TradFi Clearing House Turns to Blockchain to Settle Transactions
The goal of Project Ion is to provide a resilient, secure and scalable alternative settlement service to clients, Depository Trust and Clearing Corporation says
Source: Shutterstock
key takeaways
- DTCC launches distributed ledger technology platform for settlements
- Tokenization is on the rise, the Bank of International Settlements said in 2020
Clearing and settlement house Depository Trust and Clearing Corporation (DTCC) has launched a private and permissioned blockchain network as an alternative settlement platform.
Project Ion, which leverages distributed ledger technology (DLT), is now processing an average of 100,000 bilateral equity transactions per day, DTCC announced Monday.
“The goal of Project Ion is to ultimately provide a resilient, secure and scalable alternative settlement service to clients, with the option to leverage DLT for those firms who wish to take advantage of the emerging technology,” DTCC said in a statement.
DLT provides a safer, cheaper, and more efficient alternative to traditional settlement methods, Murray Pozmanter, said in the statement. Pozmanter is the managing director and president of DTCC clearing agency services and head of global business operations.
Other blockchain settlement efforts
A distributed ledger is a record of transactions held between a network of computers, or nodes. The use of DLT generally relies on cryptography to allow nodes to securely propose, validate and record changes and updates to the synchronized ledger without necessarily needing a central authority, as a 2020 report from the Bank of International Settlements (BIS) explained.
Researchers from the BIS said that DLT and tokenization of securities could transform post-trade clearing and settlement operations, but the inherent challenges of credit risk and liquidity associated with traditional methods remain.
“To succeed, tokens will need to interoperate with account-based systems, at least in the interim,” researchers wrote in the report.
Financial institutions have become increasingly interested in leveraging DLT in recent years for trading and settlements. Also in 2020, Credit Suisse announced a DLT-based platform for investment funds.
More recently, a consortium of French banks experimented with using a private blockchain to settle debt securities in Oct. 2021. That followed a trial by French bank Société Générale to use public Ethereum and mint MakerDAO’s DAI stablecoin through the issuance of euro-denominated bonds.
Signature Bank customers have been able to initiate real-time Fedwire transactions using Signet, the firm’s DLT payments platform, since April 2022.
BNY Mellon and Goldman Sachs partnered on HQLAx, a DLT-based securities lending platform. Its first transaction was completed in July 2022.
Project Ion is being designed to adhere to rigorous regulatory standards and deliver the resiliency, volume capacity, security, scalability and risk controls that DTCC is known for, the firm said in the statement.
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