Blockchain adoption: Implications for the financial services sector

Published on 27 February 2020

Blockchain adoption

Implications for the financial services sector

Table of Contents

Executive summary: Blockchain adoption in financial services

Introduction

An introduction to DLT

Digital assets explained

DLT use cases in general

DLT use cases in the financial industry

Investments in blockchain/crypto businesses

Sector evolving to incorporate new asset class

Barriers to adoption

Regulation constantly evolving

Improving interoperability

Glossary




The use of distributed ledger technology (DLT) looks set to disrupt the financial services industry through the emergence of a new asset class and its use to improve business processes. When it first emerged, digital assets investment was mainly a retail phenomenon and technology development was driven by start-ups.

As regulation brings certainty to the sector and security and scalability concerns are addressed, we are now seeing concerted investment by major companies and we expect to see institutional adoption accelerate. In the longer term, as well as opportunities from asset tokenisation, we see threats to traditional financial services businesses as the role of intermediaries evolves.
 

Early-stage market; incumbents starting to enter

The tokenisation of assets is still at an early stage, with many pilots and small-scale projects underway. Joining a plethora of digital asset start-ups, traditional financial services businesses are starting to enter the market. We expect a gradual transition to the use of blockchain technologies, with applications being adopted for those use cases with a strong commercial rationale.

Ultimately, we expect to see a shift towards asset tokenisation across a number of asset classes including in particular non-listed equity, debt with small issue volumes and real estate. Strong interest from central banks in issuing their own digital currencies further supports our belief that a tipping point has been reached in the institutional adoption of blockchain.

Longer term, blockchain will reshape the industry

As well as the revenues to be earned from issuing, trading and managing digital assets, the use of DLT for business processes such as clearing and settlement has the scope to reduce operating costs. However, removing the middleman from many processes will also affect the revenues of those financial institutions that act as intermediaries. At this early stage, we expect to see more partnerships between traditional financial institutions and digital asset specialists, and longer term we would expect to see the incumbents acquiring to access expertise and regulated
businesses.

Edison’s Milosz Papst, co-author of the report discusses why the use of distributed ledger technology (DLT) looks set to disrupt the financial services industry through the emergence of a new asset class and its use to improve business processes.
Richard Byworth, CEO of Diginex, discusses his views on the evolution of digital currencies, including the increasing involvement of central banks and the development of central bank digital currencies (CBDCs).

He outlines how blockchain technology is being adopted more widely for a variety of business use cases, including data integrity and treasury management and explains why be believes we are in the early stages of digital asset disruption of the financial services market.

Seeing the opportunities within the financial services market, he describes how Diginex is aiming to provide a reputable, regulated partner to enable traditional financial institutions to trade and invest in digital assets. Diginex is a digital financial services and blockchain solutions company and was sponsor of this sector report. The company is due to list on Nasdaq via a special purpose acquisition company (SPAC).

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