Digital Asset has become one of the
best-connected technology providers to many global trading venues, and its CEO
Yuval Rooz says adoption is growing quickly in Asia Pacific – despite setbacks
at its first major client, Australia Stock Exchange, where its rollout of a
DLT-based post-trading system remains mired in delays.

Rooz says DA, as the company is also known,
hopes to knit these various exchanges as they move business to blockchain-based
rails by helping them speak the same language.

One of the greatest challenges to
blockchain finance is “interoperability”, enabling the transfer of value across
different blockchains, be they public or permissioned.

Without it, this new world of financial exchange will be limited to walled gardens: a series of intranets that can’t move units of value – representing securities, commodities, or currencies – among one another.

The language of networks

Many companies are therefore trying to
create super-connector capabilities – and establish themselves, in some
way, as the critical infrastructure provider of the future. This could be in
the form of a blockchain itself that, ideally, is so good that developers and
firms build applications on top. Or it’s an asset like a stablecoin or NFT that
could somehow win adoption across networks. DA’s approach is to get multiple
customers to program their smart contracts in a new language that it developed.

“We realized the tools didn’t exist to use
blockchain to solve problems in capital markets,” said Rooz, one of DA’s three
co-founders.

Existing computer languages being used for
blockchain, such as Solidity, evolved from JavaScript, which was developed in
the context of traditional, centralized businesses. Rooz says this was holding
back DLT uptake.

Digital Asset then introduced a new, open-sourced language designed for decentralized networks called Daml, or Digital Asset Modeling Language. If enough institutions code their next-gen infrastructure in the same language, it makes it easier for them to eventually integrate their networks. It would also give Digital Asset a commercial advantage, as its other divisions include enterprise solutions and outsourced operations services for institutions that use Daml to power their DLT.

From language to truth

The bigger challenge that large financial institutions face, though, isn’t communicating with other firms. It’s keeping all of its internal, siloed departments on the same page. Developers lack the resources and the C-suite mandate to make this happen, and legacy processes are hard to change. Big Tech companies such as Google grew based on a unified tech stack – the golden source of truth.

Rooz says it’s not impossible to replicate something like that for capital markets. His ambition is for Daml to play that source of truth, or at least be the language by which “truth” gets interpreted. With a roster of shareholders such as Goldman Sachs, J.P. Morgan, Citi, Salesforce, IBM and Samsung, DA wants its language to be reliable enough so that smart contracts are safe and reliable.

Capital markets uses

Daml is being used today. Broadridge, the technology company, is using it for a new service providing collateral management of repurchase agreements. It is already processing billions of dollars’ worth of trades daily on behalf of capital-market clients.

(Be sure to register for DigFin‘s webinar with DA and Broadridge discussing their new “distributed ledger repo” product.)

In Japan, SBI is using Daml for developing
yen-backed “Smart Yen” project to help Japanese banks allow customers to
program the currency held in their deposit accounts. Aimed at both retail and business
customers, Smart Yen will allow merchants to connect loyalty programs or other
incentives to customers’ bank accounts.

Rooz says the biggest focus for DA’s
clients right now is tokenization. Goldman Sachs is using DAML to develop the
ability to tokenize existing assets or create digital-native assets, and
operate them across multiple blockchains. Goldman’s pilot involves tokenizing
bonds, but the language can be applied to equities, commodities, and even life
insurance.

Building the infrastructure for
tokenization is at the heart of DA’s various engagements with stock exchanges.
In this region it has worked with Hong Kong Exchanges, and with China DLT
network FISCO-BCOS.

Although these venues are working with Daml for their own projects, Rooz says the common language means they could support value exchange across any kind of asset. A tokenized money market fund or a yen stablecoin could be used as initial margin on HKEX to trade Hong Kong equity products – for example.

Delays Down Under

From vision to reality involves plenty of
hurdles, though. Digital Asset’s highest-profile engagement is with ASX – which
hasn’t gone the way DA or ASX had hoped.

ASX was the first mover among global peers
to wrestle with DLT. Its post-trade processing system, CHESS, was overdue for
an upgrade. ASX’s then-CEO, Dominic Stevens, agreed to replace it with a
DLT-compatible platform, which would enable the seamless movement of data and
value, compressing or eliminating reconciliation and other administrative
duties. DA was selected as the vendor – although this was more than just an
arm’s length choice, as ASX is also a shareholder in the company.

This was 2016 – six years ago. ASX’s
original go-live target was late 2020. By 2018 the project was already hitting
delays. Many domestic institutions and industry bodies opposed DLT – in some
cases it could threaten their existing business, and in other cases they just felt
the integration costs were too high for a benefit they couldn’t see.

Meanwhile the exchange was not upgrading
CHESS, and the outdated system hit snags during the extremely high trading
volumes that occurred worldwide in early 2020, when COVID-19 swept the world.
The securities regulator even asked market participants to reduce trading
activity because it feared they’d crash the ASX.

The CHESS replacement project was delayed again that year.

Reset

This spring ASX got a new CEO, Helen
Lofthouse, who previously led its lucrative execution business. She has paused
the project yet again and brought in Accenture to evaluate the ASX’s options.
The news elicited complaints from the regulators.

For now, ASX says this means assessing what
needs to be delivered to complete the project, and to set a new timetable.
DigFin asked an ASX spokesperson if Accenture’s review could include scrapping
the program; he replied: “The independent review will assess the remaining work
required to complete delivery of the application software for new CHESS. We
won’t be speculating on the results of the review.”

Rooz says he expects the project to be
completed: “We continue to finish the program.”

He added it is easy to criticize ASX and DA
for this drawn-out delivery. He argues, however, that critics should recognize
ASX “saw the writing on the wall” and decided to be the pioneer moving to DLT
infrastructure. It acted on its conviction, and its project remains the most
ambitious among all the blockchain-related initiatives at other exchanges.

Rooz blamed delays on COVID and the need to
ensure market readiness. “The software can meet the requirements of running an
entire equities market,” Rooz said. “We’re disappointed at the delay but we’re
proud of what we’ve achieved.”

Looking at the region, Rooz says there is
progress in many jurisdictions. Whereas institutions in the U.S. and Europe are
mostly using DLT and DAML to improve existing processes, he says many projects
in APAC are creating new businesses: ASX, SBI, and Hong Kong’s use of Daml to
connect global investors to China markets are all innovative stories, while
Singapore and Hong Kong are driving new thinking in cross-border uses for
central-bank digital currencies.

And as many of these projects are writing
their applications with Daml, they grow closer to being able to process
transactions of almost any kind of asset – among their participants, and
perhaps among their platforms.