Toward a digital-first future: Reimagining collateral management
13 May 2025
Following DTCC鈥檚 Great Collateral Experiment, Daniel Tison reports on the key implications for the securities finance industry
Image: stock.adobe.com/NooPaew
An hour and a half was enough for the Depository Trust & Clearing Corporation (DTCC) to demonstrate the power of tokenised collateral to unlock liquidity, streamline operations, and accelerate the convergence of traditional and digital markets.
Featuring real-world use cases across a diverse set of market assets, 鈥楾he Great Collateral Experiment鈥�, taking place on 23 April, was the first industry demonstration on DTCC鈥檚 Digital Launchpad 鈥� a purpose-built blockchain ecosystem launched in October.
The new collateral management platform is an application on the DTCC AppChain, built atop LF Decentralized Trust鈥檚 Besu blockchain.
鈥淭he future is now,鈥� said Nadine Chakar, global head of DTCC Digital Assets, in her opening statement. 鈥淚n collateral, digital isn鈥檛 the future 鈥� it is the present. This is an opportunity for us as an industry to reimagine collateral management.鈥�
She explained that the goal is to break down barriers by bringing the industry together to accelerate the adoption of digital technologies.
鈥淲hy collateral infrastructure? Well, we think collateral management is the perfect killer application for blockchain,鈥� Chakar continued. 鈥淲e have all witnessed the recent market volatility and liquidity challenges, which have underscored the criticality of resilience across global financial markets.鈥�
Chakar believes that the move to digital collateral plays a critical role in enhancing liquidity as well as strengthening the resilience and soundness of financial markets. In particular, she highlights distributed ledger technology (DLT) as a solution to improve settlement speed, security, and data management.
鈥淥ur goal now is to find common ground for a unified digital collateral infrastructure for the entire industry, and we believe that an open, interoperable approach to this new infrastructure is the best path forward, as both the technology and global regulations continue to evolve,鈥� she stated.
For Chris Watts, CEO of Tonic, who hosted the event, this demonstration represents a 鈥渞eal game-changer鈥�, as there has never been anything near this scale or level of completeness.
鈥淚n a climate of ever-increasing complexity and stress, now is the time to pivot towards superior solutions, and we believe this comes in the form of digital,鈥� said Watts. 鈥淚magine a world where an asset moves fluidly from one continent to another with no restriction on settlement windows, regions, or product silos.鈥�
The real magic
For this purpose, Watts acted as the CEO of MarginCore, a fictional bank that the DTCC established to facilitate the introduction of this new framework.
He started by introducing a 鈥渧ery sexy鈥� set of scenarios based on real-world events, which aimed to demonstrate 24 hours of global collateral movement via a digital operating model, using tokenised assets, DLT solutions, and smart contracts.
Acting as the chief technology officer (CTO) of MarginCore, Dan Doney, CTO and chief architect at DTCC Digital Assets, highlighted the benefits of the DTCC AppChain, such as no fees for transactions, flexibility, and interoperability.
The 鈥渞eal magic鈥�, for Doney, is the conversion order, which converts value in traditional custodial systems to digital form and vice versa.
鈥淢y traders love that they can access any form of value 鈥� cash, Treasuries, funds, equity, debt securities, and even crypto 鈥� from the same rails,鈥� Doney, staying in character, exclaimed. 鈥淚 love that my corporate policies are enforced automatically, so they can only execute transactions that are compliant in each of our global markets.鈥�
The fictional working day started in Tokyo, with central counterparty (CCP) trading and margining of crypto derivatives. In the digital state, MarginCore was able to access inventory from its US branch outside of local market hours to support its obligation in the Tokyo time zone.
Net asset pool allowed the global company to manage its inventory across both traditional and decentralised finance (DeFi) markets using a single platform and team, bringing significant operational efficiencies.
鈥淲e mobilised US Treasuries to Tokyo in real time with no settlement or market constraints, so if we鈥檙e short of a specific asset type, we now have a global liquidity pool to mobilise from 24/7,鈥� explained Watts. 鈥淲e鈥檝e also avoided an external repo trade and the extra settlement risk that brings.鈥�
Turning a nightmare into a dream
As the European markets are starting to wake up, the experiment moves to Paris, where DTCC demonstrated collateralising over-the-counter (OTC) derivatives under the uncleared margin rules (UMR).
MarginCore Paris starts the day with a deficit in its agreement with Wellington and excess collateral with SocGen. In the digital state, a single asset pool, regardless of collateral agent, allowed for improved optimisation, including the option of connecting to triparty agents.
Additionally, tokenisation enabled the automatic distribution of coupon payments, eliminating the need for substitutions over income events.
鈥淲e鈥檝e shown we can instantly mobilise return collateral assets to meet other obligations on the same day across regional markets,鈥� Watts commented. 鈥淚n parallel, we remove the need for internal treasury funding and any internal trading costs.鈥�
On that note, Doney added: 鈥淭okens that streamlined dividend distributions and smart contract automated collateral processes know the beneficial owner and allow transactions that took days, weeks, and sometimes even months, to execute now move in real time. What used to be a nightmare is now a dream.鈥�
The third scenario demonstrated the benefits of using tokenised collateral under stress credit conditions. A sudden shock to global financial markets results in gilt prices falling, and MarginCore London requires real-time changes to its eligible collateral terms to support continued liquidity in the market.
The inclusion of smart contracts and tokenised money market funds (MMFs) helped counterparties navigate the stress event more efficiently. With real-time changes to the collateral schedule, MarginCore was able to deliver tokenised MMFs to market participants with near-instantaneous settlement. This resulted in seamless collateral coverage, mitigating risk and eliminating the need to redeem MMFs for cash collateral, as Watts explained.
鈥淥ur liquidity resilience was protected via real-time inventory combined with instant tokenisation and mobilisation of digital MMFs,鈥� he said. 鈥淎s gilts crashed, both MarginCore and our counterparties quickly reverted to alternative assets to stay solvent.鈥�
The day wrapped up in New York, with intraday repo, crypto collateral assets, and inter-CCP collateral.
The aftershock of London markets continued to unsettle MarginCore, which would typically need to borrow against its credit line or settle overnight repo to raise cash. However, digital cash allowed participants to settle intraday repo with near-instantaneous settlement, removing delays associated with traditional bank processing times.
鈥淭he power of digital collateral enabled us to make the right decisions for the business at speed and then execute upon them in real time,鈥� Watts, who remained in character, summarised. 鈥淚n turn, this helped secure margin, financial health, and my job, I suspect.鈥�
A team effort
Within the simulation, DTCC optimised CCP derivatives and repo collateral in real time, and mobilised assets across regions using a global collateral pool. In a very playful way, the Great Collateral Experiment also showed how tokenised assets can eliminate the need for record date substitutions and how changing collateral eligibility can protect a company from a default within a stressed event.
Watts summarises the key outcomes of the experiment as liquidity, cost savings, and operational efficiencies. He also emphasises the importance of resilience, close-out speed, and interoperability of the digital collateral operating model.
Reflecting on the experiment, Watts said: 鈥淭he automation and scale provided by digital collateral will help protect us all from volume surges that come as part of a long-term stress climate that now seems, I'm afraid, our new normal 鈥� not to mention the extensive cost savings activated by digital collateral across funding operations and technology streams.
鈥淓specially important, in the tough-cost environment we find ourselves in, a major outcome here is the reduction of today's expensive collateral buffers 鈥� users and insurance policies against the inefficiencies of the Old World.鈥�
In her closing remarks, Chakar said that a major focus will now be the advancement of the regulatory and legal framework for the digital operating model.
鈥淭here is work to be done to ensure that regulators across all major jurisdictions are fully informed of the intricacies of the technology and data solutions that you've seen today,鈥� she said. 鈥淭his will be a team effort 鈥� a partnership among all our participants.鈥�
In the coming months, DTCC is planning to host a legal roundtable to provide market participants with the insights of the work done to date. The company will also engage with industry bodies to achieve consensus around data standards, best practices, and all important components to encourage interoperability.
鈥淲e must continue to work together as an industry to advance at a pace towards productionising the operating model,鈥� Chakar emphasised. 鈥淥nly then will we realise all the benefits shown today.鈥�
DTCC aims to bring the industry together and facilitate the necessary debate through its Digital Advisory Council, listening to stakeholders鈥� feedback and collaboratively designing the right solution.
Chakar concluded: 鈥淲e see this as a key industry milestone for the digital collateral movement, taking us a step closer to our mutual goal of a digital-first future. The digital benefits are both extensive and accessible. Now it's up to us as an industry to realise them by collaboratively executing on the right operating model.鈥�
Featuring real-world use cases across a diverse set of market assets, 鈥楾he Great Collateral Experiment鈥�, taking place on 23 April, was the first industry demonstration on DTCC鈥檚 Digital Launchpad 鈥� a purpose-built blockchain ecosystem launched in October.
The new collateral management platform is an application on the DTCC AppChain, built atop LF Decentralized Trust鈥檚 Besu blockchain.
鈥淭he future is now,鈥� said Nadine Chakar, global head of DTCC Digital Assets, in her opening statement. 鈥淚n collateral, digital isn鈥檛 the future 鈥� it is the present. This is an opportunity for us as an industry to reimagine collateral management.鈥�
She explained that the goal is to break down barriers by bringing the industry together to accelerate the adoption of digital technologies.
鈥淲hy collateral infrastructure? Well, we think collateral management is the perfect killer application for blockchain,鈥� Chakar continued. 鈥淲e have all witnessed the recent market volatility and liquidity challenges, which have underscored the criticality of resilience across global financial markets.鈥�
Chakar believes that the move to digital collateral plays a critical role in enhancing liquidity as well as strengthening the resilience and soundness of financial markets. In particular, she highlights distributed ledger technology (DLT) as a solution to improve settlement speed, security, and data management.
鈥淥ur goal now is to find common ground for a unified digital collateral infrastructure for the entire industry, and we believe that an open, interoperable approach to this new infrastructure is the best path forward, as both the technology and global regulations continue to evolve,鈥� she stated.
For Chris Watts, CEO of Tonic, who hosted the event, this demonstration represents a 鈥渞eal game-changer鈥�, as there has never been anything near this scale or level of completeness.
鈥淚n a climate of ever-increasing complexity and stress, now is the time to pivot towards superior solutions, and we believe this comes in the form of digital,鈥� said Watts. 鈥淚magine a world where an asset moves fluidly from one continent to another with no restriction on settlement windows, regions, or product silos.鈥�
The real magic
For this purpose, Watts acted as the CEO of MarginCore, a fictional bank that the DTCC established to facilitate the introduction of this new framework.
He started by introducing a 鈥渧ery sexy鈥� set of scenarios based on real-world events, which aimed to demonstrate 24 hours of global collateral movement via a digital operating model, using tokenised assets, DLT solutions, and smart contracts.
Acting as the chief technology officer (CTO) of MarginCore, Dan Doney, CTO and chief architect at DTCC Digital Assets, highlighted the benefits of the DTCC AppChain, such as no fees for transactions, flexibility, and interoperability.
The 鈥渞eal magic鈥�, for Doney, is the conversion order, which converts value in traditional custodial systems to digital form and vice versa.
鈥淢y traders love that they can access any form of value 鈥� cash, Treasuries, funds, equity, debt securities, and even crypto 鈥� from the same rails,鈥� Doney, staying in character, exclaimed. 鈥淚 love that my corporate policies are enforced automatically, so they can only execute transactions that are compliant in each of our global markets.鈥�
The fictional working day started in Tokyo, with central counterparty (CCP) trading and margining of crypto derivatives. In the digital state, MarginCore was able to access inventory from its US branch outside of local market hours to support its obligation in the Tokyo time zone.
Net asset pool allowed the global company to manage its inventory across both traditional and decentralised finance (DeFi) markets using a single platform and team, bringing significant operational efficiencies.
鈥淲e mobilised US Treasuries to Tokyo in real time with no settlement or market constraints, so if we鈥檙e short of a specific asset type, we now have a global liquidity pool to mobilise from 24/7,鈥� explained Watts. 鈥淲e鈥檝e also avoided an external repo trade and the extra settlement risk that brings.鈥�
Turning a nightmare into a dream
As the European markets are starting to wake up, the experiment moves to Paris, where DTCC demonstrated collateralising over-the-counter (OTC) derivatives under the uncleared margin rules (UMR).
MarginCore Paris starts the day with a deficit in its agreement with Wellington and excess collateral with SocGen. In the digital state, a single asset pool, regardless of collateral agent, allowed for improved optimisation, including the option of connecting to triparty agents.
Additionally, tokenisation enabled the automatic distribution of coupon payments, eliminating the need for substitutions over income events.
鈥淲e鈥檝e shown we can instantly mobilise return collateral assets to meet other obligations on the same day across regional markets,鈥� Watts commented. 鈥淚n parallel, we remove the need for internal treasury funding and any internal trading costs.鈥�
On that note, Doney added: 鈥淭okens that streamlined dividend distributions and smart contract automated collateral processes know the beneficial owner and allow transactions that took days, weeks, and sometimes even months, to execute now move in real time. What used to be a nightmare is now a dream.鈥�
The third scenario demonstrated the benefits of using tokenised collateral under stress credit conditions. A sudden shock to global financial markets results in gilt prices falling, and MarginCore London requires real-time changes to its eligible collateral terms to support continued liquidity in the market.
The inclusion of smart contracts and tokenised money market funds (MMFs) helped counterparties navigate the stress event more efficiently. With real-time changes to the collateral schedule, MarginCore was able to deliver tokenised MMFs to market participants with near-instantaneous settlement. This resulted in seamless collateral coverage, mitigating risk and eliminating the need to redeem MMFs for cash collateral, as Watts explained.
鈥淥ur liquidity resilience was protected via real-time inventory combined with instant tokenisation and mobilisation of digital MMFs,鈥� he said. 鈥淎s gilts crashed, both MarginCore and our counterparties quickly reverted to alternative assets to stay solvent.鈥�
The day wrapped up in New York, with intraday repo, crypto collateral assets, and inter-CCP collateral.
The aftershock of London markets continued to unsettle MarginCore, which would typically need to borrow against its credit line or settle overnight repo to raise cash. However, digital cash allowed participants to settle intraday repo with near-instantaneous settlement, removing delays associated with traditional bank processing times.
鈥淭he power of digital collateral enabled us to make the right decisions for the business at speed and then execute upon them in real time,鈥� Watts, who remained in character, summarised. 鈥淚n turn, this helped secure margin, financial health, and my job, I suspect.鈥�
A team effort
Within the simulation, DTCC optimised CCP derivatives and repo collateral in real time, and mobilised assets across regions using a global collateral pool. In a very playful way, the Great Collateral Experiment also showed how tokenised assets can eliminate the need for record date substitutions and how changing collateral eligibility can protect a company from a default within a stressed event.
Watts summarises the key outcomes of the experiment as liquidity, cost savings, and operational efficiencies. He also emphasises the importance of resilience, close-out speed, and interoperability of the digital collateral operating model.
Reflecting on the experiment, Watts said: 鈥淭he automation and scale provided by digital collateral will help protect us all from volume surges that come as part of a long-term stress climate that now seems, I'm afraid, our new normal 鈥� not to mention the extensive cost savings activated by digital collateral across funding operations and technology streams.
鈥淓specially important, in the tough-cost environment we find ourselves in, a major outcome here is the reduction of today's expensive collateral buffers 鈥� users and insurance policies against the inefficiencies of the Old World.鈥�
In her closing remarks, Chakar said that a major focus will now be the advancement of the regulatory and legal framework for the digital operating model.
鈥淭here is work to be done to ensure that regulators across all major jurisdictions are fully informed of the intricacies of the technology and data solutions that you've seen today,鈥� she said. 鈥淭his will be a team effort 鈥� a partnership among all our participants.鈥�
In the coming months, DTCC is planning to host a legal roundtable to provide market participants with the insights of the work done to date. The company will also engage with industry bodies to achieve consensus around data standards, best practices, and all important components to encourage interoperability.
鈥淲e must continue to work together as an industry to advance at a pace towards productionising the operating model,鈥� Chakar emphasised. 鈥淥nly then will we realise all the benefits shown today.鈥�
DTCC aims to bring the industry together and facilitate the necessary debate through its Digital Advisory Council, listening to stakeholders鈥� feedback and collaboratively designing the right solution.
Chakar concluded: 鈥淲e see this as a key industry milestone for the digital collateral movement, taking us a step closer to our mutual goal of a digital-first future. The digital benefits are both extensive and accessible. Now it's up to us as an industry to realise them by collaboratively executing on the right operating model.鈥�
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