📚Collateral Infrastructure for Tokenized Capital Markets📚
In the new white paper from The Depository Trust & Clearing Corporation (DTCC) and Finadium, "Collateral Infrastructure for Tokenized Capital Markets," the message is clear: capital markets is coming on-chain.
And, there is a bold claim: By year three, assuming 25% of the business is on Collateral AppChain, it is possible to see benefits of US$1.9B in freed-up capital and US$225M in incremental revenue. [See page 12]
As our financial infrastructure moves toward a digital, real-time operating model, collateral mobility is becoming a critical strategic capability. And, this paper gives a clear structure of collateral management for institutions.
Here are the key takeaways and examples that stood out:
1/ Interoperability is everything: The true benefits of DLT (Distributed Ledger Technology) is when we connect participants, asset types, and infrastructures to move collateral seamlessly.
2/ Quantifiable capital efficiency: Faster collateral movements can significantly reduce liquidity buffers. The paper outlines how this can lead to targeted reductions in LCR (Liquidity Coverage Ratio) denominators and SA-CCR (Counterparty Credit Risk) figures, directly freeing up capital.
3/ The cost of inaction is rising: Waiting on the sidelines is becoming expensive. As the market adopts faster settlement and programmable infrastructure, late adopters will face steeper transition costs and competitive disadvantages.
Examples:
⏱️ Intraday Repo: Instead of relying on overnight repo or unsecured funding to cover intraday exposures, firms can source liquidity with precision, paying for exactly what they need, down to the minute. This could cut daylight overdraft costs by up to half (from ~50bps to 30-40bps).
🌍 Cross-Border Mobility: DLT allows idle collateral to be moved from a U.S. entity to meet a margin call for a Japanese entity after the U.S. trading day ends.
🛡️ Systemic Stability: By tokenizing assets like Money Market Funds (MMFs) to use seamlessly as on-chain collateral, the industry can avoid the forced cash-raising liquidations that exacerbate market crises (similar to the 2022 UK LDI crisis).