Will blockchain replace clearinghouses? A case of DVP post-trade settlement

Authors: Philipp Sandner, Jonas Gross, Ilia Drozdov

This article sheds light on the application of blockchain technology to the existing financial market infrastructure, namely to post-trade settlement. We show how blockchain technology can facilitate trustless delivery vs. payment (DVP) settlement without any intermediary. Moving settlement processes entirely on decentral technologies makes the settlement process more efficient since it decreases the associated transaction costs and reduces involved risks. Hence, the blockchain-based multichain atomic swap technology will become a peer-to-peer alternative to a central clearing counterparty that normally facilitates the DVP settlement of financial assets.

Introduction

Blockchain technology is more and more applied to financial sector use cases, in particular digital assets. With the term “tokenization”, all kinds of assets can be mapped on blockchain-based systems. In Europe, there are tremendous ongoing efforts to tokenize securities as well as accommodating asset classes such as real estate, art etc. In addition, the regulation of such blockchain-based digital assets gets more and more clear. In Liechtenstein, an own “blockchain law” has come into force. Similarly, in Germany, a law that outlines the regulation for DLT-based debt instruments has been proposed and is expected to come into force in 2021. All these initiatives show that regulatory uncertainty related to…