Asia-Pacific leads in driving digital assets and digital ledger businesses: Citi report

SINGAPORE – The Asia-Pacific is leading the world in driving the commercialisation of digital assets and distributed ledger technology (DLT), a report has found.

Almost half (48 per cent) of the respondents from the region said they are already at one of three stages when it comes to DLT and digital assets: proof of concept, revenue generation or commercialisation.

DLT is a digital system for recording the transaction of assets. Blockchain is a type of DLT.

Citi’s fourth edition of the securities services evolution white paper series released on Sept 4 found that Europe is the second most active region with 46 per cent of respondents saying they are at one of the three stages.

Both North America and Latin America follow behind at 40 per cent.

Close to 500 market participants from buy- and sell-side institutions were polled for the white paper.

Of the participants, topping the list at 43 per cent are banks, followed by custodians, asset managers, brokers and dealers, institutional investors and others.

By geography, the Asia-Pacific accounted for most of the responses at 34 per cent, followed by Europe at 31 per cent, and North America at 19 per cent. Latin America, Africa and the Middle East made up the rest of the participants.

The report also found that the use of digital money going beyond central bank digital currencies (CBDCs) is expected to increase significantly.

A CBDC is the digital form of a nation’s fiat currency.

About 65 per cent of respondents plan to use non-CBDC options like stablecoins, tokenised deposits, money market funds and digital payment systems to support cash and liquidity requirements for digital securities settlements by 2026.

However, Citi said only 15 per cent of those polled plan to use CBDCs.

It noted that this is a stark contrast to 2023 when CBDCs were the preferred form of digital money. Back then, 52 per cent said they preferred CBDCs.

Mr Okan Pekin, Citi’s head of securities services, said the latest white paper, which is the most extensive since its inception in 2021, zooms in on the next frontier for the industry.

“This includes DLT and digital assets, and the significant potential for tokenisation to scale. These developments will continue to transform the securities landscape as we continue to move towards shorter settlement cycles across multiple markets worldwide,” he noted.

Tokenisation is the process of digitally representing real, physical assets on DLT.

In the past couple of years, more digital asset players and banks have been tokenising securities such as bonds and notes.

For instance, OCBC Bank partnered with global private market exchange ADDX in May 2023 to distribute its first tokenised equity-linked structured note to accredited investors.

In June 2021, UOB piloted a digital bond issuance on Marketnode’s digital asset issuance and depository platform.

In May 2021, DBS Bank announced that it had priced a $15 million digital bond that marked its digital exchange’s first security token offering.

Citi’s report said 62 per cent of sell-side respondents are focusing their DLT and digital asset efforts on tokenisation of various asset classes, including public and private assets. Only 8 per cent are trying to issue native digital securities.

Another key finding – sell-side respondents prefer private networks.

As tokenisation of assets gains momentum, 64 per cent of sell-side respondents said they expect to use private networks that are managed by banks, technology companies and financial market infrastructures for this.

However, on the buy-side, asset managers are focusing on public blockchains for fund tokenisation and distribution opportunities.

In terms of transaction settlement, people now expect the process to be faster, with 40 per cent of respondents expecting to move to real-time, simultaneous settlements within a decade.

The report also found that securities lending remains one of the most strongly impacted activities after the United States switched to a faster settlement regime called T+1 in late May. Under the new T+1 settlement cycle, most securities transactions will settle on the next business day following their transaction date. 

Half of the participants saw the most impact on securities lending, followed by funding requirements at 49 per cent. Both figures are up from 2023.

Respondents also noted that regulatory clarity, and interoperability between networks and wallets are the top factors in enabling the widespread use of digital assets.