Why the State of Blockchain in Capital Markets is a Sign for Startup Success

The applications of blockchain in capital markets are solidifying as banks launch large projects and hefty investments roll in.

Governments, stock exchanges, banks and other financial institutions are seeing the need to improve capital markets infrastructures with blockchain. One outcome of this demand is that investors, developers and entrepreneurs are going to vie for a larger share of the blockchain market.

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Learn more about the applications of blockchain in the financial industry.

The global blockchain market size is expected to grow from $3 billion in 2020 to $39.7 billion by 2025 at a CAGR of 67.3%.

Key Blockchain Developments in the Capital Markets

In 2021, the blockchain in capital markets saw major projects, active platforms, trading and settling tokenised securities, investments and new regulations. Experts think a transition from traditional infrastructures and assets towards blockchain-powered ones has already begun.

Growth in Asset Tokenisation Platforms

 

These platforms tokenise and issue securities and digital assets, and help move traditional assets onto a blockchain ledger. A number of startups have made headway in tying blockchain with securities, such as:

  • Polymath, which has issued 160 assets from its platform worth $2 billion.
  • Securitize, which uses its own platform to issue stock to investors, and has over 300k accredited investors and over 160 companies that have issued securities via their platform.
  • Stokr is a security token investment platform that helped launch Blockstream’s bitcoin mining security token in March 2021 and now offers investors an alternative investment opportunity towards bitcoin mining.

Banks are Adopting Blockchain Settlement Services

Blockchains improve the clearing and settlement of financial assets by being faster and by reducing counterparty risk.

 

As same-day settlement (compared to a few days) is a high priority for many financial institutions, blockchain technology is the ideal alternative to a central clearing counterparty.

 

Organisations like Credit Suisse, Société Générale, Nomura’s Instinet, Bank of America and Wedbush Securities are using Paxos’ settlement service, which is a permissioned, post-trade blockchain network that facilitates settlement with delivery versus payment settlement finality.

 

The startup recently raised $300 million and is awaiting full licensing by the SEC.

The European Investment Bank Launched Its First-Ever Bond on a Public Blockchain

The bond, valued at €100 million, was launched in collaboration with Goldman Sachs and Santander, using Société Générale’s FORGE as the issuer and registrar. What makes this even more significant is that a public blockchain was used to launch the bond.

 

The EIB’s support for digitalisation of capital markets and the blockchain means there’ll be a reduction of intermediaries and fixed costs, more market transparency and shorter settlement time.

CAST Regulatory Framework for Blockchain

The CAST framework is designed for the issuance, custody and OTC trades of financial instruments on a blockchain, and acts as a call to action to develop common market standards by major banks and financial institutions. It is constructed around three companies – an operational framework, legal & regulatory contracts, and technical rules.

 

Regulation is a major roadblock in a full-scale transition towards a DLT-based capital markets system, and the CAST framework is a step towards regulatory maturity in blockchain.

Largest Southeast Asian Bank Issued Its First Digital Bond

 

DBS issued its first digital bond worth $15 million through the DBS Digital Exchange in December 2020 and has 120+ participants, with daily trading volumes increasing tenfold.

 

It is also the first live full-service platform currently available and running on blockchain technology. The Exchange says, “[A] new platform offers institutional and accredited investors the ability to tap into a fully integrated tokenisation, trading and custody ecosystem for digital assets.”

 

Stock exchanges, banks and other financial institutions like Nasdaq, Australian Securities Exchange, Singapore Stock Exchange, UBS and Deutsche Bank are all collaborating with startups to bring blockchain to the capital markets infrastructure, even as new solutions keep increasing.

Banks Are Adopting Blockchain Settlement Services

Blockchains improve the clearing and settlement of financial assets by being faster and by reducing counterparty risk.

 

As same-day settlement (compared to a few days) is a high priority for many financial institutions, blockchain technology is the ideal alternative to a central clearing counterparty.

 

Organisations like Credit Suisse, Société Générale, Nomura’s Instinet, Bank of America and Wedbush Securities are using Paxos’ settlement service, which is a permissioned, post-trade blockchain network that facilitates settlement with delivery versus payment settlement finality.

 

The startup recently raised $300 million and is awaiting full licensing by the SEC.

The European Investment Bank Launched Its First-Ever Bond on a Public Blockchain

The bond, valued at €100 million, was launched in collaboration with Goldman Sachs and Santander, using Société Générale’s FORGE as the issuer and registrar. What makes this even more significant is that a public blockchain was used to launch the bond.

 

The EIB’s support for digitalisation of capital markets and the blockchain means there’ll be a reduction of intermediaries and fixed costs, more market transparency and shorter settlement time.

CAST Regulatory Framework for Blockchain

The CAST framework is designed for the issuance, custody and OTC trades of financial instruments on a blockchain, and acts as a call to action to develop common market standards by major banks and financial institutions. It is constructed around three companies – an operational framework, legal & regulatory contracts, and technical rules.

 

Regulation is a major roadblock in a full-scale transition towards a DLT-based capital markets system, and the CAST framework is a step towards regulatory maturity in blockchain.

Largest Southeast Asian Bank Issued Its First Digital Bond

 

DBS issued its first digital bond worth $15 million through the DBS Digital Exchange in December 2020 and has 120+ participants, with daily trading volumes increasing tenfold.

 

It is also the first live full-service platform currently available and running on blockchain technology. The Exchange says, “[A] new platform offers institutional and accredited investors the ability to tap into a fully integrated tokenisation, trading and custody ecosystem for digital assets.”

 

Stock exchanges, banks and other financial institutions like Nasdaq, Australian Securities Exchange, Singapore Stock Exchange, UBS and Deutsche Bank are all collaborating with startups to bring blockchain to the capital markets infrastructure, even as new solutions keep increasing.

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