By Marco Kessler, Head of Product and Business Development & Market Ecosystem, Custody, SIX

For much of the past decade or so, those advocating the adoption of digital assets have been trying to prove to the wider industry that the technology is foolproof. If this week’s dramatic developments in Washington are anything to go by, the next step is clearly around agreeing on the foundations on which digital assets can operate at an institutional scale.

Following the US Senate failing to advance the CLARITY Act, legislation which was supposed to provide certainty around the respective roles of the Securities and Exchange Commission and Commodity Futures Trading Commission, the fallout has centred around views from both sides of the US political divide on what the eventual framework should look like. The SEC’s subsequent decision to grant a five-year conditional exemption allowing certain tokenised US equities to trade on new on chain venues without those venues registering as exchanges certainly provides a route for innovation to continue while lawmakers deliberate the longer-term framework, but temporary regulatory relief is not the same thing as lasting regulatory certainty. For those immersed in European market structure, events in the US simply underline just how vital regulatory certainty ultimately is for financial institutions before they go all in on a new asset class. Technological innovation across any industry of course requires a period of experimentation. But the reality is that for any market to scale, a clean and predictable regulatory environment needs to be created.

Take an investment bank or an asset manager assessing how much capital to allocate to digital assets as a prime case in point. For these firms, the quality of the technology, while of course important, is just one part of the digital assets story. The intricate details – how a digital bond or equity will be classified, how they can be held in custody, and what obligations apply when they are traded or transferred – are all equally important.

The reality is that investment becomes much harder to justify without certainty around these points. After all, technology these days may well be able to move at the speed of light, but this is not the case for institutional capital. Europe provides an interesting contrast, with defined rules such as the EU’s Markets in Crypto-Assets Regulation (MiCA) marking a major step in the right direction, allowing European firms to provide fully authorised crypto services across the bloc.

This is not to say that MiCA is something the US should copy and paste. After all, we are talking about a vastly different financial market structure and regulatory culture. That said, having established rules is an important foundational layer from which the digital asset discourse can move beyond trading cryptocurrencies and towards the underlying infrastructure that keeps the beating heart of capital markets pumping.

Few would argue that blockchain-based settlement and digital forms of collateral could revolutionise how assets move through the financial system, but this is not some kind of zero-sum game where either traditional or digital markets win or lose. On the contrary, for digital assets to truly mature, the two increasingly need to become more closely connected.

Interestingly, we are already seeing signs of this convergence across Europe with digital capabilities being integrated with an established securities infrastructure as opposed to being developed separately. If, ultimately, the aim is to allow liquidity to move efficiently between traditional and digital environments, then surely interoperability must come into its own. The larger and more interconnected digital asset markets become, the more important confidence in that interoperability becomes.

This is why issues taking place in the US should not overshadow the much bigger discussion about the architecture of tomorrow’s capital markets. No one regulatory model will work everywhere, and the European Union, Switzerland, the US and other financial centres will understandably take different approaches. This is no bad thing as differences in regulatory culture can encourage innovation. However, this does not alter the fact that regulation provides the clarity for institutions to invest, infrastructure providers to build, and markets to connect. The first chapter of the  digital assets story was about technological possibility; this week’s decisions in the U.S simply reinforce that. The next few chapters, at the very least, will depend greatly on turning that possibility into trustworthy and scalable financial infrastructure.