• Jerome Kemp, President at Baton Systems


• 01.12.2021 10:47 am

Q. Organisations are forecast to spend nearly $6.6 billion on blockchain solutions this year, an increase of more than 50% compared to 2020, according to a new update to the International Data Corporation (IDC) Worldwide Blockchain Spending Guide. What does 2022 have in store for adoption of DLT? 

Since 2019, there has been a doubling of spending on DLT related developments. While the evolution in cloud computing transformed how we now store and access data, DLT has the potential to completely revolutionise collaborative interaction between market participants.

The high levels of funding pouring into this space is fueling unstoppable momentum, and I expect we will see this expressed in a number of ways as we cross the threshold into the new year.

We are acutely aware at Baton that interoperable DLT offers considerable possibilities relative to the existing post-trade landscape - possibilities that are now proving far too compelling to ignore. We’re in a situation today where trillions of dollars of financial assets change hands daily across very complex and aging infrastructures that consume massive amounts of financial and human resources. DLT has the potential to completely transform these aging technology stacks offering flexibility, transparency, security, resiliency and immutability, along with automation and collaboration.

2022 will be the year where we will start to see DLT being adopted by leading global financial institutions to address the long-standing risk, efficiency and transparency issues that have plagued post-trade processing for far too long, delivering a level of transformation that’s well overdue.

Q. What pinch points and obstacles will the post-trade sector still experience in 2022? 

The attraction of DLT as a means of transforming post-trade processing is undeniable. However, as is the case with any new approach to an age-old problem, DLT will likely continue to be scrutinised, analysed, and treated with a degree of skepticism by the market given its potential to displace existing platforms and network protocols that play a systemically important role in global market infrastructures.

The pace of technological innovation has outpaced the existing regulatory framework and while we see numerous levels of engagement from regulators around the world, the question of if, and then how, these new innovations should be regulated is now a source of regulatory debate.

Q. With the FX industry being rife with opportunities for modernisation – in what ways should it modernise in 2022 and in what ways will it modernise in 2022?

It’s not so much a question of how firms should modernise, as many are already undertaking multiple initiatives to do so. I think it’s more a case of firms really considering what they need to be doing today as the industry continues to rapidly evolve. The FX market has witnessed significant change in recent years, partially as a result of the significant increase in trading volumes and margin declines - and while the trading ecosystem has benefited from significant technology investment we are now seeing a notable shift to the post-trade processing space

The focus now needs to switch to building fully-connected, seamless workflows from the point of execution through to settlement, so market participants have at their fingertips the flexibility to automate netting sets and to settle on demand with whomever they wish based on a number of criteria. It will be through the adoption and embrace of new technologies like DLT that market participants will be able to achieve the goal of performing riskless settlement on demand in virtually any currency and with any counterparty they choose. 

Q What are the big opportunities for the sector in 2022 with emerging technologies?

Settlement risk has plagued the FX industry for far too long and I believe 2022 will see the adoption of emerging technologies that for the first time, will really allow firms to take control. There will be an opportunity to improve transparency through the end-to-end process from trade matching to settlement and as risk has such a huge impact on capital usage, eliminating sources of exposure would allow firms to optimise the deployment of funding and intraday liquidity management.

Q. Do you think the CBDCs will play a greater role next year? If so, how?

A growing proportion of the world’s central banks are now actively researching CBDCs and we’re seeing a number of individual experiments with real potential - all of which indicates a very real intention by central banks to systematically move forward with CBDC’s. In the US for example you have the digital dollar project, one of the major initiatives that is underway right now, it’s under the stewardship of J. Christopher Giancarlo, former CFTC chair and Senior Advisor to Baton.

Though I think that we have more ground to cover before we will start to see CBDCs emerge as an integral part of the business as usual (BAU) financial landscape this is an exciting and natural progression in the broader history of money, given the technologies that we are now able to leverage for the greater common good.

I also feel that the CBDC debate will be closely related to the position that regulators ultimately adopt in respect to Stablecoins and how these function alongside the goals and objectives of Central Bankers.

Q. Is 2022 going to be the year that we finally see mass adoption of digital market infrastructure?

I believe it is somewhat naive to expect mass adoption of a fully digitised market infrastructure as some sort of big bang event.  As we are well aware, market evolution is predicated upon extensive, iterative analysis relative to, amongst others, the technological, operational, regulatory, financial and human resource implications of changes to the broader infrastructures upon which daily market interactions reside.  I expect to see a greater embrace of digitised infrastructures by large global market participants in 2022, but this will be a gradual process, and I expect to see this enhanced participation as the primary catalyst for progress on the regulatory front.