Grygo is the chief content officer for FTF & FTF News.
The people behind the regulated blockchain and tokenization infrastructure platform Paxos want to make a point about the need for a more efficient settlement infrastructure for the commodities market.
To help make their point, the Paxos system offers “multilateral payment netting and simultaneous settlement for the unallocated, over-the-counter (OTC) precious metals market,” officials say.
In fact, last month Paxos officials announced that their commodities market clients are seeing “an average 300 percent return on investment (ROI) within two years due to enhanced back-office efficiency.”
The results are similar to those “generated by continuous linked settlement (CLS) in foreign exchange markets,” according to Paxos, which notes that the back-office departments at many firms are “scrambling to ensure they can facilitate the surging precious metals trading volumes witnessed over the last three years.”
To underscore the point, Paxos officials also cited a study from market research firm BlueWeave Consulting that predicts “the global precious metals market is projected to grow at a compounded annual growth rate of 8.1 percent, offering market participants record revenues of around $415.3 billion by the end of 2028 and driving trading volumes yet higher.”
The vendor also notes that the cost of borrowing has soared “with inter-bank rates rising from 0.06 percent to 4.9 percent — meaning the cost of borrowing metal is now almost equal to borrowing cash.”
Beyond these pressures, industry groups and the SEC are moving the U.S. equities markets from T+2 settlement to T+1, Paxos points out. This combination of factors “is dominating resource focus and squeezing company balance sheets. The budgets of many firms have subsequently come under increasing scrutiny over recent months, with funding for strategic projects typically subject to robust ROI requirements.”
FTF News asked the provider what the 300 percent ROI in two years is based upon. Was it Customer data? Do you have before and after quantification for the ROI? Did Paxos calculate the ROI itself?
“Paxos have used historic and live trade data provided by precious metals trading desks/operations teams and compared the results of business as usual versus using the Paxos Settlement Hub,” Charles Waple, director of commodities growth, at Paxos, tells FTF News.
Waple says that there are “consistent reductions in settlement obligations and as a result of being able to net multilaterally, a reduction in funding costs. From the data we have analyzed so far, there has been an average of 300 percent realized over the first two years, with some clients forecasting much higher and dollar figures of these savings are in the millions.”
For now, the initial ROI results are for the management of precious metals post-trade lifecycles.
“At present, we are focusing on precious metals post-trade lifecycle improvement because that market presents the most opportunity for infrastructure upgrades. The Paxos vision is to create tokenized financial markets infrastructure for all asset classes so no market is off limits in the long term,” Waple says. “We are looking to extend the functionality to additional asset classes that will complement the existing business and bring more value to our customers.”
The promise of distributed ledger technology (DLT)/blockchains is guiding Paxos’s implementations, which one day will yield to a cost-effective digital future, officials say.
“The Paxos solution future proofs our customers’ technology stack, using traditional technology and methods today in order to minimize the barrier to entry,” Waple says. “This allows us the ability to move onto a DLT solution when the market is more broadly ready to adopt a digital shift. All the benefits we bring to our customers: increased transparency, automation, cost savings, are done without using blockchain today.”
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