Capital Movement: The Key to Market Stability

Jenna Wright from LMAX Group discusses how market breakdowns often stem from misallocated capital and highlights the importance of stablecoins and tokenization.

In this week's edition of Crypto Long & Short, Jenna Wright from LMAX Group discusses how market breakdowns are often due to capital being misallocated rather than a lack of it. She emphasizes that stablecoins and tokenization are emerging as essential components that enable rapid capital movement in alignment with risk.

By Jenna Wright|Edited by Kim Greenberg KlemballaUpdated 4 min agoPublished 8 min ago6 min readMake preferred on ShareShare this articleCopy linkX (Twitter)LinkedIn Facebook Email Make preferred on

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Hi readers,

Welcome to our institutional newsletter, Crypto Long & Short. This week:

Jenna Wright from LMAX Group highlights that market failures often stem from capital being misallocated rather than scarcity.
Important news for institutions from Francisco Rodrigues.
“ENA's funding sensitivity has structurally faded” in Chart of the Week.

Thanks for joining us!

- Kim Klembella

When capital can’t move quickly, markets suffer

by Jenna Wright, managing director, digital assets, LMAX Group

Market disruptions rarely result from a lack of capital; instead, they often occur when capital is misallocated. Recent market fluctuations, influenced by geopolitical issues, have highlighted this point. Institutions possess funds and collateral, but a significant portion remains stuck in outdated systems reliant on batch processing and settlement cycles. While risk fluctuates rapidly, collateral does not.

This discrepancy has evolved into a significant market-structure issue. When institutions are unable to swiftly mobilize collateral, liquidity diminishes, spreads widen, and price shifts can become excessively volatile. The challenge is not merely volatility, but a market infrastructure that has failed to adapt to the evolving demands of the market.

Markets operate continuously, but infrastructure does not

The ongoing transformation is evident. Digital assets are traded around the clock, and foreign exchange (FX) and derivatives markets are gradually moving towards more continuous operations. Investors increasingly seek immediate access and responses. However, much of the infrastructure supporting institutional trading was originally designed for fixed trading hours and end-of-day processes.

This gap becomes critical during periods of market stress. Collateral remains distributed across various platforms, custodians, asset classes, and jurisdictions. Companies continue to pre-position capital due to lengthy settlement periods, often spanning one or two days, and must navigate operational cut-off times that are illogical in continuously moving markets.

In January, LMAX Group processed over $300 billion in total volume within a single week, including $60 billion in gold products. In the broader market, some institutions were compelled to exit positions overnight due to their inability to swiftly transfer assets from equity or bond portfolios to cover gold or energy exposures. The collateral was available but could not be mobilized quickly enough.

This situation underscores a critical flaw that volatility exposes. While markets have evolved to become faster and more interconnected, capital movement remains sluggish and fragmented. Bridging this gap necessitates a reimagined approach to cash, collateral, and settlement strategies.

Stablecoins are becoming essential

Settlement processes continue to represent a vulnerability in capital markets. While institutions can execute trades globally in milliseconds, the value transfers that underpin those trades may still take days. This lag introduces funding pressures, operational risks, and unnecessary capital constraints.

This is where stablecoins gain significance in institutional markets. Simply put, they enable cash-equivalent value to move with the same speed and programmability as digital assets. For firms still operating under T+1 or T+2 settlement frameworks, along with nostro and vostro accounts and rigid cut-off times, this represents a transformative improvement.

The market has already progressed beyond theoretical discussions. The total market capitalization of stablecoins has reached approximately $320 billion, with recent data indicating record levels of on-chain transfer activity. More importantly, regulated institutions are starting to recognize stablecoins and tokenized cash as fundamental components of settlement infrastructure rather than merely as curiosities in the crypto market.

This distinction is significant. A stablecoin does not need to overhaul the financial system to be advantageous; its practical function is to facilitate the movement of money at a pace that matches the risks it supports. In continuous markets, this capability will become a baseline expectation. Any institution unable to settle, fund, or rebalance in real-time will start at a disadvantage before a trade even takes place.

Tokenization complements this transformation

While stablecoins facilitate cash movement, tokenization enhances asset portability. In the January scenario, the challenge was the slow transfer of assets that forced institutions out of their positions. By representing securities and other assets as programmable units of value, tokenization allows for quicker pledging, transferring, or releasing of collateral. This helps to free trapped capital for productive use.

Thus, tokenization should not be dismissed as a mere efficiency initiative. It fundamentally alters the organization of trust, settlement, and risk management. When cash, securities, and collateral can all function on programmable frameworks, the traditional divisions between asset classes begin to feel more like impediments than necessities.

Implementation is the real challenge

The direction of change is clear, but execution poses significant challenges. Today's market infrastructure is still characterized by a series of disconnected processes: execution, clearing, settlement, and custody. Each transition introduces delays, and every boundary creates an opportunity for capital to become immobilized. This model is increasingly misaligned with markets that expect continuous management of exposure, funding, and settlement.

These are practical and technical challenges, not just theoretical discussions about market philosophy. They demand infrastructure that can undergo upgrades without downtime, risk models that operate in real-time rather than on a daily basis, and settlement mechanisms that can accommodate institutional scale. Firms that successfully address these challenges will not only enhance their efficiency but will also set a new competitive standard for markets in the coming decade.

The cost of inaction is rising

Significant shifts in market structure often appear slow until they suddenly accelerate. Innovations like electronic trading, central clearing, and shorter settlement cycles have followed this trajectory. Adoption typically begins unevenly, but speeds up when the benefits become too significant to overlook.

The technology is available, and the need is evident. What remains is the commitment to modernize the infrastructure that dictates whether capital can be deployed when markets need it most. Until such changes are made, markets will continue to face the repercussions of a fundamental flaw: while capital may be plentiful, that abundance is meaningless if it cannot move efficiently.

Headlines of the Week

By Francisco Rodrigues

This week's headlines reflect a shift in institutional crypto towards more regulated financial frameworks. Coinbase and Wintermute are achieving key regulatory milestones, while Wells Fargo is entering the competitive landscape of the sector.

Wells Fargo to introduce tokenized deposits for 24/7 corporate transactions: The bank plans to launch tokenized deposits this fall for select corporate clients, initially offering round-the-clock transactions between U.S. dollars and British pounds, with further expansion slated for 2027.
Wintermute achieves U.S. broker-dealer status: The market maker's U.S. division has registered with the SEC and become a member of FINRA, enabling it to trade stocks and options, provide ETF liquidity, and act as an authorized participant for crypto-linked funds.
Coinbase selects Abu Dhabi for global tokenized asset initiatives: The exchange has received approval from the Abu Dhabi Global Market's regulator to facilitate investment deals and custody of tokenized securities, with plans to issue digital securities backed by shares.
U.S. Senate initiates process for the Clarity Act ahead of September vote: Majority Leader John Thune has filed a motion to proceed, setting the bill up for an initial vote post-August recess, though it still requires 60 votes and consensus on ethics, enforcement, and stablecoin provisions.
U.K. FCA develops tokenized gold regulations for wholesale markets: The regulator is consulting with financial institutions on the potential use of tokenized gold as collateral in wholesale markets, as London aims to protect its position in a market accounting for 70% of global gold trading volume.

Chart of the Week

Average BTC/ETH funding has risen to approximately 5% annualized, surpassing the 3 million T-bill (~3.8%) — yet Ethena (ENA) has shown minimal reaction. This disconnect is structural: the crypto basis has decreased to about 1.5% of ENA’s backing, leading to a significant reduction in the token's funding sensitivity.

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