Digital Asset has become one of the best-connected technology providers to many global trading venues, and its CEO Yuval Rooz says adoption is growing quickly in Asia Pacific – despite setbacks at its first major client, Australia Stock Exchange, where its rollout of a DLT-based post-trading system remains mired in delays.
Rooz says DA, as the company is also known, hopes to knit these various exchanges as they move business to blockchain-based rails by helping them speak the same language.
One of the greatest challenges to blockchain finance is “interoperability”, enabling the transfer of value across different blockchains, be they public or permissioned.
Without it, this new world of financial exchange will be limited to walled gardens: a series of intranets that can’t move units of value – representing securities, commodities, or currencies – among one another.
The language of networks
Many companies are therefore trying to create super-connector capabilities – and establish themselves, in some way, as the critical infrastructure provider of the future. This could be in the form of a blockchain itself that, ideally, is so good that developers and firms build applications on top. Or it’s an asset like a stablecoin or NFT that could somehow win adoption across networks. DA’s approach is to get multiple customers to program their smart contracts in a new language that it developed.
“We realized the tools didn’t exist to use blockchain to solve problems in capital markets,” said Rooz, one of DA’s three co-founders.
Digital Asset then introduced a new, open-sourced language designed for decentralized networks called Daml, or Digital Asset Modeling Language. If enough institutions code their next-gen infrastructure in the same language, it makes it easier for them to eventually integrate their networks. It would also give Digital Asset a commercial advantage, as its other divisions include enterprise solutions and outsourced operations services for institutions that use Daml to power their DLT.
From language to truth
The bigger challenge that large financial institutions face, though, isn’t communicating with other firms. It’s keeping all of its internal, siloed departments on the same page. Developers lack the resources and the C-suite mandate to make this happen, and legacy processes are hard to change. Big Tech companies such as Google grew based on a unified tech stack – the golden source of truth.
- Read more:
- FinClear launches DLT-based private-markets platform
- More to ASX’s DLT extension than COVID-19 chaos
- Brokers in Hong Kong brace for regulatory changes
Rooz says it’s not impossible to replicate something like that for capital markets. His ambition is for Daml to play that source of truth, or at least be the language by which “truth” gets interpreted. With a roster of shareholders such as Goldman Sachs, J.P. Morgan, Citi, Salesforce, IBM and Samsung, DA wants its language to be reliable enough so that smart contracts are safe and reliable.
Capital markets uses
Daml is being used today. Broadridge, the technology company, is using it for a new service providing collateral management of repurchase agreements. It is already processing billions of dollars’ worth of trades daily on behalf of capital-market clients.
(Be sure to register for DigFin‘s webinar with DA and Broadridge discussing their new “distributed ledger repo” product.)
In Japan, SBI is using Daml for developing yen-backed “Smart Yen” project to help Japanese banks allow customers to program the currency held in their deposit accounts. Aimed at both retail and business customers, Smart Yen will allow merchants to connect loyalty programs or other incentives to customers’ bank accounts.
Rooz says the biggest focus for DA’s clients right now is tokenization. Goldman Sachs is using DAML to develop the ability to tokenize existing assets or create digital-native assets, and operate them across multiple blockchains. Goldman’s pilot involves tokenizing bonds, but the language can be applied to equities, commodities, and even life insurance.
Building the infrastructure for tokenization is at the heart of DA’s various engagements with stock exchanges. In this region it has worked with Hong Kong Exchanges, and with China DLT network FISCO-BCOS.
Although these venues are working with Daml for their own projects, Rooz says the common language means they could support value exchange across any kind of asset. A tokenized money market fund or a yen stablecoin could be used as initial margin on HKEX to trade Hong Kong equity products – for example.
Delays Down Under
From vision to reality involves plenty of hurdles, though. Digital Asset’s highest-profile engagement is with ASX – which hasn’t gone the way DA or ASX had hoped.
ASX was the first mover among global peers to wrestle with DLT. Its post-trade processing system, CHESS, was overdue for an upgrade. ASX’s then-CEO, Dominic Stevens, agreed to replace it with a DLT-compatible platform, which would enable the seamless movement of data and value, compressing or eliminating reconciliation and other administrative duties. DA was selected as the vendor – although this was more than just an arm’s length choice, as ASX is also a shareholder in the company.
This was 2016 – six years ago. ASX’s original go-live target was late 2020. By 2018 the project was already hitting delays. Many domestic institutions and industry bodies opposed DLT – in some cases it could threaten their existing business, and in other cases they just felt the integration costs were too high for a benefit they couldn’t see.
Meanwhile the exchange was not upgrading CHESS, and the outdated system hit snags during the extremely high trading volumes that occurred worldwide in early 2020, when COVID-19 swept the world. The securities regulator even asked market participants to reduce trading activity because it feared they’d crash the ASX.
The CHESS replacement project was delayed again that year.
This spring ASX got a new CEO, Helen Lofthouse, who previously led its lucrative execution business. She has paused the project yet again and brought in Accenture to evaluate the ASX’s options. The news elicited complaints from the regulators.
For now, ASX says this means assessing what needs to be delivered to complete the project, and to set a new timetable. DigFin asked an ASX spokesperson if Accenture’s review could include scrapping the program; he replied: “The independent review will assess the remaining work required to complete delivery of the application software for new CHESS. We won’t be speculating on the results of the review.”
Rooz says he expects the project to be completed: “We continue to finish the program.”
He added it is easy to criticize ASX and DA for this drawn-out delivery. He argues, however, that critics should recognize ASX “saw the writing on the wall” and decided to be the pioneer moving to DLT infrastructure. It acted on its conviction, and its project remains the most ambitious among all the blockchain-related initiatives at other exchanges.
Rooz blamed delays on COVID and the need to ensure market readiness. “The software can meet the requirements of running an entire equities market,” Rooz said. “We’re disappointed at the delay but we’re proud of what we’ve achieved.”
Looking at the region, Rooz says there is progress in many jurisdictions. Whereas institutions in the U.S. and Europe are mostly using DLT and DAML to improve existing processes, he says many projects in APAC are creating new businesses: ASX, SBI, and Hong Kong’s use of Daml to connect global investors to China markets are all innovative stories, while Singapore and Hong Kong are driving new thinking in cross-border uses for central-bank digital currencies.
And as many of these projects are writing their applications with Daml, they grow closer to being able to process transactions of almost any kind of asset – among their participants, and perhaps among their platforms.