Will Crypto Manage 10% of Post-Trades by 2030? Insights from Citi Survey

The post-trade market is set to undergo a significant transformation, with a projected 10% of global turnover expected to be processed through stablecoins and tokenized securities within the next five years. This shift is driven by advancements in digital asset technology and evolving regulatory frameworks, as detailed in a recent report by Citi.

Last updated: 04 October 2023 (BST)

Key Takeaways

• 10% of global post-trade market turnover may utilise stablecoins and tokenized securities by 2028.
• Bank-issued stablecoins are considered vital for collateral efficiency and private market securities.
• Generative artificial intelligence (GenAI) is being piloted by over half of the surveyed firms to enhance post-trade operations.
• The US expects the highest market turnover using digital assets, with 14% projected by 2030.
• Increased liquidity and cost efficiency are primary drivers for adopting digital ledger technology (DLT).

The Evolution of the Post-Trade Market

The post-trade market plays a crucial role in the financial system, ensuring that securities trades are verified, executed, and finalised. According to Citi's Securities Services Evolution report, there is a palpable shift towards digital assets, particularly stablecoins and tokenized securities. This transition reflects a broader trend in the financial sector, where traditional institutions are increasingly recognising the potential of blockchain and digital ledger technology (DLT).

Since 2021, the adoption of digital assets has moved from mere experimentation to strategic implementation. While the momentum is undeniable, Citi suggests that the industry has yet to reach a tipping point. However, the bank anticipates a transformative period for the global post-trade industry in terms of speed, cost, and resilience, marking a significant step towards modernising capital markets.

Stablecoins: A Catalyst for Change

Stablecoins, particularly those issued by banks, are seen as the cornerstone of this transformation. Their ability to maintain a stable value while facilitating quick transactions makes them ideal for improving collateral efficiency and supporting the tokenization of assets. As firms increasingly explore these technologies, stablecoins are poised to become a mainstream method for conducting transactions within the post-trade space.

Regulatory Developments Fueling Adoption

The regulatory environment is another key factor driving the adoption of digital assets. Following the introduction of new laws in the US, including the GENIUS Act signed by former President Donald Trump, there has been a marked increase in optimism surrounding the use of stablecoins and tokenized securities. These regulations provide a clearer framework for institutions to operate within, fostering innovation and encouraging investment in digital assets.

Survey Insights: A Global Perspective

Citi's survey involved 537 participants from custodians, banks, broker-dealers, asset managers, and institutional investors across the Americas, Europe, Asia Pacific, and the Middle East. The findings reveal a strong belief in the potential of DLT to enhance liquidity and reduce post-trade costs. A significant majority of respondents expect these areas to be notably affected by blockchain technology within the next three years.

Regional Expectations for Digital Asset Turnover

The survey indicated varying expectations for the growth of digital assets in different regions. In the US, a remarkable 14% of all market turnover is anticipated to be conducted using digital or tokenized assets by 2030. This projection contrasts with Europe at 10% and the Asia Pacific region at 9%. The US is thus positioned to lead the way in the adoption of tokenized securities, driven by changing attitudes and regulatory support.

Generative AI: Enhancing Post-Trade Operations

An emerging trend in the post-trade landscape is the integration of generative artificial intelligence (GenAI). Over half of the survey respondents indicated that their organisations are piloting GenAI technologies for various post-trade operations. This includes tasks such as reconciliation, reporting, clearing, and settlements.

Impact of GenAI on Efficiency

GenAI's application in post-trade processes is expected to streamline operations significantly. With 67% of institutional investors already utilising GenAI for reconciliation and other tasks, the technology is set to enhance efficiency and speed in processing trades. Furthermore, a notable 83% of brokers, alongside a majority of custodians and asset managers, are leveraging GenAI for onboarding processes, highlighting its potential to bridge the gap between retail and institutional clients.

What Lies Ahead for the Post-Trade Market?

As we look to the future, the post-trade market is on the brink of a significant evolution. With advancements in stablecoins, tokenization, and the integration of GenAI, institutions are poised to reap the benefits of increased efficiency, reduced costs, and improved liquidity. The sentiment among organisations indicates a readiness to embrace these changes, with many already investing in technology to enhance their post-trade operations.

However, challenges remain. The transition to a fully digital post-trade environment will require ongoing collaboration between regulators, financial institutions, and technology providers. It will be essential to navigate any regulatory hurdles and ensure that the infrastructure is in place to support this rapid evolution.

In conclusion, the post-trade market is at a pivotal moment, with opportunities for significant transformation on the horizon. As stablecoins and tokenized securities gain traction, and with the integration of GenAI, the future of trading could look remarkably different in just a few years. As these trends develop, it will be intriguing to see how these technologies reshape the landscape of finance.

FAQs

What are stablecoins?

Stablecoins are digital currencies designed to maintain a stable value relative to a fiat currency or a basket of assets. They are used primarily for transactions, providing a reliable medium for trade in the volatile cryptocurrency market.

How does tokenization work in the financial market?

Tokenization involves converting physical assets or traditional securities into digital tokens on a blockchain. This process allows for easier trade and transfer of ownership, enhancing liquidity and accessibility in the financial markets.

What is generative artificial intelligence (GenAI)?

Generative artificial intelligence (GenAI) refers to AI technologies that can create new content, such as text, images, or data, based on learned patterns from existing data. In finance, it is used to improve operational efficiencies and decision-making processes.

Why is the post-trade market important?

The post-trade market is critical because it ensures that transactions are completed accurately and securely. It handles the verification, execution, and settlement of trades, which is essential for maintaining trust and efficiency in financial markets.

What impact do regulations have on digital assets?

Regulations provide a clear framework for the operation of digital assets, helping to instil confidence among investors and institutions. They also establish standards for compliance, which can foster innovation and growth in the sector.