Citi Securities Services Evolution 2025

Securities Services Evolution 2025 | 31 In the meantime, we’ve seen significant research and investment being made in Zero-Knowledge Proof (ZKP) technology, which has the potential to enable banks and regulated institutions to participate in public networks without losing control of or disclosing sensitive information. By helping firms to share data without disclosures or security risks (for example in block trading), ZKP is quickly gaining momentum as a newmeans of bridging the public/private divide. As this space develops, we continue to see more and more networks and platforms come to market, and as such, financial institutions will need the ability to interact across a variety of different chains. Providers such as Chainlink are also advancing standards enabling interoperability across public and private blockchain networks. Roles and responsibility “The future of finance isn’t a replacement of one system with another, but a convergence of traditional and decentralized finance. This means that while TradFi firms will remain the trusted institutions for institutional custody and act as the gateway for digital products, DeFi will provide the engine for speed and efficiency.” Kyle J. Baron, Managing Partner, BCWGroup In this context of convergence, what roles could TradFi and DeFi firms play in an integrated future ecosystem? In providing issuance, trading and lending capabilities, DeFi is already creating markets for a growing array of new investment structures and activities (such as staking). As these mature, these newmarkets can potentially become an alternative source of liquidity, financing and other needs. Delivered and serviced across multiple networks and ecosystems, these new investments could trigger a costly increase in complexity for investors. As Figures 12 and 13 highlight, it is highly likely that investors will continue to turn to regulated, traditional financial institutions to be the trusted gateways that they are today – providing standardized, scalable access to an expanded range of traditional and digital assets. Where today an FMI or a custodian can offer access to multiple markets, tomorrow they will offer access to marketplaces of traditional and digital assets, each supported and enabled by DeFi firms, that tensure instant transferability and maximum efficiency. The challenge for incumbent intermediaries (i.e. FMIs and custodians) then lies in delivering and standardizing the investments within their reach. To fulfill their roles as gateways, FMIs will need to be comfortable managing network and security risks of multiple public and private networks, meaning new competencies in due diligence and risk management. As their relationship with end customers also transform, KYC and AML processes will also need to evolve. And at a transaction level, they will need to ensure core asset standards that can support price discovery and comparability across whole market places. As (retail) holdings of digital assets continue to grow, the opportunity for this convergence becomes more compelling. In the short term, DeFi aims to deliver the benefits of their decentralized markets to the mainstream investors of the world; whilst TradFi firms want to be able to integrate digital assets into their balance sheets and operational processes. Whilst several challenges lie ahead there is little question that TradFi and DeFi worlds have huge amounts to gain together.