The post Can Ethereum provide a settlement layer for financial markets? appeared on BitcoinEthereumNews.com.

Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial. Public blockchains have a role to play in the future of financial markets, and Ethereum is well-positioned among public blockchains to act as a settlement layer. Understanding risk in the Ethereum ecosystem is vital to building robust applications for financial markets. The benefits of blockchain and tokenization For years, institutions have explored the use of blockchain and tokenization in financial markets. They aim to save time and money by streamlining settlement processes, using blockchain as a single source of truth among transaction participants, and reducing the need for cumbersome reconciliation efforts across participants’ records.  Institutions also hope to make more asset types easier to use as collateral for transactions and to manage liquidity more efficiently by enabling intraday transactions. Holding assets as tokens on a blockchain should be an improvement over existing systems for most investors, and it should be possible to tokenize most financial assets. So, in the long run, shouldn’t all assets be tokenized? Real use cases but small volumes The key use cases so far in traditional financial markets are digital bonds (the issuance of a bond as a token on a blockchain) and tokenized Treasuries (or tokenized money market funds, shares in a fund holding US Treasuries). We have rated digital bonds across sovereign, local governments, banks, multilateral institutions, and corporates.  We have also seen traditional financial incumbents setting up tokenized money market funds, such as Blackrock’s BUIDL fund. However, to date, the volumes of digital bonds and tokenized money market funds remain a tiny fraction of the volumes issued in traditional markets. What’s holding back adoption? Challenges to adoption Interoperability The first key challenge is interoperability. Investors need to access the blockchains…

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Filed under: News - @ September 8, 2024 11:05 am