Asset-Backed Securities: Entering the Crypto Conversation in 2019

The underlying technology is now a few years old, and senior leaders in the securitization industry have become increasingly familiar with the end-value state of cheaper and faster transactions with greater asset integrity.

There is now a growing consensus that the decentralized nature of DLT supports our sector's broader digital transformation goals, and that it can help us move away from a siloed ecosystem that has not been able to realize the same common protocol benefits seen in other asset classes.

In discussing these digital assets I've often been asked, "Don't we already have digital loans?".

Even within the minority of the asset-backed securities market, where the application and origination process has been digitized, a PDF of a loan document is very different from a digital asset in the efficiency and sophistication with which it can be transacted in the credit markets.

A loan as a digital asset on-chain can be transacted with the ease, speed and certainty of other digital assets like cryptocurrencies, while the PDF document is still dependent on the legacy model taking weeks and significant cost to execute transactions, with limited contextual asset information attached or ability to run smart contracts.

In the token model, the original authoritative copy of the loan document is securely locked down with an associated token representing ownership interest and core asset characteristics.

The transaction and management of both asset types in the capital markets we call Digital Structured Credit.

The credit market is slightly behind most electronically traded asset classes that saw low risk in applying DLT to settlement & clearing inefficiencies.

One of the core pillars for all digital asset classes has been custody.

Most professionals are now comfortable with the scalability, security and permissioned vs public implementation options for DLT. While asset-backed securities have relatively low volumes of data and transactions in comparison to other electronically traded asset classes, we foresee the benefits of these efforts to allow greater capabilities and on-chain development for the market.