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Digital asset industry contender, ClearToken, presents arguments for its significant role as the Chainlink Standard (CLS) in the digital realm.

London-based startup ClearToken initially sought to serve as a central intermediary (Intermediary) for institutional digital asset trades as a Central Counterparty (CCP). Its financial supporters

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Digital Asset Leader ClearToken Advances Argument for Establishing Dominance as the Central Ledger...
Digital Asset Leader ClearToken Advances Argument for Establishing Dominance as the Central Ledger System for Cryptocurrencies

In the world of digital asset trading, a central securities depository (CSD) like ClearToken stands out as a promising solution, offering several advantages over on-chain settlement and centralized exchanges.

ClearToken, a London-based startup, originally aimed to become a central counterparty (CCP) for institutional digital asset trading. However, its ambitions have since expanded, as evidenced by the first chapter of its whitepaper, which highlights an evolution in its thinking, expanding its goal from becoming a CCP to becoming a CSD.

One of the key advantages of a CSD is improved efficiency and speed. CSDs streamline post-trade processes by centralising custody and settlement, often enabling faster clearing and delivery compared to traditional on-chain settlement, which can be slower and limited by blockchain throughput.

By acting as a trusted intermediary, CSDs like ClearToken mitigate counterparty risk and settlement risk, ensuring that the transfer of assets and funds is synchronised and secure. This is a significant advantage over centralised exchanges, which can have custodial risk since the exchange holds user assets.

CSDs are usually regulated financial market infrastructures, adhering to compliance, AML/KYC, and reporting standards. This creates a more trusted environment compared to some decentralised or less regulated exchanges.

CSDs also provide standardised interfaces to multiple participants and market infrastructures, supporting settlement across various asset types and financial institutions. This enhances market integration beyond native blockchain ecosystems.

Settlement via a CSD often provides legal finality and enforceability recognised by traditional financial systems, compared to on-chain settlement where finality depends on blockchain consensus mechanisms and can vary. CSDs typically have robust operational infrastructure with backup and legal protections against failures, whereas decentralised networks can face network congestion or attacks.

On-chain settlement offers transparency, immutability, and direct peer-to-peer settlement without intermediaries. However, it can suffer from scalability and speed issues and legal uncertainties. Centralised exchanges provide ease of use and liquidity but require trust in the custodian and can be vulnerable to hacks or operational failures.

In the case of ClearToken, the startup plans to use central bank money for settlement and operate 24/7 with multiple intraday settlement cycles. The soon-to-launch 21X will trade digital securities against stablecoins on the Polygon blockchain, allowing retail investors to transact and settle directly without brokers in a regulated environment.

The whitepaper highlights the many current pitfalls involved in digital asset settlement. ClearToken emphasises that "simultaneous settlement instructions do not mean simultaneous settlement is achieved." The whitepaper focuses on the drawbacks of on-chain settlement, particularly the downsides of instant atomic settlement, which settles gross. Centralised exchanges suffer from the same prefunding requirement as on-chain settlement.

In the yet-to-be-released second chapter, ClearToken plans to address the finality of settlement, but it will be based on book entries rather than blockchain finality. The search results did not return information specifically about the advantages of a CSD like ClearToken compared to on-chain settlement and centralized exchanges in digital asset trading. However, given the benefits outlined above, it is evident that a CSD like ClearToken offers a balanced approach to efficiency, legal certainty, and risk mitigation in digital asset trading, making it especially suitable for institutional trading and integrated market infrastructures.

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