As crypto erupts into chaos, financial firms are quietly using blockchain to solve real-world problems

As the crypto world descends into chaos, dedicated teams at financial services firms are quietly going about their business, rolling out blockchain-based products that solve real-world problems for clients. Some amazing things happen when the technology that was used to create cryptocurrencies is applied to actual business challenges.

Over the past two years, financial services firms have launched a series of products and services using distributed ledger technology (DLT). These new offerings have something many high-profile crypto products lack: practical applications. As we speak, DLT solutions are running live in bonds, equities, structured products, mortgages, repo markets, life insurance, annuities and health claims. These are not blockchain experiments. We are talking about real businesses, with established and growing customer bases and hundreds of millions of dollars in annual revenue.

Tokenization and digital assets

Although cryptocurrencies were the first major use case to emerge using DLT, financial service providers quickly discovered the transformative potential of the blockchain. The industry began to invest huge amounts to find new opportunities to use the technology. Driven by these investments, digital assets began to develop in parallel with crypto. Some of the earliest successes in asset digitization came in bonds, which for a number of reasons proved quite conducive to tokenization. Looking ahead, industry players see great potential in property, funds, security and OTC derivatives. In these and other asset classes, the opportunities for DLT are enormous, because it involves not only the simple act of tokenization, but also the digitization of the entire life cycle of an asset. This is where DLT can create enormous efficiency gains.

Network effects

While the potential cost savings from these efficiencies have attracted the attention and resources of banks, retailers and the rest of the sell-side, the buy-side has been slower to sign on. That’s understandable. Sell-side firms see opportunities to realize immediate benefits from DLT applications in internal operations and functions, or from applications involving only a counterparty or two. For the buy side, the biggest benefits of new technology platforms usually only come when the systems start to attract enough users to produce network effects.

For that reason, some of the most successful DLT use cases to date have been those that provide significant and immediate benefits to their earliest adopters. It includes, for example, Broadridge’s Distributed Ledger Repo (DLR) Platform.

Every day, trillions of dollars worth of securities are traded in the global repo market. These transactions are quite complex, which makes them prone to errors, mistakes and disputes. Blockchain technology can help simplify and streamline these trades by digitizing the underlying securities in a repo transaction while transferring ownership via smart contracts.

It’s the same approach development teams are taking with DLT applications across asset classes and across the financial industry. They carefully use blockchain technology to solve specific problems and eliminate annoying inefficiencies and hope that they can create enough value to attract customers. Unlike the front page sagas of crypto celebrities, this work may not be very sexy, but it is successful. And even if crypto implodes, these teams will continue to make steady progress—and may one day transform financial services. This is just the beginning. DLT will be as profound as relational database technology, TCP/IP (Transfer Control Protocol/Internet Protocol) and arguably, over time, the Internet itself.