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Lobby Group: Distributed Ledger Tech Could Save TradFi $100B/Year

Key Takeaways
  • GFMA report: DLT could save $100B/year in TradFi markets.
  • DLT streamlines processes cuts costs, and boosts efficiency.
  • The adoption of DLT faces integration challenges but is growing globally.
17-May-2023 By: Aditi Tiwari
Lobby Group: Distrib

A recent report by the Global Financial Markets Association (GFMA) is urging regulators to pay more attention to distributed ledger technology (DLT). 

According to the report, if DLT was used in traditional markets, it could result in savings of $100 billion or more every year. The GFMA, along with the Boston Consulting Group (BCG) and others, wants regulators and traditional financial institutions to seriously consider the advantages of this technology.

DLT is a system that records transactions and digital information. Blockchain is a specific type of DLT. The GFMA's Chief Executive, Adam Farkas, says that DLT has the potential to bring growth and innovation. He believes that we shouldn't ignore or ban this potential where regulatory oversight and security measures are already in place.

The report highlights how DLT can bring significant savings in specific areas. By using distributed ledgers to simplify collateral processes in derivatives and lending markets, an additional $100 billion could be saved. Smart contracts, which automate and strengthen clearing and settlements, could reduce costs by $20 billion per year.

The areas that can benefit the most from DLT implementation are clearing and settlements, followed closely by custody and asset servicing. Although primary markets and secondary trading may not see major impacts, the tokenization of assets in these markets could help manage risks better and increase liquidity.

DLT adoption is increasing globally. Euroclear, a European securities clearing firm with over $40.9 trillion in assets, plans to integrate DLT into its settlements process.

DLT Integration Challenges: Australian Exchange Setback and Future Potential

There are still challenges to overcome when integrating DLT into existing financial systems. For example, the Australian Securities Exchange had to give up its plans to update its clearing and settlements system with DLT, resulting in a setback of $170 million.

The GFMA report aligns with a prediction by Citi investment bank, which suggests that the market for blockchain-based tokenized assets could reach $5 trillion by 2030.

In summary, the GFMA report emphasizes the importance of regulators and traditional financial institutions recognizing the potential of DLT in traditional markets. Implementing DLT can lead to substantial cost savings and improved efficiency in various financial processes. While progress is being made, there is still work to be done in integrating DLT into existing systems.

Also read- Fed Research: Whales Played Key Role in 2022 'Crypto Bank' Runs

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