In the crypto market, where institutional investors’ interest in digital assets is rapidly increasing, concerns about market structure and counterparty risks continue to limit large-scale participation of major players. Industry stakeholders are calling for the implementation of a new Digital Prime Brokerage model to overcome the constraints of the current exchange-focused structure.
Current Problems in Market Infrastructure
While prime brokers and central clearing houses facilitate credit intermediation and post-trade processes in traditional foreign exchange markets, an exchange-centric system still dominates the digital asset market. Currently, many trading platforms combine trading, custody and credit functions. This structure requires institutions to establish relationships with multiple exchanges and liquidity providers separately and pre-fund their accounts. As a result, organizations face dispersed collateral, excess collateral obligations, and operational complexity.
Key Features of the Digital Prime Brokerage Model
In the Digital Prime Brokerage approach, institutions will deal with a single credit intermediary instead of different exchanges and liquidity providers. Transactions will be carried out on selected platforms and collected and cleared by the prime broker. Thus, counterparty risk and clearing responsibility will be left to the management of the intermediary. By carrying out all transactions within the scope of a single master contract, standardization of documents will be achieved, compliance obligations will be simplified and the visibility of counterparty risks will increase.
Providing Net Clearing and Capital Efficiency
A central element of the model is the net clearing mechanism, which is standardized and usually based on T+1 (settlement one day after transaction). Instead of transactions being cleared one by one, all transactions on different platforms will be collected and only the net liability will be transferred. Supporters say this model will facilitate access to stuck capital and increase capital efficiency through cross-use of collateral and more transparent funding costs.
Various market participants state that reducing risks to a single counterparty, rather than managing separate risks and operations across multiple platforms, will simplify engagement processes and collateral flows. In addition, it is argued that the bridge between digital assets and traditional finance will be strengthened thanks to the structured infrastructure.
In the new white paper prepared for the digital asset industry, Ripple emphasizes that the Digital Prime Brokerage model can address the main structural problems of the market.
In its report, Ripple stated, “It may be possible to eliminate both operational complexity and capital inefficiency with a centralized prime brokerage model, instead of today’s dispersed exchange matrix.”
Ripple’s CEO, Brad Garlinghouse, stated that there is a high probability that the Digital Asset Market Clarity Act, expected in the USA, will be adopted by the end of April. Garlinghouse emphasized that this step could significantly reduce long-standing regulatory uncertainty in the sector.
While support for the Digital Prime Brokerage concept is increasing in the industry, discussions continue on the potential of this new approach to make digital asset markets more transparent and reliable.
