Unlocking the Power of Blockchain in Securities Markets

While the use of blockchain in the securities space may seem fairly new, the reality is that this technology has garnered significant interest from the financial sector for years now. The catalyst for this seems to have been the public release of the Ethereum Network, launched in 2015. That happens to be the same year Deloitte launched its Rubix blockchain platform, J.P. Morgan partnered with IBM, Linux and SAP to launch the Hyperledger network, and the European Commission started working in regulating blockchain technology. 

The Blockchain footprint among the Big Four

While some of their offerings have changed over the years, the Big Four have maintained a high pace of activity in the blockchain and tokenized securities sector. They all have booming blockchain advisory lines of business, including several platform launches, as well as exits and acquisitions.

PwC has recently partnered with Chainlink Labs, the leading organization building blockchain Oracles, with the aim of helping "enterprises securely connect their existing systems to blockchain networks". Deloitte's blockchain and tokenization team has developed more than 30 solutions, while the firm has partnered with several companies in the space and so far made one investment. For its part, in 2021 Ernst & Young launched its own blockchain and announced $100 million to fund blockchain research.

In addition to is blockchain services, KPMG has made several product launches, including a platform for logistics tracking services.  For its part, out of the Big Four J.P. Morgan has arguably been the most active among its peers. There's much more than industry reports to the firm's blockchain activity, to the point that it arguably became the leader in the space among regulated companies after the launch in 2016 of Quorum, an opensource Enterprise variant of the Ethereum network (later acquired by Consensys). J.P.Morgan has currently centralized its blockchain offerings into its subsidiary, Onyx by J.P.Morgan, which is focused, as most regulated entities, on digital securities.

New winds behind digital securities

This intense activity has been taking place while the entire financial sector is patiently waiting for the regulatory framework to take shape, which is already happening in the European Union with the entry into force of the Pilot Regimefor DLT Market Infrastructures. This legal framework is one of the pillars of the EU Digital Finance Strategy, aimed at advancing the EU's overall global position in terms of digital payments and infrastructure. The role of the Pilot Regime is to enable companies like Token City to run tokenized securities trading facilities based on blockchain technology. 

The European Investment Bank has also launched its own initiatives, with three bond issuances in different blockchains and currencies, the first one of which took place in 2021, and the last one this year. Santander, Spain's most international bank, has participated in the issuances alongside J.P. Morgan and other partners. On that note, BBVA, Spain's second largest bank, released a statement titled The digital assets of the future: tokenised, programmable and more secure, in which it declared itself "ready" to deploy blockchain services as soon as the regulation allows (the bank has already launched a cryptocurrency custody service under Swiss regulation).  

For banks, the application of blockchain technology bears most promise in the form of tokenized assets, referred to in the industry as Digital Assets. Tokenization is the mechanism through which digital assets are converted into distinct, tradeable units or tokens on a blockchain, allowing for secure and decentralized tracking, transfer, and ownership. Thanks to tokenization, assets such as intellectual property rights, real estate, art, startup equity or debt rights can become digital assets, making more transferrable and ultimately liquid, while processes are disintermediated, speed is increased and costs reduced.