Digital Asset’s vision of the global economic network for institutions – Ledger Insights
As financial market participants adopt blockchain alongside existing infrastructures, there is a need not only to ensure blockchain interoperability, but also for existing infrastructures to operate alongside these blockchain networks. Although DeFi may lack regulation, it has clearly demonstrated the benefits of breaking down friction and silos.
Digital Asset offers DAML with its interoperability features as the glue to integrate both blockchains and existing infrastructures.
And with good reason. It already has relationships with several stock exchanges, including ASX, HKEX, Deutsche Boerse and Boerse Malaysia. Additionally, it counts companies such as Goldman Sachs and Broadridge as clients and investors. And it has deep pockets with $120 million in funding at the end of last year.
Blockchain for financial institutions offers several potential benefits, including reduced cost and risk as well as new opportunities.
- authorized transparency reduces risk
- removal of reconciliations to reduce costs
- instant settlement reduces risk, impacts liquidity
- more efficient business models.
But today’s blockchains – both enterprise and public blockchains – are just bigger walled gardens. Some public blockchain interoperability solutions are simpler because they carry more limited data. In contrast, enterprise blockchains are more than just knowing who owns a token. They are also about workflow. Interoperability solutions are therefore more complex. This is where Digital Asset comes in.
At a more technical level, DAML’s solution is to separate the blockchain from the smart contract language and add a privacy solution for cross-chain execution.
Digital Asset, like others, argues for the need not only for Open Banking, but also for Open Business, which implies a change of mentality. The question is how much change is possible?
A dark future for banks?
In one article on the subject Written by Digital Asset and Oliver Wyman, the consultants outline three future scenarios for banks, which we’ve rephrased a bit bluntly.
- Banks Adapt and Survive: Embracing Open Blockchain Networks to Slash Costs and Build Customer-Centric Products
- Front-end disruption: Banks do not adapt and lose control of customer interfaces, but remain providers of regulated products such as loans
- Crypto, Defi wins.
When you spell it like that, it’s really a matter of adapt or die.
Is DAML the only answer?
Nobody thinks there will be only one blockchain. So will there be only one interoperability solution? Digital Asset’s goal here is similar to Java’s dominance in enterprise software. In some ways, having a one-size-fits-all solution makes life easier. But in other ways, it’s also more risky – a bug in the language could impact all market infrastructure. But the problem is similar for most blockchain protocols. DAML may be open source, but Digital Asset still dominates its development.
The whole concept of the Global Economic Network reminds us of Citi’s idea of the Regulated Liability Network (RLN) – a single network that spans most financial infrastructures. Citi was an early backer of Digital Asset, but for its RLN vision it works with SETL, which also has large customers and has a very different interoperability solution, PORTL.
Several other interoperability or integration solutions all take different approaches, including Hyperledger Cactus, the Overledger Network, and those better known for public blockchains such as Cosmos and Polkadot’s Substrate.
There is no doubt that Digital Asset is right. Blockchain networks and existing infrastructures must interact. Eighteen months ago, neither DAML’s interoperability solution nor SETL’s PORTL existed. While institutions aren’t spoiled for choice, at least more options are now available.