Distributed Ledger Tech Can Save TradFi $100 Billion A Year: Lobbying Groups
According to a new report from the Global Financial Markets Association (GFMA), using distributed ledger technology (DLT) in traditional markets can save up to $100 billion annually or more.
The traditional finance sector lobby group, along with international consulting firm Boston Consulting Group (BCG) and others, called on regulators and traditional financial institutions to take a more serious look at the benefits of technology in the May 16 report.
Distributed ledger is an umbrella term for systems that track transactions and digital data. Blockchain is part of a distributed ledger. “Distributed ledger technology holds great promise for driving growth and innovation,” said GFMA CEO Adam Farkas. “This potential should not be ignored or restricted in areas where regulatory oversight and resilience measures are in place.”
According to the report, using distributed ledgers to streamline collateral processing in the derivatives and loan markets could save an additional $100 billion. In addition, using smart contracts to automate and power clearing and settlement processes can save as much as $20 billion per year in overhead costs.
Overall, clearing and settlement benefit most from some level of DLT implementation, followed by asset custody and servicing. According to BCG analysis, primary and secondary trades tend not to be significantly affected by technology; however, tokenization in these markets can result in better risk mitigation and deeper liquidity.
Internationally, DLT is becoming more widely used. Euroclear, a European securities clearing company with over $40.9 trillion (37.6 trillion euros) in custodial assets, announced on March 23 that it would integrate DLT into its settlement process.
However, there is still a lot of room for improvement when integrating DLT into pre-existing financial systems. The Australian Securities Exchange abandoned plans to update its 25-year-old clearing and settlement system with DLTs in November last year, leaving a $170 million hole in its books.
The GMFA report comes just two months after investment bank Citi predicted a $5 trillion global market for blockchain-based token assets by 2030.
