Distributed ledger technology (DLT) is revolutionizing the securities sector globally, with exchanges, fintechs, and custodians leading the charge, according to a new report by the International Securities Services Association (ISSA). The survey, which included over 340 securities firms worldwide, showed a 10% increase in DLT’s importance this year. Despite this growth, the overall deployment of the technology has remained stagnant, with only 37% of projects live. However, digital tokens have seen significant growth, now accounting for over $15 billion in value.
The report highlights cost-cutting and revenue generation as the primary drivers of DLT adoption in the securities sector, indicating a shift away from a focus on learning and experimentation. Bonds are the most common asset class deployed on DLT, with some of the world’s largest companies and governments exploring blockchain bonds. For instance, Swiss cities have settled millions of dollars in digital bonds using the country’s wholesale CBDC, while Hong Kong and the Philippines have completed significant digital bond sales.
The study also revealed regional disparities in DLT development, with the Middle East and Africa primarily in the proof-of-concept stage, while Latin America has shown the highest share of development. In contrast, North America, Asia, and Europe have a higher rate of live applications on DLT, indicating varying levels of adoption and progress across regions. Despite this progress, the report identified challenges such as low return on investment, lack of a compelling business case, limited liquidity of tokenized securities, and legal uncertainty.
A notable trend highlighted in the report is the increasing dominance of private blockchains over public blockchains in the DLT market. Private blockchains now control 65% of the market, up from 55% last year, with securitized assets and private debt being the most common use cases for private blockchains. This shift indicates a growing preference for privacy and control over data among industry players, in contrast to the more transparent nature of public blockchains.
Overall, the report underscores the growing importance of DLT in the securities sector, driven by a focus on cost efficiency and revenue generation. While the technology has seen significant growth in digital tokens and bond issuances, challenges remain in terms of return on investment, business case development, and regulatory uncertainty. As regional disparities in DLT development persist, collaboration and innovation will be key to unlocking the full potential of blockchain technology in the securities industry.