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Blythe Masters Looks Beyond Finance for Next Wave of Blockchain Growth

To hear Blythe Masters tell it, the time has come for Digital Asset (DA) to spread its wings and fly.

The distributed ledger technology (DLT) company she founded in 2014 is entering a new phase, heralded by, among other things, a partnership with Google Cloud to simplify and proliferate the tech.

To date, DA’s strategy has stood out among the big enterprise blockchain players for its laser-like focus. Instead of spending a lot of time on consortiums, proofs-of-concept and the like, the New York-based company concentrated on landing the one big fish.

It achieved that goal late last year when the Australian Securities Exchange (ASX) officially hired DA to replace its creaky Clearing House Electronic Subregister System (CHESS), a multi-year project that’s currently underway.

Now, having earned the rare distinction of a bona fide production customer, Masters’ startup wants to foster an ecosystem around its Digital Asset Modeling Language (DAML), which is about to become available with a software development kit (SDK) via Google Cloud.

“Having spent three and a half years in the design-and-build phase, this is the ‘open up and educate’ phase and [the time to] build a community of channel partners and developers,” Masters told CoinDesk.

This, in turn, will open a vast range of opportunities for DA, she said – both within the financial services industry where Masters spent most of her career and outside it.

“The application of this technology is by no means limited to the world’s biggest market infrastructures,” the former JPMorgan Chase executive said, adding:

“It goes well throughout financial services, well beyond capital markets and beyond financial services into all the other industries that have a vested interest in improving the efficiency of their workflow orchestration.”

According to Masters, there is “a lot of pent-up demand” for DA’s technology which the cloud-based DAML SDK can start to meet and a “potential addressable market that is almost unmeasurable.”

To give a sense of the breadth of this market, Masters rattled off a litany of new pastures for DA, including: healthcare and insurance claims; digital media rights; royalty streams; real estate; lending and collateral management within capital markets, derivatives post-trade, securities post-trade, reference data, supply chain, crypto wallet custody of assets and more.

However, Masters was careful to qualify this, acknowledging the fatigue felt in many corners following the blockchain hype of a few years ago.

“I think there was some fair criticism that blockchain was a technology solution looking for a problem to solve,” she said. “But our approach has very much been to work with customers to identify the problem first and sometimes not to recommend a DLT solution.”

‘Web-paced innovation’

The DA team recently returned from San Francisco, where Masters and Shaul Kfir, DA’s CTO, gave a talk on DLT partnerships at the Google Cloud Next conference.

The primary aim of the Google Cloud partnership is to make it easier for developers to deploy DA’s tech, which Masters describes as “a mission to unleash web-paced innovation across multiple industries.”

This means abstracting away the underlying complexity of the cryptography, the data architecture, the blockchain or DLT state engine, said Masters.

The Google Cloud-DA partnership appears to run deep as well as wide. To help drive the DAML platform-as-a-service (PaaS) program, DA has also welcomed former Google engineering executive AG Gangadhar to its board.

And adding to the symbiosis, Google Cloud has joined DA’s developer program private beta, giving Google Cloud developers access to DAML.

The DLT space has garnered extraordinary enthusiasm and Google’s developers and its customers are no less curious and motivated in this space than any others,” said Masters.

It’s now clear Google is getting serious about blockchain following candid comments last month from co-founder Sergey Brin that the search giant was playing catch up with the blockchain trend.

Google would not comment on the partnership or DLT generally, but an insider close to the DA-Google Cloud partnership confirmed to CoinDesk, “All of Google has access to the DAML SDK, and this includes Alphabet,” Google’s holding company, which has portfolio companies in a wide range of industries.

But not every influential figure in Mountain View is a blockchain convert. CoinDesk asked Google’s chief internet evangelist, Vint Cerf, if he thought tokens could perhaps be used to incentivize users and align them with the goals of tech platforms.

Cerf, who was not commenting on the DA partnership but on cryptocurrency generally, replied in a curt email: “Not clear yet. It could just turn into a speculation like tulip bulbs and bitcoin.”

Still, Masters said DA and Google share a common approach to solving engineering problems and “a focus on empowerment of enterprise customers, particularly in the workflow orchestration space that we have in common. So that is where the enthusiasm is coming from.”

Maverick Masters

To be sure, DA is far from alone among enterprise blockchain vendors in trying to expanding its ecosystem.

For instance, IBM and Hyperledger are hard at work exploring what they can do with partnerships. Meanwhile, a recent announcement from banking blockchain consortium R3 talked up the potential for its Corda platform to be interoperable across a wide range of industries.

There has also been an increase in blockchain-as-a-service announcements of late. BlockApps Strato has also been welcomed onto Google Cloud, while Amazon Cloud Services (AWS) recently cemented a partnership with ethereum design studio Consensys in the form of the Kaleido project.

But Masters pointed out that DA has always charted its own course, adding that the company’s strategy remains unchanged.

“It’s where we always intended to focus,” she said, referring to the new priority on building a developer ecosystem. “We just didn’t approach it via the same avenue necessarily as everyone else.”

Aside from ASX, other customers DA has publicly disclosed it is working with are the U.S. clearing and settlement giant DTCC and Dutch megabank ABN Amro.

Another thing enterprise blockchain watchers seem to be interested in is a possible amalgamation between private or permissioned DLTs and public chains, with their fluidity of tokenized assets.  

Asked for her opinion on the nascent token economy and where it might bleed into the enterprise world, Masters said she is “not ruling out tokens by any means.”

She agreed there is lots of good research and development work being done on this, but said the institutional use of enterprise tokens requires enterprise-grade command-and-control infrastructure.

“It won’t be until the kind of controls you routinely expect around transactions and post-trade processing of a stock or bond today can also be produced for the transaction of a tokenized instrument – whether it’s a stock or a bond or a cryptocurrency – that we will see widespread enterprise adoption of tokenized instruments that rely on public chain technologies.”

Ever the hard-headed businessperson, Masters would not be drawn on the merits or otherwise of one DLT architecture versus another, but answered categorically all the same when she said:

What I believe in is our technology. I don’t mix philosophy or religion with technology. I believe in solving business problems using tech in a cost-effective and safe manner.”

Blythe Masters mage via CoinDesk archives 

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Capital Markets Blockchains Are Finally Getting Go-Live Dates

If minimum viable products (MVPs) have so far proved elusive for companies building blockchain solutions for capital markets, Consensus 2018 marked a notable change in the narrative.

Assembled in New York this week, a handful were even confident enough to give firm timetables for production. For those tired of blue-sky talk, it was refreshing to hear large-scale financial infrastructure projects discussed openly and frankly, in clear terms of where they are and when we can expect to see things going live.

“We are now starting to see at Consensus, examples of where financial services are taking this technology into production with real timelines that they have committed to,” Chris Church, the head of business development at Digital Asset, said.

He told CoinDesk:

“I think that’s a very important proof point for the industry.”

Indeed, DA, a blockchain startup founded by former JP Morgan executive Blythe Masters, has itself been making headway with its overhaul of the Australian Securities Exchange’s (ASX) Clearing House Electronic Sub-register System (CHESS).

Underscoring the seriousness of the undertaking, ASX recently produced an 87-page progress report. Roll-out is targeted for late 2020 or early 2021.

“A lot of people have talked about hype and reality,” Church said. But with the ASX’s commitment, at the end of last year, to replace CHESS with DA’s technology, “we now have evidence that a systemically consequential, highly regulated, national market infrastructure has made the decision to take this technology  to put it into production for their marketplace.”

Church stressed that this project is not simply “adding something on,” but rather, taking out a chunk of the CHESS system and replacing it.

Looking ahead, Church said that DA is now working with a bunch of other financial market infrastructure providers, including exchange groups in all three major regions – Europe, North America and Asia/Pacific.

Though he wouldn’t name names, Church indicated that these conversations were not about doing more proofs-of-concept.

“A science experiment is not what we are interested in,” he said.

In the weeds 

But DA isn’t the only company that’s actually finally getting somewhere with DLT for financial market rails.

For example, the re-platforming of the DTCC’s trade information warehouse is one of the highest profile financial infrastructure blockchain projects bitten off by anyone. Robert Palatnick, DTCC’s chief technology architect, confirmed that coding is expected to finish at the end of this quarter; what will follow and take until year-end, is a complex process of integration, testing and data migration.

Palatnick told CoinDesk:

“It’s exciting, but we are currently in the weeds and learning new and interesting things about working with this nascent technology as we progress.”

He went on to explain that changing to a blockchain isn’t a “magical flip of a switch.” It involves a migration of all the data that is currently in the legacy system into the blockchain before anything can go live.

The enormity of such a project may not be obvious to those unfamiliar with the creaky plumbing of the capital markets.

“It’s hard to explain how you connect to legacy systems, for example, if you don’t have legacy systems,” Palatnick said. “We don’t have any benchmarks to compare to when it comes to blockchain, so while this is unchartered territory, we continue to be pleased with our progress.”

In the third quarter of this year, DTCC expects user acceptance and the migration process to start in earnest, with an expectation of going live in next year’s first quarter.

“We are comfortable we can meet that schedule,” said Palatnick.

Drilling down a little, the very first phase involves running the ledger nodes inside of DTCC’s environment. So firms will not be running nodes themselves in the first instance until the whole challenge of managing those nodes is understood.

At the completion of phase one, DTCC will have nodes set up internally for every firm that it knows will run one, plus some general nodes that will take care of supporting the transactions and processing for the firms that do not wish to support a node of their own.

For this project, DTCC has taken a multi-vendor approach. Ethereum-inspired startup Axoni is providing the technology, with IBM helping to manage the project, and R3 providing best practice guidance on areas like selecting the right data models.

‘Changing a whole industry’

Meanwhile, in Europe, a blockchain project involving the Luxembourg Stock Exchange and a growing contingent of buy-side firms is now scheduled to go live in January 2019. Professional services firm KPMG picked the clearing and settlement of exchange-traded funds (ETFs) on the Luxembourg exchange as a use case for blockchain – which, it turns out, is a very big deal.

Luxembourg is the largest fund management hub outside of the U.S. The jurisdiction holds many trillions of dollars worth of assets under management.

“This is not just about changing the Luxembourg exchange – it’s about changing a whole industry,” Eamonn Maguire, a managing director in charge of advisory banking services at KPMG, told CoinDesk. “The primary netting point, if you will, for funds trading in Europe is Luxembourg.”

Explaining the impetus for such a change, Maguire pointed out that the charging of commissions for the distribution of funds is going to end under the European Union’s second Markets in Financial Infrastructure Directive (MiFID II). The hit to revenue means costs must be cut somewhere. 

As part of its response, Luxembourg is embracing a newer “fintech” approach using apps and mobile devices for direct-to-consumer distribution.

But combining this front-end revamp with blockchains in the back office will mean a roughly 60% reduction in costs for the exchange, said Maguire.

The KPMG-led project includes banks like BNP Paribas, Crédit Agricole and others, as well as over 400 asset managers. The technology used is ethereum-based Quorum, the popular open-source project run by JP Morgan.

KPMG found that Quorum in this private deployment was achieving a throughput of 800 transactions per second, and that would need to be ramped up for production, especially considering Luxembourg’s direct-to-consumer funds-picking model.

Maguire is proud of the magnitude of the project, which started out as a kind of garage idea inside KPMG. He concluded:

“There are different strategies. Sometimes people go for something that’s easier or smaller – but we are not doing that.”

Light at end of tunnel image via Shutterstock.

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Blythe Masters' Next Move? Get FIs Hooked On Blockchain SDKs

Blockchain startup Digital Asset has revealed a new project aimed at streamlining the way systemically important financial infrastructures access its technology.

Led by former JP Morgan global commodities boss Blythe Masters, the startup is in the process of packaging its custom smart contract language DAML into easy-to-use software development kits (SDKs) for customers.

Already an active ingredient it its existing partnerships (such as its work with the Australian Securities Exchange), the creation of the SDKs stands to accelerate the rate new financial infrastructure providers can build with the technology, Masters says.

An early version of the kits are now being explored by the Depository Trust and Clearing Corporation (DTCC), a Digital Asset investor, and Masters told CoinDesk that “tens” of other companies are building with the technology.

As the number of enterprise-grade blockchain platforms grows, the advent of tools to simplify development could not only prove to give competing platforms an edge but a new way to generate revenue.

Masters said:

“We’ve taken that same tooling, which our developers use, packaged it into something called a software developers kit, and are making that available to customers, progressively, more of them over time.”

DTCC collaboration

To get things started, Digital Asset is working with the DTCC to both refine the SDKs and teach the financial infrastructure provider how to use the technology.

As revealed on stage for the first time last week, DTCC chief architect, Rob Palatnick, described the technology as a way to “construct smart contracts very cleanly,” and with a wide range of potential use cases.

“Now we’re figuring out all the different business opportunities within the DTCC in support of the industry, where it might be best applied,” said Palatnick at the DTCC Fintech Symposium.

For her part, Masters described the latest DTCC collaboration as “a training process,” one wherein they learned how to use the SDK and are now building example applications. Going forward, Digital Asset expects to learn from other early SDK tests so as to make it easier for other platform providers to interoperate with ASX and each other.

As the SDKs are “polished” through the DTCC work and the other unnamed projects, Master’s expects to open up access even further.

“Once that beta version is enhanced to the first release stage, which will be very soon, we will be opening that up to more customers,” she said.

Connecting the world

Stepping back, Digital Asset’s work is also part of an industry-wide effort to make enterprise blockchain solutions interoperable.

While Digital Asset has still not contributed its own work to the Hyperledger blockchain consortium, Masters serves as chair of the organization that is seeing increaasing interoparability between its members.

In addition, one of Digital Asset’s largest competitors, distributed ledger consortium, R3, has open-sourced its own Corda platform and is preparing to make a number of live releases this year.

While Masters wouldn’t discuss details about ongoing projects to help move more of the financial infrastructure to this nascent network of interoperable blockchains, she hinted at the potential benefits of doing so.

“Today, CHESS and Austraclear are two totally distinct systems, different interfaces, and the opportunity would be for there to essentially be one,” said Masters, adding:

“Whether it’s two instances of the same technology or a single instance of the technology that handles both, remains to be seen.”

Image via Michael del Castillo for CoinDesk

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Banks Building Blockchain Confront Tech Limitations

Blockchain isn’t going anywhere, but centralized authorities aren’t either.

That realization was the general takeaway at the Depository Trust and Clearing Corporation’s annual fintech symposium in New York City on Thursday where executives behind some of the most mature blockchain platforms currently in the works took the stage to discuss the benefits and limitations of the nascent technology.

While in some cases, enterprises, including the DTCC, which conducts $1.5 quadrillion dollars in securities transactions per year, have found that blockchains are more powerful than first expected, it’s clear that there are still significant hurdles to overcome.

“We’ve learned a lot about what works and what doesn’t,” said Michael Bodson, the CEO of the DTCC, adding:

“We’ve wrestled with the technology’s limitations, but we’re also uncovering new possibilities to help lead the digital transformation of the post-trade environment.”

During Bodson’s opening remarks, he set the groundwork for the rest of the day’s talks by recounting some of the lessons learned by the DTCC’s ongoing implementation of blockchain in its $11 trillion Trade Information Warehouse (TIW).

Designed to reduce the time it takes to clear over-the-counter derivatives, unexpected obstacles in the process have resulted in a delay of a commercial launch from this quarter to next year. Given the TIW’s relatively low volume compared to the rest of the DTCC business, he doesn’t expect any broader rollout of the technology any time soon.

“At the DTCC, we seamlessly process 60 million trades each day, and during peak times like we saw last month, we handled as many as 90 million transactions,” he said. “It would be impossible to do this today using a distributed ledger.”

He continued, citing a Deloitte report that showed out 26,000 blockchain projects that were started since 2016, as evidence of the narrowing scope of blockchain’s potential utility. Of those blockchain projects he said only eight percent are currently still active.

“As the industry has come to the realization that blockchain’s potential isn’t limitless, companies are focusing their resources on initiatives that can deliver real client value,” he said.

The limits of open source

In a panel following Bodson’s opening remarks, DTCC chief technology architect Rob Palatnick further elaborated on the limits of blockchain, namely those arising from the technology’s open-source roots.

Even as he acknowledged that “pretty much everyone in this room is looking to the open-source community for validation,” he cautioned that the old idealism that public, open-source blockchains can solve everything is starting to fade.

“The DTCC has been approached with some in the industry who say we’re involved in open source, which is good, but you need to think about a hardened proprietary set of ledgers for the things you do,” he said.

As such, businesses like the DTCC are exploring permissioned distributed ledgers that are connected via more open blockchains, what Palatnick called a “network of networks.” Several speakers at the event described the idea in various ways, including Accenture managing director Wynn Davies, who called it a “multi-stranded” blockchain.

At the core of this concept is the idea that public blockchains will never fully be able to give enterprise counterparties the trust they need to run their regulated businesses.

“We need to have neutral parties who are acting in everyone’s best interest,” Davies said, citing the DTCC and the Monetary Authority of Singapore as leaders in this push.

The trick, according to Davies, is going to be reimagining the incentive models so major players like the DTCC are willing to give up the “short-term gains” that result from holding onto innovative technologies, in order to let the benefits of blockchain accrue to the broader economy.

Expanding on that concept, Palatnick described a blockchain ecosystem where the DTCC and other infrastructure providers might manage “governance nodes,” where they provide some services to their customers but also allow them to connect directly, in a peer-to-peer way, for other services.

Intentional guardrails 

As part of the DTCC’s work to explore this network of blockchain networks, Palatnick revealed new details about a program with Blythe Masters’ Digital Asset Holdings (DAH), in which the DTCC is an investor.

Contrary to the DTCC’s work on its TIW, which started by identifying a problem that could be solved with the abilities of current blockchain technology, its interest in DAH’s work is aimed at learning a language – Digital Asset Modelling Language (DAML) – which could let them create any number of solutions in the future.

Masters, who spoke during the event as well, detailed how public blockchain’s structure – at least ethereum and certain others – as a disadvantage to global financial institutions, and as such, spurred the creation of the DAML language.

In December 2016, DAH was selected by Australia’s ASX to re-platform its entire CHESS clearinghouse with blockchain technology. In looking into a solution there, Masters explained how the flexibility of so-called “Turing complete” languages that public blockchains use resulted in uncertainty about the order in which transactions would be cleared.

Not only was DAML built with this in mind, but the language was also designed with built-in “guardrails to reduce the likelihood of errors in programming that lead to the sort of events that you saw happening in the DAO exploit,” in which millions of dollars were funnelled into one person’s account because of faulty code.

Masters said:

“It is an inherent feature of the language that it is not possible to put an entity in a contract into a position where they are obliged to act or to elect something without their specifically having the ability to acknowledge, confirm, and concur with that.”

Regulations still uncertain

Another limitation most every speaker discussed was regulatory uncertainty.

Indeed, the industry has been reeling from rumors that the U.S. Securities and Exchange Commission (SEC) has sent out dozens of subpoenas and requests for information to all kinds of stakeholders surrounding the fundraising mechanism, initial coin offerings (ICOs).

While the head of the SEC’s trading and markets division Brett Redfearn did not confirm or deny any such subpoenas during his fireside chat at the event, he expressed frustration with companies that came to the regulator claiming they wanted to be compliant, but who hadn’t even gone through the process of registering their companies.

While he seemed open to potential improvements from the space, he emphasized how industry participants could actually learn a lot about protecting their users and implementing certain generally-accepted principles of fair markets, such as searching for spoofing efforts falsely inflate transaction volumes, by reaching out to the SEC.

In spite of this, though, Todd McDonald, co-founder of enterprise blockchain consortium R3, said that unless those responsible for creating an innovative environment took a more progressive stance, U.S. companies would get left behind.

“I live in New York and I love America, but we have to get our act together,” he said.

Though, McDonald continued on a more positive note, saying that standardizing the way crypto assets are created and regulated across jurisdictions could help push the hybrid blockchain systems that many enterprises are looking to develop.

Speaking to what he called “net new” assets which could be created if all the industry’s hurdles are overcome, McDonald said:

“All sort of new models and new business opportunities are going to come from this kind of ecosystem. The important part is to make sure we get the foundational pieces in place and make sure the risk-governance model is part of that initial foundation.”

DTCC fintech symposium logos image via CoinDesk 

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DTCC Milestone: $11 Trillion in Derivatives Gets Closer to the Blockchain

The company that today settles the lion’s share of U.S. securities is moving its flagship blockchain project out of the testing phase.

Revealed in an exclusive interview with CoinDesk, the DTCC reports that it has completed an early version of a blockchain that could one day support the trade of $11 trillion-worth of credit derivatives. The milestone signifies a major development for the clearing house, one that also marks a continuation of the largest effort yet to adapt an existing financial infrastructure to a blockchain.

First revealed in January, the goal of the project was to upgrade the infrastructure underpinning the DTCC’s centralized Trade Information Warehouse (TIW) for over-the-counter derivatives, reducing the time it takes to clear derivatives trades from weeks (in some cases) to nearly instantaneously. To do that, the DTCC partnered with computing giant IBM, enterprise blockchain consortium R3 and venture-backed blockchain startup Axoni.

Now, with such a large-scale implementation complete, the partners are reflecting on the lessons learned.

Ahead of a scheduled launch in the first quarter of 2018, the DTCC’s chief technology architect Rob Palatnick sought to frame any obstacles ahead as a sign of progress.

He told CoinDesk:

“The exciting thing is that there’s continued comfort in the progress of the overall application and environment. There are always challenges, but we call it the ‘noise of progress’.”

Side effects of ethereum

For the first time publicly, Palatnick also revealed that Axoni’s AxCore protocol was originally derived from the public ethereum blockchain, and that the DTCC’s system uses the same Solidity smart contract language that powers its applications.

However, AxCore has been modified to include a modular consensus mechanism that lets it tailor services to the specific needs of the DTCC, as well as submit real-time reports to both regulators and other counterparties.

“This is a huge improvement in situational awareness for individual firms, regulators and the industry as a whole,” an Axoni representative said.

And, unlike ethereum, the DTCC implementation of AxCore does not include a token – though both Axoni and Palatnick confirmed the system is still powered by a form of “gas,” implying a parallel to the way transaction fees are paid on the ethereum blockchain.

While ethereum is the most-widely used blockchain protocol for developing these enterprise-grade implementations, the DTCC said complications arose because of that.

For one, ethereum’s business logic is not as sophisticated as DTCC required – primarily in that Solidity has difficulty recognizing decimals, yet credit derivatives swaps need to work in fractions.

Palatnik said:

“There’s lots of exceptions with everything, there’s lots of nuances, and that meant things like the capabilities of the technology and the capabilities of using the smart contract language of ethereum needed to address business functionality.”

Early on, to address that, the DTCC thought much of the actual business processes workflow would need to be conducted “off-chain,” largely reducing the role of the blockchain itself to storing settled data. In this way, “we wouldn’t do a lot of the business logic in the smart contract language itself,” Palatnik said.

But after several months of building, the developers discovered they were actually introducing more complexity by conducting this workflow off-chain than they were removed by using a blockchain in the first place.

“We ended up backtracking and moving a lot more of the business logic on-chain,” Palatnick said, noting that figuring out what information needs to go on-chain and what processes must happen off-chain was a challenge.

Moving forward

But much of this behind-the-scenes work could soon go live.

For example, Palatnick said that the open-source community will be able to examine Axoni’s DTCC implementation following the completion of the project. Before then, though, additional tests and a series of integrations – both with the TIW itself and external parties – need to be executed.

The DTCC is currently working with regulators to align Axoni’s built-in reporting database with regulatory requirements. According to Palatnick, the reports have to be as good as existing ones, and that the companies involved are making sure that happens.

Above that, R3 and its network of over 100 global financial institution members are working with standards-making bodies to create “standards around what data should look like on a distributed ledger,” he said.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Axoni.

DTCC booth image via Michael Del Castillo for CoinDesk

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Collaboration FTW: How Blockchain Came So Far, So Fast

Rob Palatnick is a managing director and the chief technology officer at the Depository Trust and Clearing Corporation, one of the world’s largest financial market infrastructure providers.

In this opinion piece, looking ahead to next week’s annual Sibos conference, Palatnick takes stock of blockchain technology’s progress in transforming the plumbing of global markets, and explains why cooperation is critical for further advancement.

While 2016 was referred to as the year of the blockchain proof-of-concept, 2017 has become the year of the blockchain pilot. While the progress has been remarkable, it’s important to be mindful of the critical role that industry collaboration has played in accelerating development and advancement.

Shortly after the blockchain conversation started across the financial services industry in 2014, a number of participants began to realize the value that distributed ledger technology could bring to the financial markets.

For DTCC, distributed ledger technology represents a generational opportunity to reimagine the post-trade infrastructure through its potential to harmonize and streamline the costly, burdensome reconciliation process the market currently operates in. By providing a single version of the truth to all parties, DLT can fundamentally alter how financial transactions are entered, stored and shared.

Just three years later, the industry has made significant strides in turning blockchain from a concept to reality. We’ve seen initiatives move from PoC to pilot, and a number of efforts are underway to operationalize the tech.

Although still in the early stages of implementation, the industry has learned that collaboration is critical. The key to reaching the full potential of blockchain technology lies in fostering industry-wide collaboration and aligning the technology with the industry’s longstanding core principles of mitigating risk, enhancing operational efficiencies and driving cost efficiencies.

From realization to reality

After all, the underlying technology itself calls for collaboration. Interoperability and standardization in utilizing blockchain can only be achieved when the industry joins in support of a common goal and a single ledger.

DTCC believes the core of any distributed ledger solution for the global financial industry must be based on open source, not owned by any single vendor and aligned around best practices and established standards.

Until recently, there were no viable open-source models for distributed ledger technology. However, that is quickly changing due to the development we’ve seen this year from organizations like Hyperledger and the Enterprise Ethereum Alliance.

Hyperledger, the first enterprise-oriented open-source collaboration project created to advance cross-industry blockchain technologies, recently gained support from 10 new members, including the Gibraltar Stock Exchange and DLT Labs, bringing its total membership to 18,765 members.

The recent release of Hyperledger Fabric 1.0 is an example of what the industry can achieve through community effort, where 159 developers from 28 organizations joined together to incubate the project. The release marked a significant milestone in the evolution of distributed ledger technology, proving the critical need for collaboration.

Having been established just earlier this year, the Enterprise Ethereum Alliance has quickly gained 120 members to its consortium, which has the mission of evolving ethereum into an enterprise-grade technology. The rapid growth in membership and support from major players such as State Street, JPMorgan Chase and BNY Mellon, as well as DTCC, shows the evolving acceptance and deployment of open-source distributed ledger technology in the global marketplace.

DTCC believes this is one of the many ways in which the industry has and will continue to benefit from collective contributions, and is why we’re leveraging the Hyperledger network to provide a DLT framework to drive further improvements in derivatives post-trade lifecycle events.

Through our work with IBM, Axoni and R3, we’re rebuilding our trade information warehouse, which provides processing services for about 98 percent of all credit derivative transactions globally. The initiative is underway and, in 2018, nearly the entire global $11 trillion market for credit default swaps will run on a distributed ledger.

Are you in?

As the adoption of distributed ledger technology grows, as in any open market, many different innovations will be proposed and pursued. The challenge for the financial industry, and for an emergent technology like distributed ledger, is about creating networks that share information and technology, and the need for continued collaboration.

Without collaboration, DLT solutions will leverage proprietary, separate models that will ultimately recreate the many silos and disjointed systems that already exist today. In the financial industry, this could lead to bifurcated markets, reduced liquidity, greater risks and a suboptimal experience for the investing public.

It is essential that we work together across industry organizations, technology providers, market participants and market structure providers to develop best practices and interoperability standards for this technology in order for DLT to truly live up to its potential.

Collective hands image via Shutterstock

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