The Time Is Now: Modernizing Financial Market Infrastructure
With an estimated market value of $175.0 trillion as of the end of June 2024, the global financial system underpins the movement of capital at a mind-bending scale. Yet, the infrastructure responsible for facilitating these transactions - the backbone of international finance - remains outdated, fragmented, and inefficient.
Despite handling trillions of dollars in daily activity, financial markets still rely on decades-old technology riddled with inefficiencies. Trades can take days to settle, transparency is limited and slow, and manual processes often constrain liquidity. Over our decades on Wall Street, we have seen firsthand how enterprise-grade systems that manage transactions, settlements, fund shares, investment portfolios, and custody have failed to keep pace with modern demands.
For an industry that powers the global economy, the fact that so much capital is still moved on legacy infrastructure is not just an inefficiency - it’s a liability.
Blockchain presents an opportunity to rebuild the financial system’s backbone - designed for speed, efficiency, and security. By addressing the inefficiencies of legacy infrastructure, blockchain reduces costs, streamlines operations, and modernizes the flow of capital at a global scale.
- Smart contracts automate processes, eliminating administrative overhead and reducing settlement delays.
- Distributed and immutable ledgers enhance transparency, ensuring data integrity and real-time auditability.
- Cryptographic tools strengthen security and privacy, mitigating fraud and counterparty exposure risks.
By 2030, we believe blockchain has the potential to penetrate 15-30% of the financial industry, unlocking a multi-trillion-dollar market opportunity. Now, technology has reached a stage of maturity ready for institutional adoption – and it’s already underway.
The New Financial Backbone: Blockchain’s Institutional Expansion
We believe institutional adoption is set to accelerate over the next five years as major players shift from pilot programs to full-scale blockchain deployments.
Institutional Adoption is Scaling Rapidly
- Trade settlement is moving from days to seconds. Blockchain-powered solutions are replacing legacy infrastructure, reducing inefficiencies in global capital markets.
- Cross-border fund transfers are being streamlined. Institutions are eliminating layers of intermediaries, cutting costs, and improving liquidity.
- Cash management is evolving. Tokenized assets and digital payment networks are enabling real-time financial operations.
For example, JP Morgan, the institutional leader in blockchain adoption, has already processed $1.5 trillion in transaction volume through its Kinexys Digital Payments solution, which enables real-time, multi-bank settlement. Other financial giants are following suit, integrating blockchain into core operations.
Regulatory Clarity is Accelerating U.S. Adoption
Institutional demand for blockchain and digital assets has been growing steadily for years, but recent political shifts have significantly accelerated adoption.
- Since Trump’s U.S. presidential win, the administration’s crypto-friendly stance and the prospect of regulatory clarity have given U.S. financial institutions greater confidence in blockchain’s near-term adoption curve.
- As a result, large financial firms are rapidly expanding their blockchain and digital asset practices, preparing for a future where digital assets are fully integrated into traditional finance.
Global Financial Hubs Are Finalizing Digital Asset Frameworks
Beyond the U.S., key financial centers are rapidly building out regulatory frameworks, reinforcing confidence in blockchain’s long-term role in financial infrastructure.
- The EU, UAE, Hong Kong, and Singapore are all taking steps to implement digital asset regulation into their financial systems.
- Our portfolio company, RD Technologies, a Hong Kong-regulated commercial banking and cross-border payments platform, has seen rapid growth in the past year as demand for efficient blockchain-powered payment solutions rises in Asia’s international business and trade hub. You can learn more about RD Technologies in our recent thesis.
Capital Markets Are Undergoing a Structural Shift
Blockchain-based infrastructure is replacing legacy trading systems, reducing settlement delays and unlocking new sources of liquidity.
- Private credit transactions, which previously took weeks to settle, are now being processed in hours, cutting costs by up to 80%.
- The World Economic Forum and BCG estimate that blockchain-powered collateral management could unlock over $100 billion annually in capital that financial institutions can redeploy for higher efficiency.
- Goldman Sachs’ GS DAP is a key example of institutional adoption, bringing blockchain efficiencies to trading and settlement processes.
Tokenization is Reshaping Asset Management
The asset management industry is embracing tokenization, which will unlock faster distribution, improved transparency, and more direct investor engagement.
- BlackRock, Franklin Templeton, and UBS have launched tokenized money market funds, with the sector projected to surpass $400 billion by 2030.
- Hamilton Lane ($947B AUM) is leading the expansion of tokenized private market funds, another sector expected to exceed $400 billion by 2030.
Institutional-Grade Market Infrastructure is More Critical Than Ever
As institutional participation in digital assets increases, the demand for robust, regulated financial infrastructure intensifies.
- Our portfolio company, GFO-X, the UK’s first regulated and centrally cleared digital asset derivatives exchange, is set to launch in early 2025 in partnership with LCH.
- The platform will bring central clearing to crypto futures and options markets, addressing counterparty and operational risks that have previously deterred institutional investors.
Conclusion
Given the vast opportunities for blockchains and digital assets to transform financial services, it’s worth taking a deeper dive into where we believe the highest potential opportunities lie for both institutions and startups:
- Digitalization and Programmability of Currency
- Clearing and Settlement of Fund Asset Purchases
- Scaling of Discretionary Portfolios for Wealth Management
- Issuance and Transfer of Fund Shares
In the coming months, we will explore the above areas in greater depth with content published on Hivemind’s Blog and Total Value Unlocked Podcast. The content will feature our own research and perspectives, as well as those of the institutional leaders and startup founders who are driving this transformation first-hand. Stay tuned and join us as we map the path toward a faster, more innovative, and more transparent financial system.
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