By Matthew Bastian, director, market and business development and west coast operations at CUSIP Global Services
Blockchain in financial services is facing some of its first major tests. The distributed ledger technology that promised to revolutionize back-office operations on Wall Street when it was introduced two years ago has now reached the reality-check phase of its development. While that has prompted some early speculators to question the long-term viability of the technology, others have doubled-down as specialized use cases for blockchain start to emerge.
Technology consultants call this phenomenon the trough of disillusionment. It is the period following an initial crescendo of hype when expectations have been set so high that real-world, incremental progress seems to pale in comparison to the original promise. For those watching closely, however, it is in those pockets of seemingly benign progress where some of the most exciting work is happening.
Consider, for example, the world of financial reference data. Back in 2016, reference data was the center of disruption for at least half-a-dozen start-ups who raced to form partnerships with banks and financial firms to upend conventional methods of tracking assets. At the time, I wrote that the big risk in these competing initiatives was that they risked creating series of disconnected platforms that could not talk to one another.
The solution to that problem, of course, would be for all players involved to start to agree on a unifying set of standards for identifying and cataloging the multitude of financial instruments that could ultimately be logged on the blockchain. While that governing principle of universal interoperability makes perfect sense in a vacuum, it is a less-than-ideal solution when your goal is to create a for-profit ledger of record. Thus, many of those initial start-ups have failed to gain any significant traction in revolutionizing the world of reference data.
One area where there has been some significant progress, though, has been in the pairing of new blockchain-based platforms with established standards. Take, for example, the recent collaboration between Templum Markets and CUSIP Global Services to assign CUSIP identifiers to all tokenized asset offerings traded on Templum’s blockchain-based platform. By assigning CUSIP IDs to digital assets, Templum was able to tap into the existing financial markets infrastructure for identifying, tracking, and trading securities, making all of terms and conditions, bid and offer prices, and trading history transparent and universally accessible through traditional data vendors such as Thomson Reuters and Bloomberg.
By pairing the existing reference data standard with its blockchain-based workflow, Templum has already been able to bring marquee digital offerings to market, such as recently launched tokenized offering of the St. Regis Aspen Resort, which has created an entirely new way to invest in real estate.
This collaborative model of coupling a new blockchain workflow to an existing standard is not exclusive to this relationship. In the world of trade clearing and settlement, the Australian Securities Exchange (ASX) has embarked on one of the most ambitious blockchain projects to-date, working to replace its legacy clearing and settlement system with a distributed ledger-based alternative. Notably, the exchange simultaneously created an ISO 20022 Technical Committee to ensure that messaging protocols used on the new platform are consistent with existing industry standards, including ISIN (ISO 6166).
In the world of trade finance, a pilot program developed by blockchain start-up TradeIX to streamline the paper-intensive process of securing bank guarantees for shipped goods relies on the compliance and claim handling processes of its partner Standard Chartered. Likewise, when it came time for IBM to roll its blockchain technology out to the marketplace, it did so via a collaboration agreement with A.P. Moller – Maersk, the 114 year-old transportation and logistics conglomerate. Today, 94 different companies and organizations have already joined the blockchain platform.
Two years into the era of blockchain euphoria it is clear that the potential for the technology does indeed show amazing promise. But, the bridge between that promise and real-world capability is increasingly being formed by established standards that can support new workflows with time-tested, proven processes that are universally accessible to all participants in a given marketplace.
As we all plunge headlong into this exciting period of constant technological innovation, it is becoming clear that the key to making bold promises for transformational change a reality is to continue to collaborate to drive outcomes that are rooted in the core principles of transparency, universal accessibility, and reliability.