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Christopher Whittall
Advances in digital asset regulation and infrastructure are helping to usher in a new era in global finance, industry executives told ISDA’s annual general meeting in Boston on Wednesday, prompting firms to ramp up investments in these areas.
Bankers, infrastructure providers and trading firms outlined a range of areas where they believe digital assets will revolutionise finance, from international payments to margin calls to 24/7 trading, while calling for continued regulatory and legal clarity to foster growth in these fast-developing markets.
“We believe that digital assets are really emerging as a cornerstone of a new era of banking,” Mandy DeFilippo, chief executive for the US, Americas and EMEA at Standard Chartered, told the ISDA AGM. “We think it’s inevitable that money will become digital.”
For many, digital assets are primarily associated with high profile – and often speculative – cryptocurrencies like bitcoin. However, most traditional financial institutions, alongside a swathe of newcomers, have focused their efforts on the transformational possibilities that digital asset technology promises.
DeFilippo noted that the bank capital treatment for holding crypto assets on balance sheet is punitive. “That’s absolutely not what we’re doing,” she said. Instead, the emerging-market banking specialist has been working with clients over the past decade to develop capabilities in digital assets, including trading, custody services and digital currencies including stablecoins.
“Our focus, rather than holding crypto, is on building that infrastructure layer,” said DeFilippo.
Stablecoins are cryptocurrencies whose value is pegged to that of another asset, such as the US dollar. To achieve this, stablecoins are typically backed by reserves invested in assets like short-dated government debt. Standard Chartered believes the market capitalisation of stablecoins should reach US$2trn by the end of 2028, resulting in an additional US$1trn in demand for US Treasury bills.
“We see real utility for stablecoins in cross-border payments in emerging markets,” said DeFilippo. “Stablecoins would allow us to leapfrog those legacy [payment] systems and extend access to funds in the countries digitally, so it really allows money to flow everywhere.”
Profound impact
Mathew McDermott, global head of digital assets at Goldman Sachs, said he has always believed digital asset technology will have a profound impact on the way the plumbing of financial markets works.
“You are now really starting to see that … manifest itself, and for us as an organisation that’s hugely exciting,” he told the ISDA AGM. “Having a platform that uses the same underlying technology to move collateral globally – that’s hugely powerful, be that for derivatives, securities finance, repo.”
McDermott said there is “huge” potential when it comes to tokenising assets – essentially putting financial instruments like stocks and bonds onto a digital ledger, or blockchain, so they can be moved in a faster and more efficient way. Being able to move assets around intraday, for instance, promises to create enormous operational efficiencies.Â
“That’s something we’re desperately keen to see scaled across the market because that has real value,” he said.  “If you can actually see a scalable, functioning intraday market – which I fully believe we’ll have various desks trading – that will actually have a profound impact,” said McDermott.
Yuval Rooz, co-founder and chief executive of blockchain specialist Digital Asset, said his firm conducted an analysis with buyside clients that showed firms could increase balance-sheet efficiency by 40%–60% by reusing collateral intraday thanks to blockchain technology. “That’s a monumental shift,” he said. “We think that collateral management is probably one of the biggest opportunities.”
Genius move
Executives highlighted last year’s passage of the Genius Act in the US, which provides a regulatory framework for payment stablecoins, as a critical milestone for the market. Heath Tarbet, president of Circle, which issues the largest regulated stablecoin, said the Genius Act has been “hugely significant”.
“In many ways, it signalled an upgrade of the financial system and its plumbing,” he said.
McDermott said the emergence of regulatory and legislative clarity has been key to giving people confidence. “That’s why you’ve seen all the sellsides [banks] now building out their digital asset businesses,” he said.
Don Wilson, founder and chief executive of proprietary trading firm DRW, said the tokenisation of traditional financial assets brings up “a bunch of opportunities and a bunch of problems”. One example of the benefits comes as financial markets move towards trading around the clock and firms look for ways to trade around major weekend events.
“When you move to 24/7 markets, which clearly we’re doing, you need to have the ability to move collateral and variation margin and assets in real time,” he said.
DRW has now done a number of repo trades on a Saturday morning, he said. “It works. It’s super cool. It solves a really important problem, and we’re really excited about it,” Wilson said.
“Firms that are on the bleeding edge of this are going to have a huge advantage … in terms of their ability to actually generate excess returns because they’re leveraging this technology, and so there’s a strong incentive to figure it out now,” said Wilson.