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Unlocking the value of digital assets
Digital assets promise frictionless movement and real-time settlement, opening new opportunities for firms to source, transfer and manage collateral with greater speed, transparency and control.
Read our introductory article for an in-depth overview of digital assets and their benefits. In this follow up, we explore the five components of real-time collateral rails and why firms need a modern collateral management platform to deliver them.
Digital assets and the market
Institutions and regulators are progressing tokenised asset use cases from pilot to production. As digital assets gain industry momentum, firms can benefit from streamlined liquidity management, frictionless collateral mobility and real-time settlement efficiency.
Current operational capability is quickly becoming the limiting factor in realising these benefits. Collateral management workflows need upgrading to enable fully automated, real-time processing of digital assets.
Legacy technology platforms relying on overnight data feeds, manual processes and inflexible asset models can’t meet these requirements. For digital assets to drive real value the industry needs real-time collateral rails.
The five components of real-time collateral rails
Real-time collateral rails are the capabilities which enable a digital asset to flow seamlessly through every stage of the collateral lifecycle without manual intervention or data latency.
They comprise five components, each essential to the successful adoption of digital assets. CloudMargin’s digital asset-ready solution delivers all five as standard.
1. Flexible connectivity to digital asset ledgers
The digital asset market spans a growing number of ledgers, custodians, tokenisation platforms and interoperability providers. Firms need the flexibility to connect to several at once and to add or change providers as the market evolves.
CloudMargin's fully flexible ETL and connectivity layer can ingest data from multiple inventory sources and digital asset providers concurrently. Benefits include:
- Seamless connectivityLink multiple digital asset ledgers and infrastructure providers
- No-code configurable data mappingConfigure new formats in minutes, without costly custom development and complex patching
- Provider flexibilityAdd or replace providers in minutes with no disruption to existing workflows
2. Tokenised assets in the asset hierarchy
A tokenised asset can only be used as collateral once it’s been correctly classified within the asset hierarchy, which flows through eligibility, haircuts, concentration limits and optimisation.
CloudMargin's configurable asset hierarchies enable firms to add tokenised instruments in minutes without development work, delivering:
- EligibilityTokenised securities and money market funds (MMFs) map to existing eligibility schedules and CSA terms on arrival
- Consistent classificationTokenised instruments can be classified alongside their traditional equivalents, with separate treatment where terms differ
- Correct risk treatmentHaircuts, concentration limits and wrong-way risk checks are applied to tokenised assets as specified
- Inclusion in optimisationTokenised assets are incorporated into the same optimisation process as the wider inventory
- ExtensibilityNew asset categories, including tokenised real assets or new stablecoin structures, can be added as regulation and market practices develop
3. Real-time inventory
CloudMargin provides a single real-time view of positions across asset classes and locations, covering both digital and traditional assets. The inventory updates in real-time for:
- Assets on-ramped from ledgers, custodians and other locations
- Desk purchases and sales
- Collateral holdings, both pledged and received
- Recalls and substitutions in progress
Trading, collateral and treasury teams all work from the same position data. The result is a consistent view across the organisation, accurate allocation and timely deployment of surplus liquidity.
4. Automated substitution processing
CloudMargin automates the substitution workflow end-to-end. Substitutions can be triggered, selected for a single asset or actioned in bulk, through a single workflow. The platform:
- Identifies eligible replacement assets using optimised rule sets
- Validates against agreement terms
- Instructs their movement
- Confirms completion
Where digital assets are used, substitutions can settle in near real-time, giving firms significantly enhanced liquidity management and control.
5. Settlement instruction and status across multiple ledgers
CloudMargin instructs settlement and receives settlement status across multiple digital asset ledgers and traditional settlement networks within a single workflow. Status updates are available to all stakeholders on receipt.
CloudMargin has demonstrated this capability in a proof of concept with digital asset infrastructure provider Ownera, covering:
- End-to-end connectivity
- Systematic instruction of digital asset movements
- Instantaneous settlement across multiple chains
- Real-time settlement status updates within the CloudMargin platform
Why adopt real-time rails now?
Firms deferring the modernisation of their collateral infrastructure until digital asset markets mature are at risk of losing out twice. First, they‘re delaying the optimisation benefits digital assets offer by sticking with their complex legacy systems. Second, these systems can’t efficiently manage digital assets and will eventually need costly adaptation or total replacement. Adopting CloudMargin’s modern technology stack with real-time rails now ensures there’s no future constraint on digital asset adoption and the benefits it brings. New tokenised assets, ledgers and counterparties can be connected, classified, allocated and settled in real-time as they become available.
