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Distributed Ledger Technologies
Distributed Ledger Technology (DLT) is indeed a promising technology for capital markets. It offers potential improvements in efficiency, innovation, liquidity, and transparency. DLT, which underpins cryptocurrencies such as Bitcoin and Ether, has vast applications outside of cryptocurrencies, including in the native issuance of securities, tokenization of assets, and the creation of Central Bank Digital Currencies (CBDCs).
The adoption of DLT in capital markets represents a natural progression in the digitization journey that has been taking place in the use of money and capital markets. While earlier technological changes like electronification have taken capital markets to new levels of efficiency, DLT can go even further.
The Future of Distributed Ledger Technology in Capital Markets by JP Morgan and BCG
DLT can streamline processes throughout the securities lifecycle, unlocking liquidity and boosting transparency and innovation. The technology is already adding value in many activities and over time, it will displace some entirely. The expectation is that within the next five years, natively-issued securities could account for a meaningful share of the market, with participants embracing product opportunities enabled by DLT that can unlock new revenue streams and value propositions.
However, it's important to note that there are still significant hurdles to adoption, including regulatory uncertainties, the need for more standardised data and record-keeping, and the implications of enhanced transparency on distribution and liquidity provision. Collaboration and standardisation will be key to overcoming these challenges and realising the full potential of DLT in capital markets.