Fernando — excellent question. This is one of the more underappreciated structural issues in tokenized market design.
Today’s equity markets rely heavily on multilateral netting through centralized clearinghouses such as NSCC/DTCC. Rather than settling every trade individually in real time, market participants net offsetting buys and sells throughout the day and only settle the residual obligation at the end of the cycle. This dramatically reduces the amount of cash, collateral, and balance sheet capacity required to support trading activity.
Under a fully atomic settlement model for tokenized equities, each trade settles individually and immediately (delivery versus payment). While this reduces counterparty exposure and settlement risk, it can also eliminate many of the liquidity efficiencies created by netting.
For example, a broker-dealer executing thousands of offsetting trades intraday may currently only need to finance a much smaller net exposure after clearing. In a real-time settlement environment, however, the firm may need to prefund or fully collateralize each transaction independently. That can materially increase gross liquidity demands, intraday funding requirements, and balance sheet usage.
This becomes particularly important for market makers and high-volume liquidity providers, whose business models depend heavily on efficient balance sheet utilization and netting offsets. Without careful design, tokenized settlement systems could unintentionally reduce liquidity depth or increase trading costs even while improving settlement speed.
In practice, the likely outcome is probably a hybrid structure where tokenized settlement layers coexist alongside some form of centralized netting or periodic batching, rather than a pure “every trade settles instantly” model.
Fernando — excellent question. This is one of the more underappreciated structural issues in tokenized market design.
Today’s equity markets rely heavily on multilateral netting through centralized clearinghouses such as NSCC/DTCC. Rather than settling every trade individually in real time, market participants net offsetting buys and sells throughout the day and only settle the residual obligation at the end of the cycle. This dramatically reduces the amount of cash, collateral, and balance sheet capacity required to support trading activity.
Under a fully atomic settlement model for tokenized equities, each trade settles individually and immediately (delivery versus payment). While this reduces counterparty exposure and settlement risk, it can also eliminate many of the liquidity efficiencies created by netting.
For example, a broker-dealer executing thousands of offsetting trades intraday may currently only need to finance a much smaller net exposure after clearing. In a real-time settlement environment, however, the firm may need to prefund or fully collateralize each transaction independently. That can materially increase gross liquidity demands, intraday funding requirements, and balance sheet usage.
This becomes particularly important for market makers and high-volume liquidity providers, whose business models depend heavily on efficient balance sheet utilization and netting offsets. Without careful design, tokenized settlement systems could unintentionally reduce liquidity depth or increase trading costs even while improving settlement speed.
In practice, the likely outcome is probably a hybrid structure where tokenized settlement layers coexist alongside some form of centralized netting or periodic batching, rather than a pure “every trade settles instantly” model.
Appreciate the thoughtful comment.