The movement to shift capital markets to operating on blockchains has many enthusiastic promoters. None of them can explain how it will actually come to pass.
There is a crowded field, with many players of different kinds moving about pursuing various actions, but they are still far from forming orderly patterns whose development can be clearly predicted.
The easiest actors to read are the regulators, central banks and legal authorities. They have to make clear statements and stick to them — and when they say something, others must obey.
But comparing them to the referee in a football match would be a mistake. They are not enforcing an agreed set of rules, but making them up as they go along.
Market participants are delighted they’re there. The Eurosystem of central banks, for example, has been increasingly engaged since its trials of tokenised cash settlement in 2024. The launch of its Pontes system for settling transactions in central bank digital currency, due in September, towers over any other event on the European scene. Anyone attempting an initiative will organise it around Pontes.
Since whatever the regulators explicitly favour is blessed, firms crave the clarity they bring.
Unfortunately for market actors, the powers that be have not gone very far yet. Various jurisdictions have allowed certain activities, but they have not prescribed many.
Players have been told what parts of the body they can hit the ball with and they have a rough idea what constitutes a foul, but the pitch is only sketched out in chalk and the goals are still piles of jumpers.
Will there be one ledger or many? If several interoperate, who will ensure coherence? Who will check for errors? Will securities depositories remain central, or be sidelined? How will any of this promote — rather than fragment — liquidity, transparency and oversight?
Many are waiting expectantly for the regulators to finish the job. Indeed, it is hard to imagine any other way these questions and many more can be resolved.
As one ardent blockchain supporter put it, after taking a job at a regulator: “In the old system, the regulator was the policeman. In the transition to a new system, they become the architects.”
There is another vision of what’s going on. Spread out over the field are several pitches, each influenced — governed is too strong a word — by a different squad of budding umpires. Authorities in each jurisdiction are trying to design the best game, to attract players from all corners.
In this model, the regulators are the most dynamic movers, forcing disruptive change. The driving force of DLT adoption, said another expert, is “global regulatory divergence and competition among regions”.
The urge not to be left behind is impelling not only commercial firms, but their overseers.
If regulators are the only parties following a discernible forward path, rather than milling about, it is not because of any great savings that could be harvested soon, but a gold rush to stake claims before they’re all taken.
Which description of the field proves more accurate remains to be seen. But if regulators’ hearts are seething with rivalry and FOMO, that shakes the idea that the market can trust them as Olympians who will bring perfect harmony to earthly chaos.
Market regulation and structure has been a hodge-podge before. It may be again.