December 2021

Crypto’s evolution will place new demands on technology in 2022

The world of digital assets is changing fast. Even crypto-native firms may find that some of the biggest developments on the horizon push their existing technology to breaking point.

We talked to leading crypto firms and traditional finance players at the Digital Asset Summit (DAS): London 2021 to discover how the cryptocurrency space is evolving in 2022 and the demands this places on technology.

Here are four themes we uncovered:

1. Technology remains a barrier for traditional institutional investment

Institutional interest in crypto is hotting up, but there are still plenty of things keeping traditional finance (TradFi) institutions away from the crypto space. For instance, there is a big technology challenge for institutional investors to overcome.

Their legacy infrastructure struggles to handle crypto assets. While crypto-native platforms are built on technology specifically designed to handle the uniqueness of digital assets, institutions have to bridge the gap between old and new systems.

This explains why the crypto firms we spoke to at DAS: London were more interested in data automation and self-service tools, while those from TradFi talked in particular about the challenge of reconciling data between the various crypto platforms and their existing systems.

2. Crypto market volatility puts pressure on technology

The crypto market is growing fast, with global market capitalisation briefly reaching $3 trillion on November 9th, 2021. Panelists at DAS: London noted that price action was still largely being driven by trading on risk and volatility rather than directional trading.

All that volatility and growth means that agility is important. This is easier for new crypto platforms, as there is no need to figure out how to adapt an existing techstack to new requirements. Crypto firms we talked to recognised that they have the ability to define how their organisations use technology in the long-term. They are free to pick the best technology without having to compromise due to considerations over legacy infrastructure.

By picking intelligent, flexible technology that can adapt to the needs of the business crypto firms can future proof their operations to ensure they continue to scale as the market does. While this is more difficult for TradFi organisations, it’s not impossible. The same technology can integrate into their existing tech stack, providing the agility they need to keep up with the crypto market.

3. Regulation is coming

Governmental approach to cryptocurrencies varies dramatically across the world. September 2021 highlighted this perfectly: while El Salvador adopted Bitcoin as legal tender, China’s regulators announced a ban on all cryptocurrency transactions and mining. In November, India revealed plans to introduce a similar ban on private cryptocurrencies.

Singapore, on the other hand, is looking to become Asia’s crypto hub. Duco customer Coinhako recently became the first non-bank crypto exchange to receive in-principle approval to offer digital payment token (DPT) services.

We spoke to many people who expressed opposing views on whether or not tighter regulation under current frameworks was a good thing. Some believe a key role of cryptocurrency is to challenge the established frameworks.

Others, however, think this closer alignment to TradFi is an essential stage of crypto’s evolution and will fuel further adoption across the globe. But pro or anti-regulation, players in the crypto space recognise the need to provide secure and compliant access to crypto markets.

4. New requirements shouldn’t become a barrier to innovation

Many are concerned that overly-stringent regulations could staunch progress in decentralised finance (DeFi).

This has prompted many major players in the crypto space to take a proactive approach and offer their own vision of a regulated crypto market. This month Ripple published its own vision for a regulatory framework (PDF), while Binance has proposed 10 ‘fundamental rights for crypto users’. 

These include ‘smart regulation’, which would require exchanges to, among other things, implement stringent AML/KYC policies. People we spoke to noted that regulations like these have a significant data component; the last thing crypto firms want is to be slowed down when it comes to compliance because they don’t have easy access to accurate, enriched data on customers and counterparties.

As TradFi firms know, regulation can complicate matters, but it doesn’t have to be a barrier to progress. With the right processes in place firms are free to continue innovating, without being slowed down by the requirements of regulatory compliance and reporting.

Navigating the challenges of crypto data in 2022

Regulation and technology were hot topics at DAS: London. As interest in cryptocurrency grows, so does government scrutiny. Crypto-native firms and TradFi institutions have different priorities when it comes to technology, but everyone acknowledges the importance of data quality. Disruptors are focussed on broader data quality issues, while finance incumbents see reconciliation as a key tool to help integrate digital assets alongside their existing portfolios.

Check out our dedicated Crypto solutions page to see how Duco can help all types of firm operating in the crypto space to navigate their technological and regulatory challenges.