Blockchain and distributed ledger technology will replace the guts of financial markets within 10 years, according to 60 percent of business executives surveyed by fintech infrastructure provider Broadridge. In some markets, it’s already happened.

Broadridge introduced a blockchain-based repurchase market in 2021 that’s doing $1 trillion in volume per month. Banks including UBS and Societe General are members of the Broadridge market, which is where companies pledge U.S. Treasuries as collateral for overnight or short-term loans. Banking giant JPMorgan started is repo market using a version of Ethereum in 2021 as well,  with Goldman Sachs and BNY Mellon involved in trades that were topping $1 billion a day as of June, 2021.   

Broadridge interviewed 500 executives at financial firms around the world for its 2023 Digital Transformation and Next-Gen Technology survey. About a quarter, or 27 percent, of the respondents said they are investing in blockchain and DLT technology compared with 12 percent who said they’re spending cash on cryptocurrencies. A key difference between the 2023 survey and the one a year earlier is that executives are reporting that blockchain is actually being used, Prakash Neelakantan, vice president for blockchain strategy at Broadridge, said in an interview.

“Now people believe there is adoption of blockchain and DLT technology, so that’s a kind of signaling event,” Neelakantan  said. The momentum has been building slowly but consistently, he said, so the tipping point in this year’s survey results shouldn’t be seen as a surprise. “Now it actually looks like laggards are saying, ‘okay, we recognize we were not spending money on this. Now we should actually spend,’” Neelakantan said.

DLT is a term for enterprise blockchain which is a network where all members are known to each other. Unlike a public blockchain like Bitcoin where users are pseudonymous, DLT is used for some business dealings where banks or brokers must vet and know who they’re trading with.

Enterprise blockchain is not in general use yet, Neelakantan said.  But there has been a pronounced shift in how financial firms view the technology.

“Because of the nature of the technology, you’re not selling to one customer, you’re selling to a bunch of participants, all of whom should benefit from adopting and interacting with the technology,” he said. “That recognition has taken time.”

“The problem for us, for the last two-plus years, a lot of people got distracted with crypto,” he said with a laugh. While crypto is evolving and is recognized as its own asset class, institutions have recognized for years that the underlying technology has immense potential to transform everyday business practices, Neelakantan said.

Trades in the $4.6 trillion repo market are often hard to arrange within the same day. Blockchain-based systems however can accommodate this and also swap the Treasuries and cash simultaneously and immediately, virtually eliminating trading errors. The time reduction from blockchain means banks save a lot of money as interest on repo trades is calculated by the minute.

Other financial markets using blockchain include some equity trades being settled by Paxos Trust Co. and a digitized Treasury fund offered by Arca.  

One area of caution is spending on the metaverse, Broadridge found. While 39 percent of survey respondents said the metaverse will be key to managing client interactions within 10 years, only 5 percent are increasing metaverse investment in the next two years, according to Broadridge.

A longstanding challenge for wider enterprise blockchain adoption is the need for a network effect that gives large cost savings and efficiencies. Yet it can be hard to convince firms like banks, insurance companies or hedge funds to get involved initially because they may not all benefit equally, which can create an impediment to wider acceptance. That seems to be changing now, and more financial markets should soon be a using blockchain in live daily transactions, Neelakantan said.

“Similar cases are there for many financial products,” he said. “Sizable markets where the value can be seen by participants where we think it will happen.”