How to build the markets of the future

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Summary

In this blog post we analyze the report “building the market of the future” by OMFIF in partnership with Stellar Development Foundation and Aquanow.

  • The regulation of digital assets has evolved markedly, with progress on regulatory framework design accelerating in several jurisdictions.
  • Efforts are being made to deliver robust bank-grade infrastructure for custody, systems integration, and supervision to give regulated institutions confidence in trusting the market.
  • Chapter 2 examines the progress towards clear regulatory frameworks for cryptoassets around the world, with the US lagging behind other jurisdictions.
  • Regulatory arbitrage in the US has allowed other jurisdictions to position themselves as safe havens.
  • Progress in requiring VASPs to register and get licensed has been made in advanced economies, but around 70% of countries are yet to regulate the sector.
  • Decentralisation raises fundamental questions about the nature of regulation and how it is deployed most effectively.
  • Stablecoins appear to have been generally resilient in the face of the crypto crash and can facilitate cross-border transactions without intermediaries like banks.
  • Tokenising assets and cash solutions are key steps in the application of digital assets, with the tokenisation of cash still a key step.
  • Blockchain bonds are yet to meet their full potential, but there have been encouraging signs of progress in adoption over the past few years.

Introduction: Embracing the Future of Digital Assets

The world of finance is undergoing a profound transformation, driven by the rise of digital assets. In the report “Digital Assets 2023,” we delve into the key elements shaping this evolution and explore the regulatory, technological, and market developments. As we navigate through the chapters of this report, we will uncover the pivotal insights that are shaping the future of digital assets and the opportunities they present for investors, institutions, and regulators.

Chapter 1: Regulatory Framework Design for Digital Assets

The regulatory landscape for digital assets has been a focal point of discussion and development. The report sheds light on the progress made in designing regulatory frameworks for cryptoassets in various jurisdictions. It emphasizes the importance of robust regulatory structures to instill confidence in regulated institutions and foster trust in the market. The need for bank-grade infrastructure for custody, systems integration, and supervision is highlighted as a crucial element in ensuring the integrity of the digital asset market.

Chapter 2: The US Regulatory Lag and Regulatory Arbitrage

In this chapter, we can see that a notable observation is the lag in regulatory progress in the United States compared to other jurisdictions. This has led to regulatory arbitrage, allowing other countries to position themselves as safe havens for digital asset activities. The implications of this regulatory gap and its impact on the global digital asset landscape are explored, shedding light on the challenges and opportunities it presents for market participants and regulators.

Chapter 3: Progress in VASP Regulation and Decentralization

The report delves into the progress made in requiring Virtual Asset Service Providers (VASPs) to register and obtain licenses in advanced economies. However, it also highlights that a significant portion of countries are yet to regulate the sector, posing challenges in achieving a harmonized global regulatory framework. Furthermore, the concept of decentralization raises fundamental questions about the nature of regulation and its effective deployment in the digital asset space.

Enforcement actions reached new heights in 2022
Source: SEC, CFTC, FinCEN, OFAC
Note: 2023 data as of August 2023. Enforcement actions only include those publicised by regulators in briefings. We acknowledge
that more cases are noted in annual enforcement reports.

Chapter 4: Stablecoins and Cross-Border Transactions

Stablecoins emerge as a resilient asset class, particularly in the face of market volatility. The report underscores their potential to facilitate cross-border transactions without the need for traditional intermediaries like banks. The implications of stablecoins on the global financial system and their role in reshaping cross-border transactions are explored, offering valuable insights into the evolving dynamics of digital assets in the international arena.

Chapter 5: Tokenization of Assets and Cash Solutions

Tokenization of assets and cash solutions takes center stage as key enablers of the digital asset ecosystem. The report emphasizes the transformative potential of tokenization in unlocking liquidity and streamlining asset management processes. Furthermore, it underscores the significance of tokenizing cash as a pivotal step in the application of digital assets, offering a glimpse into the future of finance and investment.

Chapter 6: Accelerating Progress in Digital Bond Markets

The report examines the accelerating progress in the creation of primary Distributed Ledger Technology (DLT)-based instruments, particularly blockchain bonds. It highlights the encouraging signs of adoption and progress in the digital bond market, shedding light on the transformative potential of DLT-based instruments in reshaping traditional financial markets.

Chapter 7: Overhauling Repo Markets with Digital Solutions

The repo markets are identified as ripe for a digital overhaul, presenting opportunities for innovation and efficiency gains. The report delves into the potential of digital solutions in revolutionizing repo markets, offering insights into the transformative impact of digitalization on traditional financial instruments and markets.

Conclusion: Navigating the Future of Digital Assets

As we conclude our exploration of the “Digital Assets 2023” report, it becomes evident that the future of finance is intricately intertwined with the evolution of digital assets. The regulatory, technological, and market developments outlined in the report underscore the transformative potential of digital assets and the opportunities they present for investors, institutions, and regulators. Embracing this future requires a proactive approach to regulatory design, technological innovation, and market adaptation. By navigating the complexities and seizing the opportunities presented by digital assets, stakeholders can position themselves at the forefront of the evolving financial landscape.

In conclusion, the “Digital Assets 2023” report serves as a guiding beacon, illuminating the path forward in the dynamic world of digital assets. It offers valuable insights, actionable strategies, and thought-provoking perspectives that are essential for navigating the future of finance in the digital age. As we embrace the opportunities and challenges presented by digital assets, we embark on a transformative journey that holds the promise of reshaping the financial landscape for generations to come.

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