Mizuho, Nomura, the Japan Securities Clearing Corporation and Digital Asset have partnered to explore digital collateral management for Japanese government bonds (JGBs).
A proof-of-concept (PoC) trial will determine whether real-time JGB collateral transactions can take place on a blockchain (the Canton Network) on a 24/7 basis, and whether this would require amendments to current laws and regulations such as the Act on Book-Entry Transfer of Corporate Bonds and Shares (Book-Entry Transfer Act).
Cross-border transactions will also be included in the PoC, given the global nature of crypto assets.
“A substantial reduction in administrative tasks related to the posting and substitution of collateral is expected to improve operational efficiency and reduce costs for both financial institutions and investors,” the group said.
The project aims to offer 24/7, real-time collateral transactions and more efficient collateral management for JGBs, bringing the instrument in line with digitally-native assets. Interest in digital assets and continuous trading has grown globally, with the group stating that increased availability and liquidity of JGBs in the digital space will meet investor demands.
Digital Asset has previously worked to develop on-chain collateral for US Treasuries.
READ MORE: Industry moves closer to 24/7 on-chain collateral availability
Last week, Nomura published results from a survey of institutional investors which found that sentiment towards crypto-assets has improved. Almost a third (31%) of those polled stated that they had a positive outlook on the instrument over the next year, up from 25% in the June 2024 survey. The percentage of those with a negative outlook declined from 23% to 18%. Of the 518 participants, 79% expected to invest in digital assets within the next three years.
Many investors (65%) stated that they saw crypto assets as good sources of diversification (2024: 52%). This was also the primary reason given for investing in the instruments.
Current challenges in the landscape include a lack of frameworks for fundamental analysis, counterpart risks, high volatility and regulatory uncertainty.
“Investor concerns are shifting to more practical issues around investing,” Nomura observed.
On the regulatory side, Japan’s Financial Services Agency published a report from its crypto-asset systems working group in February noting the importance of fair price formation and trading and strong cyber security protocols around the instruments.
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