Digital Bytes S4E2 Jan 11th featuring Truss Edge with Jonny Fry and James Tylee
Welcome to this week’s Digital Bytes. This week we have analysis on the following topics:
Blockchains are being used more than you may realise - the implementation of blockchain technology as a resource has enabled several businesses to improve operational processes. Recent developments have shown that blockchains can be used for more than just payments and finance-related functions. Companies are finding new ways to transform their businesses in designing new products and services whilst driving through greater efficiencies and cost savings. Using blockchain technology it is like using a supercomputer where many parties can interact at the same time and use an immutable, cryptographically secure yet transparent database.
Institutions successfully use blockchains to create and process digital assets - with over $20 trillion of bonds being issued a year and $100trillion in funds, not to mention the $trillions a day the FX markets handle, it ought to be of no surprise that financial institutions have been testing and are now issuing digital assets backed by real assets. The promise of greater transparency and improved efficiency at a lower cost by using DLTs or blockchain technology is increasingly grabbing the attention of many established financial services companies.
CBDCs’ recent developments, including the pros and cons - many jurisdictions have been working on CBDC projects for a while and some are transitioning into launch mode. Some clear advantages have been identified, especially in the wholesale markets and for cross border transactions so helping to make FX faster and cheaper. Despite the advantages and ongoing decline of people using physical cash, concerns about CBDCs persist especially around privacy.
Technology and the role of the hedge fund custodian post-FTX - the failure of FTX has served to highlight the fragility of risk controls and strong governance in the cryptocurrencies sector. Increasingly, institutional investors are likely to question the reliability, oversight, risk controls, cybersecurity precautions to mitigate hacks, etc, of service providers’ back-offices. The use of technology will increase as digital assets trade 24/7 and make many of the manual process and procedures that are currently relied upon questionable - not to mention the challenges around having to deal with a multitude of jurisdictions and custody providers.