DTCC’s Global Head of Strategy & Innovation Casts Doubt on Blockchain’s Role in U.S. Settlement Transition
Jennifer Peve believes blockchain may not be the solution for the U.S. transition to T1 settlement, citing performance and scale concerns.
In a recent symposium on the tokenization of real-world assets and liabilities, Jennifer Peve, the Global Head of Strategy & Innovation at the Depository Trust & Clearing Corporation (DTCC), expressed skepticism about the role of blockchain in facilitating the U.S. transition to T1 settlement. Peve highlighted the performance and scale challenges associated with blockchain implementation in public equities markets. While acknowledging the potential for blockchain in other sectors, she emphasized the need to first demonstrate its credibility and effectiveness before tackling more entrenched businesses.
Blockchain’s Advantage of Atomic Settlement
One of the key advantages of blockchain technology is its ability to enable atomic settlement, or delivery versus payment (DvP), where the asset and payment exchange occur simultaneously. However, Peve believes that this feature may not be as applicable to high-volume, low-value markets like U.S. public equities. She suggests that blockchain’s potential for on-chain, real-time settlement may be better suited for other markets with less developed infrastructure.
Opportunities in Less Developed Markets
Peve identifies sectors such as private stocks, alternatives, and ETFs as potential candidates for tokenization and blockchain implementation. She highlights the operational efficiencies that can be achieved through the create-redeem processes and data distribution in ETFs. The DTCC has already explored similar concepts through initiatives like Project Whitney, which aimed to leverage blockchain technology for settlement processes.
DTCC’s Blockchain Initiatives
The DTCC has been actively exploring blockchain technology in recent years. In 2022, it launched a DLT-based stock settlement system for bilateral transactions using R3’s Corda DLT. It also introduced the Trade Information Warehouse system for derivatives, which had both a blockchain and conventional version. Additionally, the DTCC launched an industry Testnet infrastructure based on Hyperledger Besu and acquired digital asset solution provider Securrency, further expanding its blockchain capabilities.
Recent Experiment and Cautionary Tone
Peve mentions a recent proof of concept conducted by the DTCC in the wealth management space. The experiment involved putting net asset value (NAV) data on a public blockchain to assess its potential value. However, Peve maintains a cautionary stance, highlighting challenges such as interoperability with legacy systems and slow adoption by financial institutions. She emphasizes the need for proven scalability and performance in the markets served by the DTCC.
The Future of CSDs and the DTCC
Peve acknowledges the potential impact of tokenization on central securities depositories (CSDs) and central counterparties (CCPs). As blockchain technology takes on the role of registry and smart contracts automate servicing functionality, CSDs may need to evolve or face disruption. Last year, the DTCC, Clearstream, and Euroclear published a paper advocating for the role of CSDs in the tokenized future. Peve emphasizes the need for industry players to recognize the value of embracing change and taking calculated risks.
Conclusion:
While blockchain technology holds promise for revolutionizing settlement processes, Jennifer Peve, the DTCC’s Global Head of Strategy & Innovation, believes that its application in the U.S. transition to T1 settlement may not be the optimal solution due to performance and scale concerns. However, she sees potential in less developed markets and sectors like private stocks and ETFs. The DTCC continues to explore blockchain initiatives and conduct experiments, but Peve maintains a cautious approach, emphasizing the need for proven scalability and performance. As the future of CSDs and the DTCC is questioned, Peve highlights the importance of embracing change and taking calculated risks to drive innovation in the industry.