DTCC Executive Expresses Caution on Blockchain’s Role in U.S. Settlement Transition
Jennifer Peve, Global Head of Strategy & Innovation at DTCC, discusses the limitations of blockchain in facilitating the U.S. transition to one-day settlement.
In a recent symposium on the tokenization of real-world assets, Jennifer Peve, the Global Head of Strategy & Innovation at the Depository Trust & Clearing Corporation (DTCC), expressed skepticism about the role of blockchain technology in the upcoming U.S. settlement transition. While blockchain offers the potential for atomic settlement and operational efficiencies, Peve believes its scalability and performance limitations make it unsuitable for high-volume, low-value markets like U.S. public equities. However, she sees promise for blockchain in less-developed sectors, such as private stocks and ETFs, where it can enhance operational efficiencies and data distribution.
Blockchain’s Potential for Real-Time Settlement in Niche Markets
Peve acknowledges that blockchain’s real-time settlement capabilities hold promise for markets with lower volumes and values. She highlights the opportunities for on-chain, real-time settlement in sectors like private stocks and ETFs, where operational efficiencies can be significantly improved. The DTCC’s exploration of similar concepts, such as Project Whitney, exemplifies the potential of blockchain in these niche markets.
DTCC’s Blockchain Initiatives and Testnet Infrastructure
The DTCC has been actively involved in exploring blockchain initiatives. In 2022, it launched a distributed ledger technology (DLT)-based stock settlement system using R3’s Corda DLT for bilateral transactions. It also implemented a blockchain-based Trade Information Warehouse system for derivatives. Additionally, the DTCC introduced an industry Testnet infrastructure based on Hyperledger Besu, providing a sandbox environment for blockchain experimentation. The recent acquisition of digital asset solution provider Securrency further demonstrates the DTCC’s commitment to exploring blockchain’s potential.
Proof of Concept in Wealth Management Space
Peve shares details of a recent proof of concept conducted by the DTCC in collaboration with asset managers, fund administrators, and custodians. The experiment involved putting net asset value (NAV) data on a public blockchain to assess its impact on data distribution. While the results were promising, Peve emphasizes the need for caution due to the technology’s unproven scalability and slow adoption by financial institutions.
Challenges and Considerations for Blockchain Adoption
Peve highlights two key challenges hindering blockchain adoption: interoperability with legacy systems and the cautious approach of financial institutions. The compatibility of blockchain with existing systems and the need for regulatory compliance pose significant hurdles. Peve emphasizes the importance of honest conversations and risk-taking to drive blockchain adoption, particularly in the face of potential revenue loss and the need to explore alternative opportunities.
Conclusion:
While blockchain technology holds promise for enhancing settlement processes and operational efficiencies in certain sectors, Jennifer Peve of the DTCC remains cautious about its scalability and performance limitations. She believes that blockchain’s true potential lies in less-developed markets and niche sectors, where it can bring significant benefits. However, widespread adoption and integration with legacy systems remain significant challenges. As the U.S. settlement transition approaches, the DTCC continues to explore the possibilities while acknowledging the importance of regulatory compliance and the role of central securities depositories in this evolving landscape.