How Can Distributed Ledger Technology Save TradFi $100 Billion A Year? Experts Share Their Views

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  • The Global Financial Markets Association has tipped blockchain technology as a catalyst to help traditional finance in several regions. 
  • If DLT is integrated into TradFi and not seen as a competitor, banks and other Fintech companies could save nearly $100 billion.
  • The association proffered solutions ranging from improved interoperability to harmonized global regulations to make players safe in the space. 

The launch of blockchain technology led to a renewed focus on decentralized finance (DeFi) which many have seen as a competitor to centralized finance (CeFi). Over a decade down the road, perspectives may be changing.

A new report from the Global Financial Markets Association (GFMA) shows that traditional finance will be huge beneficiaries of distributed ledger technology (DLT) if both can be integrated seamlessly. Firms could save up to $100 billion per year with the help of blockchain in traditional markets.

The association, in conjunction with the Boston Consulting Group, has asked banks and regulators to turn towards DLT to chart a path in the future.

“Distributed ledger technology holds promise for driving growth and innovation. This potential should not be ignored or prohibited where regulatory oversight and resiliency measures already exist,” Adam Farkas, GFMA President, noted.

The clearing and settlement process is one key area that stands to gain integration. According to the report, DLT will reduce overheads by about $20 billion yearly while utilizing smart contracts. Also, the collateral process used in derivatives and lending markets will become more efficient, increasing liquidity.

The association made recommendations on how DLT can achieve the needed partnership, creating a win-win scenario. Blockchain firms must improve interoperability, giving users access to multiple networks in DeFi and CeFi. DLT firms need to put efforts into liquidity and better-unified regulation across various jurisdictions.

Firms keen on integration

DLT has already witnessed increased adoption from traditional finance this year, especially among clearing firms. European securities clearing giant Euroclear announced a partnership with Fnality to incorporate DLT into its operations. 

The firm, which claimed to have settled trillions worth of transactions, stated that it would develop its DLT to settle digital securities making it fast and efficient, especially in areas like collateral trades, interest payments, market issuance, etc.

“We are pleased to be working with Fnality and our clients in shaping a solution on wholesale digital cash and digital securities settlement for the benefit of the whole industry.” Lieve Mostray, EuroClear’s CEO, speaking on the partnership.

CitiBank has toed the line of GFMA with claims that market capitalization of blockchain-based assets could hit $5 trillion by 2030.

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