Blockchain: Saved by the Enterprise

Blockchain, otherwise known in capital markets as Distributed Ledger Technology (DLT), could potentially change the most fundamental foundation of capital markets: the transaction. DLT provides much needed functionality by embedding processing logic directly into contracts, decentralizing the trust needed for smooth risk transference, and bringing consensus-driven verification to transactions.

DLT will have a tremendous positive impact on operational efficiency and cost overheads. DLT also will enable workflows to be created that will transform virtually all economic activity. However, standards and protocols are still being defined.

Reference architectures are being contemplated and subjected to rigorous proofs of concept. And while there are now numerous production-level projects underway to bring the benefits of DLT to capital markets, significant challenges remain, given the complex technological ecosystem that is at the core of capital markets.

For DLT to transform this ecosystem, it will need to operate within that ecosystem.

The capital markets industry has an incredibly high governance and oversight burden. It is not enough for a technology to be revolutionary; it must be stable, reliable, and resilient as well. DLT is rapidly evolving and improving every day. It is being driven forward at a rapid pace found more in Silicon Valley than on Wall Street, which is a refreshing change in an industry that is often slow to adopt new technological trends (see: cloud computing).

However, for capital markets to fully embrace the technology, DLT providers also need to embrace enterprise technology – technology and data resources that are available and shared across an enterprise – creating an ecosystem of functionality. Traditional databases, data processing pipelines, and their surrounding operational infrastructures will bring much-needed systems integration and stability to DLT and give it the operational resiliency and surety that can allow for the rapid adoption that the industry craves.

Moreover, DLT will provide significant automation and integration opportunities to the markets, thus enabling real changes to workflow – workflow that will be more reliable, faster, auditable and extensible. DLT is also a badly needed technological upgrade to outdated, inefficient transaction-based workflows. However, the revolution will only go as far as DLT enterprise readiness will allow.

DLT does not change the fact that the capital markets are built on the complex interoperability of layer upon layer of workflows.

We interviewed senior executives in capital markets responsible for DLT initiatives and DLT providers to explore DLT’s current and future place in finance. This provided a view into an industry juggling the risk of disruptive innovation with a legacy of rigorous operational requirements, but also an industry that recognizes the clear benefits that DLT will bring to capital markets and other economic workflows.

The industry desperately needs the benefits and upgrades that DLT could bring to the market, but DLT needs to be ready for the enterprise. If capital markets are not careful in their rush to adoption, they could outpace DLT enterprise readiness, which increases risk and turns complexity into confusion.

However, if enterprise technology providers can integrate DLT into their trusted, reliable offerings, DLT will mature from promise to productivity in a fast, safe and effective manner, giving capital markets the benefits they crave.

Terry Roche is responsible for the FinTech practice at TABB Group. Prior to his current role Terry was Chief Operating Officer at NYSE Technologies.