These markets work because trading activity sits atop a vast network of credit relationships, clearing brokers and prime brokerage arrangements, Mercer says.
“This is what the world’s economies and capital markets are built on,” he added.
When LMAX launched institutional crypto venue LMAX Digital in 2018, Mercer expected similar infrastructure to quickly emerge in digital assets. Eight years later, he believes its absence remains one of the industry’s biggest limitations.
Mercer remains an enthusiastic supporter of blockchain technology, citing instant settlement and transparent onchain records. But while atomic settlement and delivery-versus-payment transactions are valuable, he argues they are not sufficient for global capital markets.
“The world today is built on leverage and credit, and it will remain so,” says Mercer.
The security issue
A key challenge is the inability to move collateral efficiently between traditional and digital financial systems.
Today’s institutions often operate within separate regulatory and operational environments, with traditional assets, digital assets and stablecoins trapped inside separate “walled gardens”. Security cannot move freely between them, reducing capital efficiency and limiting participation.
Market volatility in the first quarter highlighted the problem, Mercer said, as investors rotated between stocks, gold and bitcoin in response to macroeconomic uncertainty.
“If you’ve pre-placed fiat on a centralized exchange, you can’t necessarily deploy that security elsewhere when opportunities arise,” he said.
