurrencies, stablecoins, etc. The integration of digital assets offers significant benefits such as cost reduction, risk mitigation and reduced dependency on centralised entities.
These benefits arise primarily from the programmability of smart contracts, which can be used to make operational processes more efficient or automated. Smart contracts are pieces of software, not contracts in the legal sense, that extend the utility of blockchains from simply recording financial transaction entries to automatically implementing the terms of multi-party agreements (Upgrading Blockchains, 2016.).
The advantages of integrating digital assays are:
- Cost reduction: The distributed ledger technology (DLT) behind digital assets reduces the number of intermediaries that traditionally play a role in the settlement of bonds and securities (e.g. clearing houses, central securities depositories, etc.). Fewer parties involved means lower fees and settlement costs.
- Risk mitigation (counterparty risk) through real-time settlement: Traditional bond and securities transactions often take several days to settle (T+2). Depending on the complexity of the transaction, settlement can even take three days or more. With blockchain technology, transactions can take place in near real-time, significantly increasing efficiency and reducing counterparty risk.
- Less reliance on centralised authorities: The decentralisation resulting from DLT reduces the need for central custodians. The introduction of a crypto securities registrar will fragment this market.
Summary
To take full advantage of digital assets, financial institutions need an infrastructure designed for digital assets. Traditional legacy systems were originally designed to manage traditional financial instruments and are often unable to meet the specific requirements of digital assets. This calls for innovative solutions that can seamlessly integrate digital assets into existing processes to make operations more efficient, secure and future-proof.
The digital asset market has already kicked off. Now is the time for financial institutions to take action to ensure they do not miss out.
Source: Upgrading blockchains. (2016). Deloitte Insights. https://www2.deloitte.com/us/en/insights/focus/signals-for-strategists/using-blockchain-for-smart-contracts.html
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