Laser Digital, the digital assets subsidiary of Nomura, has made a strategic investment in ClearToken, a startup aiming to provide the scale and structure required for mass institutional engagement with digital assets.
ClearToken is looking to address a missing piece in digital asset market structure – which has caused traditional asset management, insurance and banking institutions to face challenges when engaging with digital assets – by introducing traditional market structure best practices.
“Institutional adoption of digital assets has been limited until now because of combination of credit risks and operational frictions which have been solved in traditional markets through the development of financial market infrastructures,” said Ben Stephens, CEO of ClearToken, speaking exclusively to The TRADE.
“Whilst distributed ledgers make it possible to engineer near instantaneous and continuous settlement, the period between agreeing a transaction and settlement creates a timing gap which causes counterparty risk. ClearToken as a CCP solves this problem by having members face us instead of each other, simplifying and netting off risks and credit exposures and facilitating institutional participation.”
The startup is building a central counterparty (CCP) which will remove bilateral counterparty risk for settlement, financing and derivative transactions by centralising clearing, settlement, collateral and risk management arrangements, similar to traditional exchange traded assets.
The move will allow all participants to face the CCP as opposed to each other, which will result in more streamlined transactions, an increase in capital efficiency and a reduction of risk for all participants.
ClearToken noted that working with regulators globally to develop regulation to which the firm will comply, is central to the project in order to stabilise the current ecosystem and safeguard its participants with a regulated CCP as a key part of financial market infrastructure.
The startup is currently incubated by Laser Digital and is engaging with digital asset exchanges, liquidity providers, asset managers and other market participants as contributors and members to accelerate the next phase of the project.
“Digital asset technology has the potential to revolutionise financial markets offering enormous innovation in efficiency and transparency but we have also seen that it is a leap of faith to expect Defi to solve all market problems,” said Niki Beattie, chair of ClearToken.
“Clearing houses will remain an essential market participant; their integration into the digital asset market structure can bring much needed stability and allow the innovative nature of this sector to continue within the regulated framework required to fulfil its transformative ambitions.”
Dr. Jez Mohideen, CEO of Laser Digital added; “Laser Digital invests in projects which aim to address the challenges institutional investors currently face in the digital asset marketplace. ClearToken’s initiative has the capacity to remodel a marketplace fraught with bilateral risk, transforming this market as we know it. We’re proud to be an investor and early supporter of this very necessary innovation.”