A group of central securities depositories (CSDs) of 30 countries in Europe and Asia are considering the possibility of cooperation in creating infrastructure for the storage of cryptoactive assets.
While collaboration is still at an early stage, CSDs plan to present the results of their working groups at the annual SIBOS conference in London in October. These organizations, which have kept stocks and other securities for decades, clearly see an opportunity to apply their knowledge and skills in the cryptocurrency industry, where the loss of private keys means the loss of cryptocurrencies. The group will focus on protecting the keys of cryptocurrency investors and exploring how tokenization affects different industries.
Artem Duvanov, head of innovation at the National Settlement Depository (NSD) of the Moscow Exchange, said:
“A new era of tokenized assets and blockchain is coming. This is likely to change our work as a central depository. The whole group decided that we would focus on tokenized assets, not only on the blockchain, but also on real digital assets. ”
Since the merger under the auspices of the International Securities Services Association (ISSA) last year, the number of participants in the CSD initiative on cryptocurrency assets has doubled to 30 members. Key participants in the next phase are the Russian National Settlement Exchange, the Belgian Euroclear, the Swiss Stock Exchange SIX and the Abu Dhabi Securities Exchange (ADX). Duvanov said that the current goal is to develop a “shared vision”, rather than create a platform in a short time.
Alexander Chekanov, the chief architect of NSD, who heads the working group on the security of cryptocurrency assets, said that the research conducted on tokenized securities "certainly applies to cryptocurrency." Chekanov noted that NSD D3’s own decision was specifically intended for safe storage and provision of legal support for cryptocurrencies, now being implemented by two other central depositories: KDD from Slovenia and ADX.
“Obviously, the ISSA ideas are closely related to what we are doing in D3,” Chekanov said.
Bank participation
Walter Verbeke (Walter Verbeke), head of the global division of business models and innovations in the Euroclear Group, said that several large depositary banks would also be involved in the next phase of the study.
“BNY Mellon, HSBC, Standard Chartered, banks of this kind will take part. And, of course, a number of other European banks - most likely BNP Paribas, Deutsche Bank, and so on, ”said Verbeke.
According to Chekanov, State Street, Credit Suisse and Standard Bank will also take part in the study. The initial research paper, which Verbeke co-authored last year, widely considered the potential roles that financial market infrastructure providers can play in the cryptocurrency industry. Among other things, the document proposes that providers of financial market infrastructure, working in cooperation with depository banks and technology providers, can provide an independent private key storage service.
“They will need to collectively decide on the safest way to store private keys in terms of physical protection. They may also want to create a verifiable reserve to ensure the liability they incur in order to compensate investors for losses, ”the document said.
Ocean separated
The new interest of European and Asian central depositories to tokenization contrasts sharply with the work on the blockchain, carried out by their American counterpart DTCC, and the Australian Stock Exchange (ASX), whose research is mainly aimed at reducing costs by implementing a settlement system based on a distributed registry.
“I would say that ASX doesn’t really support the conclusion we all came to - that tokenization will play a big role in the future,” said Duvanov.
DTCC was invited to contribute to the analytical document and working groups, Verbeke said, but the US Depository Trust and Clearing Corporation did not play a big role. However, Chekanov said that on a broader scale, the ISSA working groups and the DTCC and ASX projects are moving towards the same end goal, simply from different entry points. He explained:
“We are striving for the same thing, except that first we will work on the cryptocurrency market, and then, if this proves effective, we will place traditional assets on this market - and they will go the other way”
It is also important to note that, unlike their American or Australian counterparts, European depositories - at least those in the EU - may have a stronger incentive to engage in custodial business for tokens, as EU citizens will have no other choice but to use their services. This is due to the fact that EU regulations state that in order for any financial instrument to be transferred and sold, it must be registered with the CSD.
Chekanov acknowledged that business processes will be different for different types of assets, although they will have much in common. According to him, the goal is to combine cold storage solutions with robust business processes. Then the cryptocurrency securities will be safe and the regulators will be satisfied, regardless of what happens to the status of these securities in the future.
“Bitcoin was originally called“ digital gold, ”and this is a very good analogy,” Chekanov said. “What we do in the real world with gold is that it is stored somewhere in very reliable vaults and trade certificates, and gold itself does not really move. I believe that the same will happen with cryptocurrencies. ”
