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When we see Procrypt people declare on Twitter that “blockchain will replace Tradfi,” what this means in particular is the disruption of DTCC (Depository Trust & Clearing Corporation) as the standard post-trade clearing and settlement House for the US securities market.
DTCC is owned by a consortium of the world’s largest banks. The company monopolizes securities settlements, removing value from $9 trillion to $11 trillion each day.
The idea that DTCC would use blockchain would have been a laugh just a few years ago. Incumbents were expected to be too late to adapt or too skeptical of technology.
Well, there’s no more.
Depository Trust & Clearing Corporation (DTCC) announced earlier this month that it was creating a new platform called “Collective App,” for “tokenized real-time collateral management.”
In a practical demonstration of DTCC’s “Great Collateral Experiment,” they explained how it can be used using its collateral app chine to encrypt it globally in real time, as well as the Ministry of Finance, stocks, tokenized money market funds, and even tokenized money market funds.
You can see it for yourself here. It reminded me of some of the earliest “enterprise blockchain” efforts, such as the 2016 JPMorgan demo Quorumback. Except this time, it’s more than a proof of concept.
The DTCC team demonstrated how its collateral app chine can improve the outdated T+X payment process into a real-time model. This model means that companies no longer face liquidity bottlenecks as constraints around market time and require them to retain extra collateral as buffers while waiting for a settlement.
Translation: Recognizing the benefits of blockchain, updating outdated technology to blockchain rails, and there’s no need to use Ethereum.
Or, as Thad Pinakiewicz of Galaxy Research points out, “DTCC is trying to avoid taking away their position by adopting the only technology that can threaten them.”
But what does this mean for cryptography?
It’s not so surprising that DTCC has come to blockchain technology. Many financial institutions are already embracing technology.
What’s surprising is that DTCC proves that it is far more agile than Crypto-Natives expected.
If DTCC’s collateral app chine quickly becomes a reality, it raises doubts about the remaining value proposition of the public blockchain.
Yes, DTCC’s AppChain Validator set will probably be centralized. The assets will still remain in traditional management systems as they remain regulated. It is built on Hyper Rudger’s besu ethereum client, which means it is a permitted system and may not be compatible with defi.
However, DTCC App Chin has other important benefits.
DTCC Appchain is not hampered by the complexity and costs required for public blockchain to facilitate on-chain securities trading.
Appchain also has liquidity that allows tens of trillions of daily transactions that are not currently owned by public blockchains.
There is a reason why DTCC stuck to the suboptimal T+1 netting payment process. The reason is that it’s more efficient than having to process all transactions like a public blockchain.
