Artem Duvanov
Why financial institutions are building inefficient siloed blockchains and how to fix this
MARCH 29, 2019

DLT for the enterprise is a well-established trend. Investments in blockchain-related projects were $1.8 bln in 2018 and are projected to reach $60 bln in 2024 (1). Yes, we all expect DLT to improve processes, create markets and generate new types of revenue streams.

And technically we are already where. The challenge of today is to merge tech with business logic. Hence 96% of the projects in 2018 were small POCs and pilots (2).

The rise of siloed blockchains
But we already can see an alarming trend. Big players are all building in-house blockchains for their partners or clients only. Also, these projects are confined to one jurisdiction. Just look at SIX Digital Exchange, JP Coin or ASX for illustration.

The rise of siloed blockchains is economically justified. Sure, it's easier to build vertically integrated services which comply with one set of regulations. Oh, and It's tempting to play with hot new technology personally. But this thinking will lead to low interoperability and all sorts of settlement problems, internationally and even locally between different private networks.

Why we need a horizontal depositary layer
Our team has a CSD background. So we believe that there will be a pressing demand for a horizontally integrated solution. Also, we are sure this ability can be brought to enterprise blockchain from day one. There is no need to replicate the entangled path to the reliable settlement that international securities underwent from the 1970s.

Blockchain platform is a non-core part of the business for a financial organization. Why should a local player invest millions in creating a vertical blockchain solution while not being able to capitalize on it on a global scale?

Financial organizations should create competitive services, not commodity infrastructure. Should every stock exchange develop it's own database solution if you can buy one from Oracle? No, it's a wasteful cost duplication. The same logic applies to DLT.

So we've launched D3ledger to create a unified depository network on which every financial institution can build its services. D3ledger is helping to issue, store, trade, and exchange all types of digital assets. Together with our custody, OTC, issuance and exchange partners we can provide custom-build services in compliance with regulations in major financial jurisdictions.
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Ultimately, digital assets will deliver on the promise—as long as they are serviced in a horizontal global depository. Who will profit the most from this trend? The players who will be first to ditch the misleading idea to create in-house blockchain infrastructure and start building new services instead.
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About the author

Artem Duvanov is the leader of D3ledger project and Head of Innovation at National Settlement Depository, Moscow Exchange Group. Connect with Artem on Linkedin.
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