- London-based ClearToken is expanding its ambition from being a central counterparty (CCP) to becoming a central securities depository (CSD) for digital assets.
- On-chain settlement faces challenges including lack of netting benefits, blockchain finality issues, and cross-chain bridge risks.
- Centralized exchanges pose counterparty risks as demonstrated by recent bankruptcies and hacks, while ClearToken plans to use central bank money for settlement.
ClearToken, a London-based startup backed by Nomura’s Laser Digital, Zodia Custody, Flow Traders, LMAX Digital, and GSR, has expanded its vision beyond becoming a central counterparty (CCP) for institutional digital asset trading. According to its recently published whitepaper, the company now aims to establish itself as a central securities depository (CSD), likely to achieve legal finality of settlement.
The whitepaper examines settlement options for digital assets and highlights the drawbacks of alternatives to ClearToken’s approach. These alternatives include settling via centralized exchanges, direct on-chain settlement, or using single venue clearinghouses like EDX Markets, which is backed by Citadel Securities.
Challenges with On-Chain Settlement
The document details several limitations of on-chain settlement, particularly focusing on instant atomic settlement. Unlike traditional finance, which benefits from netting, on-chain settlement occurs gross. To address this, ClearToken plans to operate multiple intraday settlement cycles 24/7.
Block time issues also present challenges. For example, Bitcoin‘s average ten-minute block time means transactions take approximately an hour to become final. The whitepaper also addresses blockchain interoperability risks, noting that cross-chain bridges have been vulnerable to attacks, though security has improved significantly over time. According to data from Hacken, bridge losses have decreased from $1.9 billion in 2022 to $114 million in 2024.
Some blockchain platforms have made progress in reducing settlement risks. SIX Digital Exchange uses a wholesale CBDC for settlement, while the upcoming 21X will trade digital securities against stablecoins on the Polygon blockchain.
Risks of Centralized Exchanges
The whitepaper highlights counterparty risks associated with centralized exchanges, referencing the collapses of Terra/Luna and FTX, as well as Bybit’s recent $1.5 billion hack. Centralized exchanges also face prefunding requirements similar to on-chain settlement.
ClearToken plans to use central bank money for settlement, noting the limitations of alternatives like synthetic CBDCs, which may only be available to institutions already having access to central bank money.
While a CSD offers advantages for institutional participation in crypto markets, the article cautions about imposing legacy system constraints on blockchain technology. As platforms like 21X demonstrate, blockchain can potentially allow retail investors to transact directly without brokers in regulated environments, supporting automation and innovation.
ClearToken aims to balance institutional requirements with blockchain’s innovative potential while addressing the settlement challenges in digital asset markets.
✅ Follow BITNEWSBOT on Telegram, Facebook, LinkedIn, X.com, and Google News for instant updates.
Previous Articles:
- Elderly Brothers Lose $1.3 Million in Cryptocurrency Trading Scam
- Bitcoin Dev Proposes Hard Fork to Combat Quantum Computer Threats
- OpenAI pivots, to release o3 and o4-mini before GPT-5 launch
- Circle’s IPO filing raises doubts amid market turmoil and tariff fears
- PayPal Adds Chainlink and Solana to US Crypto Offerings
