Last week, the Chilean Central Securities Depository (DCV) announced that it is upgrading its systems as it wants to pioneer asset tokenization. Last year, DCV replaced its legacy system to use Nasdaq’s CSD platform and will now also integrate Nasdaq’s digital asset capability.

The central securities depository (CSD) is considering the ability to use smart contracts to automate lifecycle events, such as interest payments on bonds issued as digital securities. The enhanced solution will support the issuance, registration and settlement of digital securities.

“Market infrastructures are increasingly looking for ways to adopt tokenization,” said Roland Chai, executive vice president of Nasdaq. “Nasdaq’s technology enables providers to continue to provide traditional securities services while capturing the various opportunities with digitized assets.”

Will the blockchain turn carbonated drinks into dinosaurs?

Blockchain has features that call into question the future of CSDs. DLTs enable atomic settlement: security and payment change hands simultaneously, replacing the role of a CSD in settlement. Furthermore, the nature of the blockchain is to provide an immutable record of transactions and therefore ownership. Together, this makes the CSD the infrastructure most likely to be disintermediated.

However, for a number of reasons carbonated beverages are unlikely to go away any time soon. First, most countries have securities regulations that require the use of a CSD, so it will take time to change them. The EU DLT Pilot Scheme is exploring this type of problem.

Second, CSDs play a critical role in the transition from conventional to digital values. For example, in Switzerland, the CSD of the SIX Digital Exchange is the main registrant of digital securities. But for a recent UBS issue, the digital securities were joined by the conventional SIX CSD, allowing investors who know nothing about blockchain and private keys to buy the UBS bonds. This role will play across technologies and jurisdictions.

A third point is usually overlooked (not in Korea). To date, most digital securities have been issued on a single blockchain. If crypto is anything to go by, with some crypto being issued on a dozen chains, that may not be the case for long. Therefore, there is a need for a CSD or a mechanism to aggregate ownership across multiple ledgers.

Meanwhile, carbonated drinks will evolve. Deutsche Bank’s Clearstream has developed D7, a blockchain-based ledger for centrally registered securities and decentralized crypto-securities from Germany. Euroclear is working on a bond issuance platform.