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Instant Fiat Settlements to Drive Liquidity for Institutional Crypto


www.financemagnates.com 25 July 2022 20:07, UTC
Reading time: ~3 m

Using a network of correspondent banks to move large sums of money has traditionally been the method for institutions to send funds for investments and trades. These payment networks were designed for a different time and have the inefficiencies of legacy systems that create bottlenecks and unnecessary expenses. Today the 24/7 demands of online markets have to be matched with the ability to access opportunities instantly and with no limits on the amounts that can be transferred.

The risk of trading during a time of potential market volatility is amplified when funding trades with networks that close outside of business hours and take days to send money. Price swings during the time it takes for settlement will directly impact profits and in some cases the ability to make a trade. The digital asset economy has fuelled the demand for business accounts that can use USD and non-USD currencies to buy and sell crypto with networks now in place to enable instant settlements with no limits in terms of amount and at no cost. The ingenuity behind this latest advancement in settlements is being adopted by the wider financial services industry such as FX. Reliable cross-border payments reduce the friction for international trading at a time when costs and efficiency are paramount with instant availability of funds made possible on shared networks that have a common ledger with no intermediaries to charge fees or slow down the process.

This has improved settlements on all fronts - speed, cost, and transferable amounts. This is proving invaluable for firms hoping to expand their interests overseas to use European regulated services that can ensure reliability and robust technical infrastructure. With a shared ledger everyone using the network can be processed on regulated ramps for KYC and PEP sanction checks with money only moving between onboarded individuals using the same accounts. The ledger calculates all transactions at run time, settles the balances, and reconciles to make sure the balances are in sync with physical bank accounts. Instant settlements have become a vital component for the smoothing running of operations for cryptocurrency services such as exchanges, liquidity providers, market makers, OTC brokers, funds, and prime brokers.

Traditional banks offering instant settlements on wholesale payments are often restricted to limited currencies and geographies through new firms providing alternatives by offering accounts with integrated payment networks. Internal omnibus accounts that share a common ledger with other account holders streamline the settlement process with the US and non-USD currencies. The flexibility to move quickly and at no cost differentiates what has previously been available for institutions with digital assets. Banking crypto companies originally started in the US and while only supporting USD this service revolutionised the crypto industry. Around the clock, instant settlements were developed out of the necessity to react to a fast-moving market.

The same level of support in Europe for institutional investors has become available to professional investors but now with multiple currencies in fiat and crypto. The digital asset market has been a catalyst for financial and technological innovations that have increased liquidity while creating opportunities for new products and services such as FX trading, earning, borrowing and lending. The bottlenecks and unnecessary costs of instant settlement are being consigned into the history books of traditional finance with a new infrastructure layer taking its place built to solve the limitations of legacy banking and payment rails. This has increased regulated institutional access to Europe for trading and investing in real-time, using multiple currencies and across borders during an exciting new era that has consolidated industry standards and best practices.

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