Australian stock exchange officially scraps plans for blockchain settlement
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One of the world’s most prominent blockchain implementations is officially winding down after eight rocky years. The Australian Securities Exchange (ASX) recently revealed that it is officially abandoning its bid to replace its trading and settlement system with a blockchain-based network.
The ASX has relied on the Clearing House Electronic Subregister System (CHESS) since its launch in 1994. In 2016, US startup Digital Asset Holdings enlisted to build a blockchain replacement for CHESS. After years of delays and postponements, the exchange announced last year that the blockchain project had not lived up to expectations. The stock exchange has officially scrapped the project in its last meeting.
ASX project director Tim Whiteley confirmed the move in a recent meeting. The manager stated that the upgrade at CHESS would utilize traditional technology.
“…while we continue to explore all the options, we absolutely need to use a more conventional technology than in the original solution to achieve the business results,” he said.
Whiteley added that the ASX would settle on a new strategy before the end of the year. It has reportedly sent a request for information to several potential software vendors as it explores its options.
The ASX says participants’ feedback “has been factored into implementation planning” as it explores options. Most participants have said they don’t want a risky transition to a new software solution in one date, Whiteley said.
Whiteley dismissed any claims that the ASX could revive the blockchain project in the future. It would have been one of the highest profile blockchain projects, with the ASX being Australia’s largest exchange. It lists over 2,200 companies with a combined market value of $2.5 trillion.
What went so wrong for the ASX?
When the ASX announced its blockchain project eight years ago, it was seen as the biggest stamp of approval for the technology in the corporate world at the time. The exchange enlisted New York startup Digital Asset Holdings to build the platform, then led by former JPMorgan (NASDAQ: JPM ) CEO Blythe Masters. ASX took up a 5% stake in the company.
Eyebrows were raised at the time over the exchange’s decision to trust a little-known start-up on such a massive project. In an interview last December, co-founder Yuval Rooz admitted that the startup was punching above its weight.
“The CHESS replacements are extremely ambitious and were a very large project to take on for a company of our size in 2017,” he told Euromoney.
When ASX embarked on the project, it was under the leadership of CEO Elmer Funke Kupper. His successor, Dominic Stevens, pushed on and even increased his stake in Digital Asset to 8.5%. When he left last February, over 300 people (a third of ASX’s workforce) were working on the project in one capacity or another.
It was Stevens’ successor, Helen Lofthouse, who first questioned the project and enlisted Accenture (NASDAQ: ACN) to audit the project. The consultancy revealed that only 63% of the project had been completed seven years later.
Digital Assets’ Rooz says part of the blame goes to the ASX for its “lift and shift” approach. This refers to the idea of moving a system to another platform without any fundamental redesign. He says that the two partners should also have focused on developing a minimum viable product and taking it to market first.
The failure of the blockchain project has been widely criticized. Market players say the ASX should compensate them for the millions of dollars they invested in preparing their systems for the new blockchain implementation. The failure led to a parliamentary inquiry and asked the board to resign.
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