The high promises about blockchain technology are no longer just promises: tokenization looking wide -scale adoption, Stablecoins are carving a route for the unplanned to participate in the financial system and Smart contracts are Used to trim inefficiency in delivery chains.
So in the midst of all these individual use cases, why do it still feeling Like those financial system Haven’t modernized so much?
Part of the problem is that these initiatives have been largely driven from the ground up, developed isolated by private teams that have been set to address one question at a time. Maybe some groups of builders cluster around a technical ecosystem and find some way to synergize their offers, but to a large extent the industry is so splinted that there is very little interoperability between what is available. Legacy Financial Systems are similarly fragmented, which makes it difficult for fintechs to Deliver solutions which can be applied largely to existing structures.
This is important. In a globalized financial system with endless preparedness, different units with very different data, practices and priorities depend on each other to play their distinct roles. A solution to say, putting stock certificates on the chain will provide immediate benefits for a company that wants to make their shareholders’ lives easier. Still, unless it cannot join all digital initiatives brokers who experiment with, the potential for these products is to deliver system -comprehensive benefits limited.
Enter CDM or the common domain model. In essence, as a voluntary industrial standard, CDM is intended to be a universal language for financial transactions, which ensures that each participant in the system can communicate under the same terms in a transaction’s life cycle.
CDM means interoperability, which means efficiency
“The common domain model (CDM) is like a universal language for financing,” explains Richard BakerFounder and CEO of Fintech Platform Tokenovat.
“Instead of each bank, fund manager or clearing house that speaks in its own code, CDM provides a shared, machine -readable format for contracts, events and legal conditions.”
CDM was originally developed by the International Swaps and Derivatives Association (ISDA), the body of the global derivative industry. It was created in response to what ISDA saw as a very fragmented industry without a simple strategy for recording and processing financial instruments and transactions.
By encouraging the industry’s adoption of CDM, the goal is to reduce friction and cost throughout the transaction life cycle.
It also means that tomorrow’s financial entrepreneur does not need to be built from the ground up and does not have to worry about what other other supplementary products they can exclude by making one or another design choice: if they all speak the same language to begin with, consecutive solutions can work together directly from the box.
Essentially CDM is designed to promote Interoperability Throughout the financial industry.
“Interoperability decides on digital markets is open and connected, or just digital silos. CDM-first design means that companies can link older systems, new FMIs and distributed book without rebuilding everything from the ground.
Baker Tokenovat is such a company that has made CDM a central part of its attitude toward build financial solutions. Tokenovate is an automation platform for derivatives and securities transactions, which uses smart contracts and tokenization to automate the life cycle after trade. This works seamlessly over different platforms and with different asset classes – something it manages to achieve, thanks to Tokenovate’s embrace of CDM.
“We use CDM at the core of our platform so that financial agreements are not just documents, but executable workflows that can be run automatically over catch, orchestration and settlement.”
In other words, it is a manifestation of the future that CDM imagines, with interoperability placed front and center when Tokenovate builds its solutions.
Government management
The driving force against interoperability is an aspect of Blockchain revolution Where the government can play an important role.
This may seem strange to some: after all, governments around the world have been among Latecomers for the Blockchain Revolution (but not the same). But they are also isolated from some of the competitive problems that have shared such a cracked status quo.
“Governments are best placed to create clarity and incentives through roadmaps, pilots or procurement signals. But standards thrive when they are built and tested by the industry outdoors. Coordination in the private sector is often undermined by closed, proprietary systems,” said Baker.
“CDM cuts through it by lowering the switching costs and creating common infrastructure. Britain’s FMI time lines for T+1 settlement, for example, send a clear signal that reaches the entire market against assumption,” he added.
Here refers Baker to New mandate from the UK government to reduce the maximum decommissioning time for securities trading from two days to one day. Tighter decommissioning will inevitably run companies towards exploring automation. In turn, this will further highlight the need for common standards such as CDM.
This is not an accident: there are signals that the United Kingdom is ready to take a leadership position in this driving force against efficiency and interoperability. Recently, MP Matt Vickers OP-Ed showed up at politics.co.uk and advocated that the UK embraces a “smarter future for finance” by using CDM to deliver interoperable digital architecture for smarter systems.
“It is important that the UK becomes a creator, not just a consumer of these techniques,” it says. “Let’s deliver interoperable architecture – anchored in standards such as CDM – to prove how bold, connected and responsible innovation look.”
Vickers gives a simple win with what this might look like. UK has already announced a digital valid instrument (digit) pilot, which is looking at how to issue government bonds on blockchain. Recently the government Shared feedback It had collected from the market about what the pilot would prioritize. Among the most important answers: Interoperability.
“The answers emphasized that an important barrier for the adoption of digital principal technology is that it can lead to a fragmented market,” reads the update.
“The government will make sure to work with industry, platform providers and existing market infrastructure suppliers to promote interoperability to support access to figures from investors operating in both traditional and DLT markets.”
Baker calls pilots as a figure crucial.
“The figure shows how a government bond can be issued, traded and used as repo-security in a digitally native manner, with intraidal decommissioning and uniform audit tracks. And with CDM you make Gilts work with other assets seamlessly.
“The end result is a significant reduction in costs and risks, all while the openness of the total market is improved – something that governments and supervisory authorities want.”
Watch: Richard Baker on Engineering a smarter financial world with blockchain
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