As we’ve seen in crypto markets, where better operational efficiencies are demonstrated daily with instant trading and settlement, improved execution is a key benefit of blockchain. However, where crypto markets and traditional markets intersect, that efficiency stumbles. Achieving the true value of 24/7 capital markets will require overcoming the post-trade limitations of traditional markets - cut-off times, batch cycles and settlement timeframes that are T+1 at best.

Mind the Gap

The impact on DeFi and TradFi markets extends beyond inefficient operations, preventing real time risk management and affecting capital efficiency and treasury operations. To take just one example, counterparty risk today is managed with daily exposure calculations, margin calls and collateral that settles T+1 or T+2, or longer if the collateral needs to be delivered cross-border.

• For crypto markets, this doesn’t reflect the nature of the risk that’s being created in 24/7 markets. Overnight and weekend gaps necessitate holding large, costly liquidity buffers. Tying up funds and assets in over-collateralization limits liquidity and results in missed opportunities.
• In TradFi, where markets are local but players are global, institutions are constantly reacting to what’s happened overnight in another market. Current tools simply aren’t flexible enough to cover that risk: if you place a margin call today, you have to wait 24 hours to see that collateral arrive in your account. 

Moving Towards Real-Time Collateral and Live Risk Management

Bringing the exchange of collateral on-chain will reduce current risk management gaps. Atomic settlement provides the necessary speed, transparency and certainty to minimize the need for excess collateralization. QCP’s CEO Melvin Deng sees this happening in crypto derivatives trading today:

 “If a counterparty has significant risk, we can call and top up. Collateral settles in a minute and we can keep trading, because we have confidence in the settlement,” says Deng.

The result? Increased trade velocity and better liquidity. Unfortunately, that can only take place during market hours today.

Even moving to a 2- or 4-hour basis for exposure calculation and margin management would be a big win, freeing assets and capital for other uses. Ultimately, the goal is to manage live risk with live margin, improving both daily market operations and improving liquidity and access in times of stress. 

Enabling 24/7 Markets on Canton Network

Getting to live risk and liquidity management demands both the convertibility of assets and the privacy controls market participants demand. This not only unlocks the free movement of assets and cash, but also the utility of these instruments for financing to capture opportunities and manage margin intraday: 

1. Instantly convertible stablecoins. Being able to create and redeem stablecoins 24/7 provides the necessary liquidity to capture opportunities outside of market hours. The ability to create stablecoins and enter into a repo on US Treasuries on an as-need basis enables instant financing even when the capital markets you operate in are closed, reducing the need for excess liquidity buffers.
   
   
2. High utility tokenized collateral. Tokenizing traditional assets, particularly High Quality Liquid Assets assets like US Treasuries or Eurobonds, improves liquidity and mobility and opens the door to intraday repo and tangible corporate treasury results not currently available. For example, when money market funds can be created and redeemed 24/7, treasury can capture interest on idle funds even for short periods of time.
   
   
3. Privacy preservation. Buy- and sell-side TradFi players will only make the move to on-chain markets if they can be confident in the privacy of their transactions. Institutional players don’t want their competitors and counterparties to see how and where they are using collateral. Large value payments, like settling the cash leg of a repo transaction and other wholesale use cases, demand a level of privacy that public permissionless networks simply can’t provide. 
   
   

Solving for privacy is key to scale institutional demand. As the only public chain with native L1 privacy, Canton provides the onramp for TradFi and on-chain capital markets to converge. Canton Network was built with traditional markets in mind, giving institutional players not only privacy but unparalleled control over applications running in the network, fine-grained permissioning, support for very different operating models, and the ability to run applications with control and independence within the network.

Use Cases

On Canton Network, assets aren’t simply issued and tokenized. They have utility across the network, providing instant liquidity and mobility to an ecosystem of TradFi and crypto counterparts. Take a look at just some of the compelling use cases found in the ~$5T/month crypto derivatives market, which continues to grow rapidly (up 158% from Sept 2024)¹ and at the intersection of TradFi and crypto capital markets: 

Canton Network takes the promise of 24/7 capital markets and turns it into reality. By enabling always-on, privacy-preserving on-chain collateral, and instant payments, it transforms how risk is managed to reflect dynamic market conditions. This results in more efficient use of capital, faster financing, and live risk management - all delivered on infrastructure built for regulated finance, with the privacy and control that institutions need. 

Learn more: 

Real world asset mobility and real time financing on Canton Network

Digital Asset and QCP discuss on-chain collateral on the Tokenized Podcast

Bring High-quality tokenized assets to Canton fast - Get Started

^{1  Source: CCData, Exchange review, Sept. 2024}