ESG AI & Analytics Unstructured Data Trade Surveillance DLT and Digital Assets

DLT and Digital Assets

Helping you to identify and utilize the potential of digital assets for your business and clients

It has now been 13 years since Satoshi Nakamoto published his Bitcoin white paper . Many years have been spent identifying and examining use cases for the application of DLT (distributed ledger technology). While it looked for a long time as if no relevant use cases would be found, this has changed massively in recent years. The technology has now arrived in practice.

An ecosystem consisting of FinTechs, market infrastructure operators such as exchanges, banks and asset managers has developed that is driving the evolution of new products such as digital assets, processes and disruptive business models based on DLT.

We are convinced that this ecosystem will grow exponentially in the coming years and disrupt the financial services market substantially. It is now time for every market participant to act, analyze and implement the opportunities and risks for themselves.

CSDR

Ever since Satoshi Nakamoto has launched the Bitcoin-technology and the evolvement of the DLT, market participants have been trying to capitalize on it. Hereby, the following four topics have emerged to show how the market has transformed and will continue to transform:

  • Development of DLT
  • Regulatory changes
  • Changes in market infrastructure
  • Competition within the industry

"Blockchain" became known as the underlying technology of the cryptocurrency Bitcoin and was thus the first use case of DLT in 2009. Afterwards, the focus has been on the underlying technology of blockchain and other possible architectures. Hence, several applications and variations of DLT have been abstracted. Generally applicable specification criteria emerged, such as participation in a private or public ledger, validation through the allocation of votes to users, or consensus variants e.g., PoW (Proof of Work) or PoS (Proof of Stake). Generally speaking, the use of DLTs reduce costs and improve transaction times while increasing security, control, and traceability.

Regulatory adjustments were and continue to be necessary to create the right framework for the financial industry. In this context, national and European legislative initiatives are being further developed to make crypto markets internationally competitive and more uniform. In particular, this includes the Crypto Securities Regulation, the German eWpG and the European Markets in Crypto-assets Regulation (MiCAR), which have been of increasing importance in recent years.

DLT has the potential to disrupt existing market infrastructures that have been built and improved over decades. Therefore, all processes within the market must be questioned as to whether they are still up to date, can be further improved by DLT, or whether new procedures are necessary to keep pace with the new technology and to meet customers’ requirements. o Furthermore, current market players are faced with profound changes since new evolving market infrastructures create opportunities for existing service providers and open the door for new entrants. The elimination of the CSD as a central point of contact, the issuance of assets directly on the blockchain or the digitization of the issuance process through smart contracts are just the beginning of the ongoing changes and just a few examples to be highlighted.

Due to the many ways DLT and digital assets can be used plus the extensive changes in the market, competitive pressure is particularly pronounced. Every market participant wants to be a front runner and consolidate its market position with new products or improved processes. In this context, it is particularly important to note that the great freedom to open up new business areas also harbors the danger that previously unknown players will try to capture market shares. Although the threat of new entrants is omnipresent, you cannot leave your current competitors out of scope. Therefore, it is necessary to analyze its competitors, identify new market entrants at an early stage and work out a strategy to integrate DLT into the current business model.

Current key challenges

DLT and digital assets enable customers to redefine their current business. This process starts with the design of new business ideas, through accelerating and improving processes or products, to the selection of the appropriate vendor to drive the implementation of the project.

Understanding the use of DLT and digital assets

The integration of DLT creates new potential for existing products, processes, and the general business model. Nonetheless, many customers are not yet aware of the impact digital assets will have and the challenges that come with it. Hereby, all our clients ask us the same questions:

  • How can I implement DLT and digital assets into my existing business model?
  • What training do my employees need?
  • Which processes can I automate?
  • Which new products fit into my current product portfolio?
  • Which products will be replaced?
 
Alignment with the current business model

DLT and digital assets allow existing business models to be questioned and redefined. Nevertheless, DLT should initially take a supportive role for the existing business model. A wide variety of business areas and processes can be accelerated and replaced using DLT. These savings open up new opportunities for the client to reallocate resources wisely. In particular, the current IT infrastructure must be prepared for the utilization of DLT. In the process, fundamental questions must be answered, such as whether one would like to use a private or public blockchain protocol and what vendor does suit the purpose of your DLT project best.

Detect old and new line of businesses

The use of DLT and digital assets means that existing business processes and areas must be restructured. In addition to the numerous advantages and new ways of optimizing processes, the question arises as to which existing product offerings will no longer be in demand in the future. Today's cash cows could become obsolete as a result of the new technology, whereas new types of offerings will find their way into the market. In addition to the fact that new products or processes will be created or eliminated, others will improve significantly in terms of handling. These improvements will go hand in hand with an adjustment to the current IT infrastructure to make the best use of the possibilities offered by a DLT.

Selection of suitable vendors to conduct transformation

The development of DLT and digital assets in recent years has brought various providers to the market that have different approaches to transform processes and products. Hereby, it is crucial in which direction you want to steer your company. Although there is always the possibility to change decisions regarding a DLT structure in retrospect, however, this is not advisable regarding investments made in the past. Therefore, it is indispensable to find the right partner at your side, who has thoroughly understood your project and can therefore implement it to your satisfaction.

We at LPA offer with our One-Stop-Shop Solution, a possibility to obtain everything needed from one source.

 

Our approach

Due to major (regulatory and technological) changes following the introduction of the DLT and digital assets, market participants are in the need to adjust their existing business infrastructure to access all given opportunities. LPA’s approach to tackle upcoming challenges in a One-Stop-Shop Solution in cooperation with selected partners offers our clients the best possible way to succeed in the future.

hedgepilot hedgepilot

Your contact person for DLT and Digital Assets