From Ledger Insights, June 12:
The Futures Industry Association (FIA) has published a report exploring the potential of tokenized collateral to be used to post margin for centrally cleared derivatives trades.
The volumes involved are potentially significant, with the top ten central counterparties holding $915 billion in initial margin at the end of 2024, and the top five – LCH, CME, ICE, TheOCC and Eurex – making up the lion’s share. Regulatory developments have begun reshaping how these major players approach collateral management.
After the Commodity Futures Trading Commission (CFTC) announced tokenized collateral pilots, both the CME and ICE announced plans to explore the topic. In Europe, Eurex is already quite advanced and has regulatory approval. In part that’s because its parent, the Deutsche Börse, is both an investor and partner of digital collateral firm HQLAᵡ. While LCH, the largest collateral holder, hasn’t formally announced a tokenized collateral initiative, it has moved into digital assets. The firm launched LCHDigitalAssetClear for centrally cleared Bitcoin derivatives. The other member of the big five, The OCC, explored using blockchain with DLT partner Axoni for several years before pivoting away from the technology.
Against this backdrop of varying approaches, the FIA outlined its strategic recommendations, including a preference for starting with tokenized money market funds (MMFs) rather than tokenized cash. That’s partly driven by the potential for traders to continue earning yield on the collateral posted. Additionally, on the tokenized cash front, the FIA views CBDC as premature. Too few banks provide the option of tokenized deposits. And stablecoin regulations around the world are progressing, but not quite there yet....
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