Fnality's Product Manager, Simone Cortese, discussed the future of DLT ecosystems and why interoperability holds the key to success at the HQLAx Conference on Transforming the Securities Finance Industry via Distributed Ledger Technology. He highlights his key takeaways and insights in this blog post.
Why do you think the conference was important and why was it key for Fnality to attend?
One of the key takeaways from the conference, as highlighted by HQLAx, is the broad consensus that a digital cash solution would enhance the HQLAx product offering and further accelerate market adoption of the HQLAx platform. This is where the Fnality solution comes in. At Fnality, we believe that solving for tokenised cash on ledger is an essential and non-negotiable component that will drive DLT market adoption. Furthermore, that interoperability is key to achieve this – i.e., to create standard bridges, not walls, for the ecosystem to grow.
Being part of the HQLAx conference was the perfect environment that allowed Fnality to engage with and get to know the community we aim to serve with our cash-on-ledger solution. We believe collaboration across the industry is the key to succeed.
What was Fnality's view on the topics mentioned?
The visionaries understand the need for an interoperable cash on ledger solution
There is a collective realisation across market participants that collateral, in particular cash, is fragmented, scattered, and locked across multiple accounts. Having numerous intermediaries makes it hard to solve for this fragmented liquidity. At the same time, there is a consensus view that the key in the solution to fragmented liquidity should support market participants, such as banks, with clear use cases and scalable value propositions.
From the panel discussions, it was clear that there are visionary players in the industry that keep a weather eye on the horizon for financial market innovation – especially as the exponential age of digital assets has commenced. These visionaries acknowledge the need for cash on ledger and embrace their participation to help shape the uncharted. There is no question about the need for a cash on ledger solution. The question is: Is there a solution that can offer a resiliency and interoperability in a way that the industry can trust?
This is where Fnality’s cash on ledger solution comes into play
Fnality’s solution enables near-instant peer-to-peer settlement in a digital cash asset backed by currency held in a central bank account. This solution offers real time visibility of all cash positions, enabling active collateral management and creating the opportunity for intra-day liquidity markets to emerge. Thus allowing users to manage their liquidity more effectively and efficiently.
Furthermore, the interoperability between Fnality’s digital cash and any business application – like HQLAX collateral management platform – can also create the conditions for “a single pool of liquidity” to emerge. Imagine being able to repo some collateral in USD, getting liquidity that can then be swapped for GBP and used for any purpose, 24/7. This is the reason why we are building our cash on ledger solution.
What does the future look like based on what you took away from the conference?
We share the view of our peers at the conference that both market adoption and achieving standardisation across the ecosystem is vital. This can only be achieved in a collaborative manner rather than siloed conversation or solutions with interoperability as a fundamental principle. The industry has a wide array of market participants with a view on the future from different angles. However, regardless of the angle, there is a strong consensus that solving for digital cash is a key element that demands an industry-wide solution.
As the industry commenced its adoption of DLT-based solutions, it is crystal clear that there are significant risks to remaining on the sidelines. Regardless of the individual market participant’s angle, we should all aim to get involved in the discussions and collaborations as we define success in financial market innovation.
Yet, as also raised by the Panel, a significant barrier of entry is education and talent: do we really understand what capabilities DLT can bring to the table? Do we know what smart contracts can do for an FX desk? Do we know what a programmable cash on ledger can do for a Treasurer? Did we ever see delivery versus payment of digital bonds against cash, and what would that means in terms of risk reduction? Building a technology solution that works is only part of the picture. Education and talent are the other. By educating market players, we will create the conditions for players to actively participate in shaping the financial markets of the future.
For more information on Fnality and what we do, please visit https://www.fnality.org/news-views.
