Discussions about capital markets and blockchain quickly divide opinions. Some believe distributed ledger technology (DLT) will completely replace current market infrastructure, while others view it as an exaggerated idea that cannot fit into regulated financial systems. The reality is more complex—and therefore more intriguing.
In capital markets, change rarely happens overnight. These systems rely on legal certainty, institutional responsibility, and operational stability. Therefore, the main question is not whether DLT will replace current infrastructure, but how it can be introduced without disrupting market integrity.
A well-known example is the Australian Securities Exchange (ASX). For years, it was seen as a leading DLT initiative, aiming to replace its clearing and settlement system with a blockchain-based solution. However, the project was halted in 2022. The lesson is not that DLT failed, but that replacing an entire market infrastructure in one move is very complicated and risky.
It also points to a more practical truth: not every part of the system needs to change at once. The real challenge lies in identifying where DLT can provide value—and where it cannot.
Looking at the broader picture, the real benefit of DLT is not the technology itself, but how it can improve key market processes. Most inefficiencies in today’s markets exist outside of trading, affecting areas like issuance, reconciliation, ownership records, settlement, collateral management, and corporate actions. These are the areas where DLT can provide real improvements.
At the same time, one of the most significant questions about tokenized securities is not technological, but legal: what serves as the official record of ownership?
As long as blockchain operates beside traditional systems, it mainly serves as a layer for efficiency, while the legal record stays within existing infrastructure. However, once a DLT system becomes the legally recognized register, the change is more profound. This goes beyond digitization—it is a structural shift in how markets function.
That is why it is better to view DLT adoption as a gradual evolution instead of a single disruptive leap. One way to see this evolution is through four representative models.
The most cautious approach is what we might call the “mirror” model. Here, DLT functions as a parallel layer while the traditional system stays the official record. The blockchain gives extra validation or technical support, but does not replace the core infrastructure.
This realistic first step allows market participants to gain experience without changing legal foundations. DTCC’s Project Ion in the United States is a good example, where a DLT-based settlement platform was introduced alongside the existing system.
A more developed model uses DLT as a settlement layer, while the official record remains in traditional systems. The key idea here is straightforward: DLT does not need to replace institutions to create value—it can make connections between them more efficient.
In this model, the main benefit is less reconciliation and smoother interaction among participants. The collaboration between Clearstream and HQLAx highlights this approach, where DLT improves collateral mobility and streamlines settlement processes without replacing core infrastructure.
The third model shows a significant shift, where the on-chain system becomes the official record. In this case, DLT takes over a function usually performed by central infrastructures, meaning legal recognition is just as important as technological capability. Jurisdictions that adjust their regulatory frameworks play a crucial role here.
For instance, the Swiss SIX Digital Exchange (SDX) operates a regulated market infrastructure with exchange and central securities depository (CSD) functions, built on DLT. This may initially seem counterintuitive, as a distributed system is used to perform traditionally central functions, where issuance, settlement, and custody all happen within a fully integrated blockchain environment.
The fourth model is possibly the most innovative and often misunderstood, as people assume public infrastructure means open, permissionless access. This model uses public blockchains under institutional control.
While the infrastructure itself is public, like Ethereum, access to assets is limited at the application level. Smart contracts determine which participants can interact with a specific asset. Therefore, although transactions might be publicly visible, participation remains permissioned.
Compliance, identity verification, and regulatory requirements are still fully enforced—just in a programmable form. Société Générale FORGE’s bond issuance on Ethereum serves as a good example of this model in action.
One of DLT’s biggest promises is not just improving a single institution, but enhancing the system as a whole. A standalone blockchain solution is not enough to transform capital markets. Many past initiatives, such as IBM’s supply chain projects or the we.trade platform, struggled because they did not reach the critical mass of participants needed for network effects to develop.
Real efficiency gains come when multiple market participants—issuers, custodians, central infrastructures, and settlement banks—work on the same shared ledger. This approach reduces duplication, minimizes reconciliation, and lessens friction between systems.
At the same time, it is crucial to look beyond the asset side. A digital securities infrastructure also needs a compatible “cash leg.” If securities are tokenized but payments remain fragmented, overall benefits are limited.
This is why wholesale central bank digital currencies (CBDCs) are attracting attention in Europe and Switzerland, while other markets are increasingly considering stablecoins. These choices will influence not only the technology stack, but also the structure of financial markets.
The EU’s DLT Pilot Regime is a meaningful step forward, but it does not fully address the challenge of native tokenization—where a token is not merely a representation, but the legal asset itself. The framework primarily supports experimentation with DLT-based infrastructures, while broader legal changes are often necessary for full adoption.
Luxembourg, for example, has taken several steps in this direction through its Blockchain Laws I–IV, which explicitly recognize DLT-based securities registers.
Overall, a clearer picture is beginning to take shape. DLT is unlikely to eliminate intermediaries, but it will change their roles. The key question is not whether institutions will remain, but which functions will endure, which can be automated, and which will shift into new technological environments.
Barnabas Horvath
