Clearing company tests securities transaction settlement on blockchain network
The Digital Dollar Project (DDP) and the Depository Trust & Clearing Corporation (DTCC) published the results of their Security Settlement Pilot project on November 30. The project tested a simulated digital US dollar in transactions with tokenized securities on a blockchain network under real-world conditions.
The project was designed “to better understand the implications of a US central bank digital currency (CBDC) on post-trade settlement,” specifically on DvP (delivery versus payment) settlement, sometimes called nuclear settlement, which ensures that securities transfers only take place simultaneously or near-simultaneously with payment. No US CBDC has been developed or even authorized yet.
DTCC CEO Jennifer Peve wrote in the company’s foreword:
“These efforts, detailed in this white paper, simulate future settlement capabilities while ensuring choice for clients as well as the same – or higher – levels of safety and security as DTCC’s existing settlement solutions.”
The pilot used a third-party “orchestrator” between DTCC’s Digital Settlement Network prototype and the Digital Dollar Network to execute instructions and eliminate counterparty risk. This is because the parties to a transaction may have different settlement banks that will not have full visibility in both networks. Assets were encumbered on both networks during transactions.
In addition, it used “an algorithmic lien mechanism to enforce asset release terms, which leveraged smart contracts to control the asset instead of a third party.” Transactions in the test system take a total of 12 steps.
The pilot system allowed for a range of netting and settlement options which included T2, T1 and T0 intraday and end of day.
JUST RELEASED: Results from @Digital_Dollar_ and @The_DTCC Security Settlement Pilot, the first private sector initiative to explore how tokenized securities and a wholesale #CBDC could operate within the American settlement infrastructure #DLT. https://t.co/I5NApRwlls
— The Digital Dollar Project (@Digital_Dollar_) 30 November 2022
US settlement practices differ significantly from the rest of the world. The results of the settlement attempt were evaluated by participating banks, which included Bank of America, Citi, Nomura, Northern Trust, State Street, Virtu Financial and Wells Fargo.
This was the first of five planned pilot projects. The Digital Dollar Project was created in 2020 by the Digital Dollar Foundation and technology consultancy Accenture. It created a technical sandbox in September. DTCC handles the vast majority of securities transaction settlements in the United States.
