From silos to integration
September 2026
KDPW’s Michal Krystkiewicz, head of Innovation, Dorota Mackiewicz, deputy director, Legal Department, and Rafał Wawrzyniak, chief technology officer and IT MD, explore how CSDonDLT aims to integrate distributed ledger technology with existing post-trade infrastructure, enabling innovation without compromising legal certainty
Image: paolo_bernardotti/stock.adobe.com
The capital market is always keen to herald a new beginning. The dematerialisation of securities freed us from the constraints of paper-based circulation; electronic trading shifted the execution of transactions from trading floors to IT systems; and the European harmonisation of post-trade processes and the launch of T2S significantly reduced settlement fragmentation. Each of these changes has genuinely reshaped the market, but none has created it anew.
The emergence of distributed ledger technology (DLT) is no exception. In the early stages of the debate, blockchain was expected to eliminate intermediaries, shorten the value chains, and replace centralised institutions with code. Over time, the narrative became more cautious. Full decentralisation has been replaced with talk of the tokenisation of traditional assets, regulated platforms, and institutional DeFi. The approach has changed, but many projects continued to rely on the following premise: given that the existing market infrastructure is complex, the simplest solution is to build a new one.
At the design stage, this may seem attractive. A new platform can be created without having to consider all the interdependencies, communication standards and processes in place in the market. It is easy to showcase transactions executed in a matter of seconds in a closed environment, and not so easy to integrate transactions with securities accounts, payments, corporate actions, reporting, and risk management systems. The difficulties arise later on, when a successful experiment attempts to become part of the real market.
A platform may be able to handle thousands of transactions per second, operate round the clock, and provide near-instantaneous technical finality, yet still remain a silo. Scaling requires more than just computing power; it also takes assets, issuers, investors, liquidity, a secure settlement currency, access for intermediaries, and recognised legal effects.
A token is not yet a market
The digital representation of an asset is a relatively straightforward part of tokenisation. The real challenge is to ensure that an entry in a distributed ledger represents a right which its holder can effectively exercise. In the case of securities, a technically adequate transfer of a token between two blockchain addresses does not, in itself, result in the transfer of ownership which is effective against third parties with the legal finality of the transaction.
Nor does it address questions regarding incident management, the consequences of the platform operator’s insolvency, or the exercise of corporate rights.
Tokenisation does not magically eliminate the instrument’s lifecycle. It is still necessary to carry out issuance and distribution, enable trading and settlement, ensure the safekeeping of assets, manage corporate rights and benefits, and fulfil reporting obligations. DLT may change the way these functions are performed, combine some of them into a single process, and redistribute tasks differently amongst market participants, the infrastructure operator, and the code.
However, the need for specific economic and legal outcomes remains unchanged.
As a key element of the post-trade infrastructure, the central securities depository (CSD) keeps records, ensures the integrity of issues, handles settlement, sets out the rules for participation, and is responsible for the continuity of processes.
DLT may change the way some of these tasks are technically carried out, but it will not make them redundant. This is the premise on which CSDonDLT is based.
The distributed ledger changes the way selected processes are carried out, but does not remove them from the remit of a regulated and authorised infrastructure.
Legacy is not redundant
Debates about the future of the capital market often deploy the term ‘legacy infrastructure’. It is a convenient notion, but it may be misleading. It lumps together existing IT systems and components, mature communication standards, and well-established legal frameworks.
However, infrastructure that has been developed for many years need not be technologically or operationally obsolete. Its value also lies in accumulated experience, tried-and-tested security mechanisms, and risk expertise.
A distributed ledger can reduce the need for multiple copies of the same data, minimise the number of reconciliations, and enable participants to verify transactions directly. Smart contracts can combine actions currently carried out in different systems, and greater infrastructure availability can improve the mobility of assets both in the local market and across borders. After all, settlement finality, the protection of client assets, operator liability, the ability to handle incidents, and risk controls are not relics of a bygone era. They are the conditions for trust, without which the market cannot function properly.
Innovation should not be measured by how much existing infrastructure is discarded or rebuilt, but by how effectively its security, asset protection and legal certainty are combined with DLT’s shared ledger and programmability. This approach has been adopted in CSDonDLT, where new technology complements the existing depository and settlement system rather than competing with it. The aim is not to create a parallel reality from scratch. It is about the evolutionary development of market infrastructure based on its stable and proven foundations.
Risk of new fragmentation
One paradox of tokenisation is that technology designed to integrate the market may facilitate the emergence of new silos. Launching a platform for an asset class, a group of participants, or a single use case is becoming increasingly simple. However, if each such platform develops its own access rules, identification models, token standards and monetary solutions, they will form a constellation of isolated ecosystems rather than a single market.
For participants, each new platform implies a separate integration, access management, asset custody, and having to ensure liquidity in yet another environment. Individual solutions may operate quickly and efficiently, but they may also make the market more complex as a whole. Merely building technical connections between platforms does not solve this problem. A single market does not require a single ledger. However, interoperability must be taken into account right from the design stage; otherwise, multiple modern and efficient platforms will not come together to form a single, efficiently and securely functioning market. It is precisely this problem that is one of the starting points for CSDonDLT.
CSDonDLT: Evolution, not revolution
CSDonDLT is based on a different premise. The KDPW project does not create a new post-trade infrastructure operating in parallel with the current system. Instead, it introduces a complementary layer to the existing depository and settlement system. This model preserves and strengthens the role of existing market participants while opening up opportunities for them to expand their services to include the handling of digital assets. The distributed layer is not a technical replica of assets which remain registered in the traditional system. It constitutes a fully-fledged record-keeping layer shared by KDPW and market participants.
Importantly, the model proposed by KDPW does not require the simultaneous migration of the entire market. The decision to transfer securities to the DLT is up to the investor, and the order is executed by the KDPW participant serving the investor. The new layer can therefore be used for selected assets and transactions, while leaving the remaining part of the portfolio in the existing environment. The transition to the new model can take place gradually, at a pace that suits the participants’ needs.
The CSDonDLT architecture has been designed not only with a view to securities transferred from the traditional layer of the system, but also to instruments registered on the DLT from the outset. As the market develops and the regulatory environment is adapted accordingly, the solution will be able to accommodate DLT-native assets without a major overhaul of the infrastructure. The layer currently under development therefore addresses current needs and makes the market ready for a model where securities are created and operate entirely onchain.
CSDonDLT operates on a private Hyperledger Besu network compatible with the Ethereum Virtual Machine. This combines the access control of regulated infrastructure with established EVM tools and expertise, reducing technological lock-in. It also provides a foundation for controlled integration with services outside CSDonDLT, including those operating on the public Ethereum network. While this does not guarantee automatic interoperability or the unrestricted transfer of assets between networks, it allows complementary services and applications to develop externally, with CSDonDLT remaining the regulated layer for record-keeping and settlement.
Regulation, stupid!
To paraphrase a classic, it is regulations, above all, that may determine the future of DLT in the capital markets infrastructure. Legislation that links a specific function exclusively to a single market model or type of system eventually poses a barrier to innovation and development. If, however, the mere use of DLT automatically places an activity under a separate legal regime, technology is no longer a neutral tool and becomes a regulatory trigger.
This is why the changes proposed under the Market Integration and Supervision Package (MISP) are so important. They aim to confirm in the Central Securities Depositories Regulation (CSDR) that CSDs may use DLT to provide their services without leaving the main regulatory regime. It is equally important to adapt the rules on settlement finality so that transfers of securities and cash in DLT ecosystems produce unambiguous and legally binding effects. Regulation should protect the outcome of the functions performed while leaving room for changes to the underlying technology.
The DLT Pilot Regime plays a key role in this regard. It provides a safe space for testing models in which not only the technology changes, but so does the division of functions and responsibilities among market participants. However, it should not become an end in itself or evolve into a permanent regime competing with the CSDR. The pilot regime serves to identify risks and develop appropriate safeguards, while mature solutions should gradually be incorporated into the regulatory mainstream.
The permanent coexistence of two distinct regimes for functionally comparable services would violate the principle of a level playing field and could lead to regulatory arbitrage. The specific features and exemptions characteristic of the pilot regime are justified as long as they remain proportionate and support the convergence of the two regulatory frameworks, rather than perpetuating market fragmentation.
It is therefore crucial to clearly separate these two paths. The first allows CSDs to use DLT within the framework of the CSDR to perform the functions for which they are already responsible.
The second provides scope for testing models that modify the roles, scope of services and responsibilities of individual entities. Both approaches are necessary, but they should not be conflated. The appropriate legal regime should be determined by the function and the associated risks, rather than by the choice of technology alone.
Regardless of the architecture, regulation must ensure the integrity of issuances, the protection of investors’ assets, settlement finality, operational resilience, effective supervision, and a clear allocation of liability. DLT may change the way these objectives are achieved, but not the standards that the market is entitled to expect.
The future will be shared
The future of the capital market will not be decided by a simple choice between traditional infrastructure and DLT-based solutions. The most likely scenario is a gradual convergence of both models. DLT brings programmability, a shared ledger, and greater asset mobility.
The existing infrastructure provides legal certainty, security, clearly defined liability, and access to a functioning market and its liquidity.CSDonDLT shows how such an approach can work in practice.
Adding DLT as a complementary layer to the depository and settlement system allows its capabilities to be exploited without a one-off migration of the entire market, the duplication of assets through secondary tokenisation, or the fragmentation of liquidity across competing ecosystems. Participants can use this layer where it adds real value and continue to carry out other processes in the existing infrastructure. The way forward requires the seamless integration of securities, money, market participants, and the legal consequences of executed transactions. The future does not lie with yet more technological silos, but with solutions that the market can share and co-create. We do not need a second capital market. We need infrastructure that will enable the existing market to take the next step.
The emergence of distributed ledger technology (DLT) is no exception. In the early stages of the debate, blockchain was expected to eliminate intermediaries, shorten the value chains, and replace centralised institutions with code. Over time, the narrative became more cautious. Full decentralisation has been replaced with talk of the tokenisation of traditional assets, regulated platforms, and institutional DeFi. The approach has changed, but many projects continued to rely on the following premise: given that the existing market infrastructure is complex, the simplest solution is to build a new one.
At the design stage, this may seem attractive. A new platform can be created without having to consider all the interdependencies, communication standards and processes in place in the market. It is easy to showcase transactions executed in a matter of seconds in a closed environment, and not so easy to integrate transactions with securities accounts, payments, corporate actions, reporting, and risk management systems. The difficulties arise later on, when a successful experiment attempts to become part of the real market.
A platform may be able to handle thousands of transactions per second, operate round the clock, and provide near-instantaneous technical finality, yet still remain a silo. Scaling requires more than just computing power; it also takes assets, issuers, investors, liquidity, a secure settlement currency, access for intermediaries, and recognised legal effects.
A token is not yet a market
The digital representation of an asset is a relatively straightforward part of tokenisation. The real challenge is to ensure that an entry in a distributed ledger represents a right which its holder can effectively exercise. In the case of securities, a technically adequate transfer of a token between two blockchain addresses does not, in itself, result in the transfer of ownership which is effective against third parties with the legal finality of the transaction.
Nor does it address questions regarding incident management, the consequences of the platform operator’s insolvency, or the exercise of corporate rights.
Tokenisation does not magically eliminate the instrument’s lifecycle. It is still necessary to carry out issuance and distribution, enable trading and settlement, ensure the safekeeping of assets, manage corporate rights and benefits, and fulfil reporting obligations. DLT may change the way these functions are performed, combine some of them into a single process, and redistribute tasks differently amongst market participants, the infrastructure operator, and the code.
However, the need for specific economic and legal outcomes remains unchanged.
As a key element of the post-trade infrastructure, the central securities depository (CSD) keeps records, ensures the integrity of issues, handles settlement, sets out the rules for participation, and is responsible for the continuity of processes.
DLT may change the way some of these tasks are technically carried out, but it will not make them redundant. This is the premise on which CSDonDLT is based.
The distributed ledger changes the way selected processes are carried out, but does not remove them from the remit of a regulated and authorised infrastructure.
Legacy is not redundant
Debates about the future of the capital market often deploy the term ‘legacy infrastructure’. It is a convenient notion, but it may be misleading. It lumps together existing IT systems and components, mature communication standards, and well-established legal frameworks.
However, infrastructure that has been developed for many years need not be technologically or operationally obsolete. Its value also lies in accumulated experience, tried-and-tested security mechanisms, and risk expertise.
A distributed ledger can reduce the need for multiple copies of the same data, minimise the number of reconciliations, and enable participants to verify transactions directly. Smart contracts can combine actions currently carried out in different systems, and greater infrastructure availability can improve the mobility of assets both in the local market and across borders. After all, settlement finality, the protection of client assets, operator liability, the ability to handle incidents, and risk controls are not relics of a bygone era. They are the conditions for trust, without which the market cannot function properly.
Innovation should not be measured by how much existing infrastructure is discarded or rebuilt, but by how effectively its security, asset protection and legal certainty are combined with DLT’s shared ledger and programmability. This approach has been adopted in CSDonDLT, where new technology complements the existing depository and settlement system rather than competing with it. The aim is not to create a parallel reality from scratch. It is about the evolutionary development of market infrastructure based on its stable and proven foundations.
Risk of new fragmentation
One paradox of tokenisation is that technology designed to integrate the market may facilitate the emergence of new silos. Launching a platform for an asset class, a group of participants, or a single use case is becoming increasingly simple. However, if each such platform develops its own access rules, identification models, token standards and monetary solutions, they will form a constellation of isolated ecosystems rather than a single market.
For participants, each new platform implies a separate integration, access management, asset custody, and having to ensure liquidity in yet another environment. Individual solutions may operate quickly and efficiently, but they may also make the market more complex as a whole. Merely building technical connections between platforms does not solve this problem. A single market does not require a single ledger. However, interoperability must be taken into account right from the design stage; otherwise, multiple modern and efficient platforms will not come together to form a single, efficiently and securely functioning market. It is precisely this problem that is one of the starting points for CSDonDLT.
CSDonDLT: Evolution, not revolution
CSDonDLT is based on a different premise. The KDPW project does not create a new post-trade infrastructure operating in parallel with the current system. Instead, it introduces a complementary layer to the existing depository and settlement system. This model preserves and strengthens the role of existing market participants while opening up opportunities for them to expand their services to include the handling of digital assets. The distributed layer is not a technical replica of assets which remain registered in the traditional system. It constitutes a fully-fledged record-keeping layer shared by KDPW and market participants.
Importantly, the model proposed by KDPW does not require the simultaneous migration of the entire market. The decision to transfer securities to the DLT is up to the investor, and the order is executed by the KDPW participant serving the investor. The new layer can therefore be used for selected assets and transactions, while leaving the remaining part of the portfolio in the existing environment. The transition to the new model can take place gradually, at a pace that suits the participants’ needs.
The CSDonDLT architecture has been designed not only with a view to securities transferred from the traditional layer of the system, but also to instruments registered on the DLT from the outset. As the market develops and the regulatory environment is adapted accordingly, the solution will be able to accommodate DLT-native assets without a major overhaul of the infrastructure. The layer currently under development therefore addresses current needs and makes the market ready for a model where securities are created and operate entirely onchain.
CSDonDLT operates on a private Hyperledger Besu network compatible with the Ethereum Virtual Machine. This combines the access control of regulated infrastructure with established EVM tools and expertise, reducing technological lock-in. It also provides a foundation for controlled integration with services outside CSDonDLT, including those operating on the public Ethereum network. While this does not guarantee automatic interoperability or the unrestricted transfer of assets between networks, it allows complementary services and applications to develop externally, with CSDonDLT remaining the regulated layer for record-keeping and settlement.
Regulation, stupid!
To paraphrase a classic, it is regulations, above all, that may determine the future of DLT in the capital markets infrastructure. Legislation that links a specific function exclusively to a single market model or type of system eventually poses a barrier to innovation and development. If, however, the mere use of DLT automatically places an activity under a separate legal regime, technology is no longer a neutral tool and becomes a regulatory trigger.
This is why the changes proposed under the Market Integration and Supervision Package (MISP) are so important. They aim to confirm in the Central Securities Depositories Regulation (CSDR) that CSDs may use DLT to provide their services without leaving the main regulatory regime. It is equally important to adapt the rules on settlement finality so that transfers of securities and cash in DLT ecosystems produce unambiguous and legally binding effects. Regulation should protect the outcome of the functions performed while leaving room for changes to the underlying technology.
The DLT Pilot Regime plays a key role in this regard. It provides a safe space for testing models in which not only the technology changes, but so does the division of functions and responsibilities among market participants. However, it should not become an end in itself or evolve into a permanent regime competing with the CSDR. The pilot regime serves to identify risks and develop appropriate safeguards, while mature solutions should gradually be incorporated into the regulatory mainstream.
The permanent coexistence of two distinct regimes for functionally comparable services would violate the principle of a level playing field and could lead to regulatory arbitrage. The specific features and exemptions characteristic of the pilot regime are justified as long as they remain proportionate and support the convergence of the two regulatory frameworks, rather than perpetuating market fragmentation.
It is therefore crucial to clearly separate these two paths. The first allows CSDs to use DLT within the framework of the CSDR to perform the functions for which they are already responsible.
The second provides scope for testing models that modify the roles, scope of services and responsibilities of individual entities. Both approaches are necessary, but they should not be conflated. The appropriate legal regime should be determined by the function and the associated risks, rather than by the choice of technology alone.
Regardless of the architecture, regulation must ensure the integrity of issuances, the protection of investors’ assets, settlement finality, operational resilience, effective supervision, and a clear allocation of liability. DLT may change the way these objectives are achieved, but not the standards that the market is entitled to expect.
The future will be shared
The future of the capital market will not be decided by a simple choice between traditional infrastructure and DLT-based solutions. The most likely scenario is a gradual convergence of both models. DLT brings programmability, a shared ledger, and greater asset mobility.
The existing infrastructure provides legal certainty, security, clearly defined liability, and access to a functioning market and its liquidity.CSDonDLT shows how such an approach can work in practice.
Adding DLT as a complementary layer to the depository and settlement system allows its capabilities to be exploited without a one-off migration of the entire market, the duplication of assets through secondary tokenisation, or the fragmentation of liquidity across competing ecosystems. Participants can use this layer where it adds real value and continue to carry out other processes in the existing infrastructure. The way forward requires the seamless integration of securities, money, market participants, and the legal consequences of executed transactions. The future does not lie with yet more technological silos, but with solutions that the market can share and co-create. We do not need a second capital market. We need infrastructure that will enable the existing market to take the next step.
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