Is it feasible for blockchain to replace CHESS in equity markets?

As Australia’s financial infrastructure continues to evolve, more attention is turning toward the future of CHESS - the Clearing House Electronic Subregister System that underpins equity settlement in the country. While CHESS has long served as the backbone of the ASX’s post-trade system, critics increasingly argue that it is outdated and in need of a significant upgrade. Amidst these discussions, a surprising source of inspiration is emerging: the architecture of blockchain wallets.At first glance, the world of crypto and traditional equities might seem worlds apart. But as digital asset ecosystems mature, there’s a growing case that the core principles underpinning self-custody in blockchain could inform how future ownership and settlement systems evolve in public markets.

Two Systems, One Core Function: Recording Ownership

CHESS was designed to provide centralised record-keeping and settlement for shares traded on the ASX. It facilitates ownership transfers, clears trades, and provides registries with the information needed to manage investor records. However, CHESS operates through a series of intermediaries - including brokers, clearing houses, and custodians - that increase complexity, introduce delays, and create friction for the end investor.

In contrast, blockchain wallets - especially the modern crypto wallet - function as a self-contained mechanism for ownership, verification, and transfer of digital assets. Rather than relying on third-party registries, ownership is proven cryptographically via private keys. Users can initiate transfers directly, with transactions recorded transparently on a distributed ledger.

This shift in architecture - from intermediary-led to user-controlled - is where the parallels begin to surface. Both systems aim to record and manage ownership, but they take fundamentally different approaches to trust, control, and accessibility.

Could Equity Markets Adopt Wallet-Based Models?

Australia’s CHESS replacement program has faced delays and controversy, particularly after the shelving of the ASX’s blockchain-based upgrade in 2022. But while that specific implementation may have stalled, the broader concept - leveraging distributed ledger technology for equity settlement - is still very much alive.

Wallets used in blockchain ecosystems demonstrate how it’s possible to assign and transfer ownership without needing a central clearing authority. The private key infrastructure enables users to prove asset control and execute actions with minimal dependence on third parties. It’s a radically different model - but also one that eliminates many of the bottlenecks inherent in traditional systems.

A future CHESS replacement might not replicate a blockchain wallet outright, but it could adopt similar principles: decentralised identity, key-based transaction signing, and real-time settlement. It’s a vision of capital markets where investor control is maximised, friction is reduced, and settlement becomes a near-instantaneous process.

Challenges: Can Self-Custody Work in Regulated Markets?

Despite its promise, there are significant challenges in applying self-custody models to equity markets. Crypto wallets give users complete control over their assets, but also make them solely responsible for safeguarding access. Lose your private key, and you lose your funds. This “no safety net” design works in decentralised ecosystems, but regulators and investors in traditional finance generally expect recoverability, oversight, and protection.

Any evolution of CHESS that borrows from wallet architecture would need to build in safeguards. That might mean using multi-signature schemes, regulated custody providers, or smart contracts that enable oversight without requiring centralised control. The goal would be to blend the transparency and control of self-custody with the institutional reliability of traditional finance.

Tokenised Shares and the Wallet Interface

Globally, we’re beginning to see movement toward wallet-based ownership of regulated assets. In Switzerland, tokenised shares are already being issued and traded on blockchain-powered platforms. In the US, large financial institutions are exploring fund tokenisation and direct-to-wallet issuance models. These early experiments suggest that the wallet isn’t just a metaphor - it could become the actual interface for holding and trading shares in the future.

For Australia, which already has one of the world’s most transparent and advanced financial markets, a pivot toward tokenised equity models - facilitated by wallet-like technology - could offer both efficiency and global competitiveness.

A Glimpse Into the Post-CHESS Era

CHESS may not be replaced overnight, but it’s clear that the underlying logic of its replacement is being shaped by external forces - including innovations from the blockchain world. Crypto wallets have proven that it's possible to reimagine asset custody and ownership in ways that empower individuals, reduce reliance on middlemen, and increase security.

If the next iteration of CHESS borrows from the wallet model, we could see a system where investors are no longer passive participants in a broker-managed environment, but active custodians of their own holdings - with secure keys, real-time access, and reduced settlement risk.

Such a transformation won’t be simple, and it will require careful regulation and new infrastructure. But the foundational ideas are already being tested at scale in the crypto ecosystem. The question now is whether traditional finance - led by forward-looking reforms to systems like CHESS - can embrace those lessons and adapt them to a regulated, investor-focused future.