Two central banks are exploring the possibilities of using Blockchain for securities settlements
The Bank of Japan and the European Central Bank have recently made it known that they have been conducting intensive research into the potential Blockchain technology has to transform securities settlements.
A part of a research project known as Project Stella, this is the second research report of its type that was aimed at exploring how Distributed Ledger Technology (DLT) can be used in various ways to facilitate and assist with securities transactions. When the first report was released, the banks were reluctant and cautious to fully back the technology due to its novelty and the risks associated with both Blockchain and DLT. But as time has progressed and advancements have been made, Project Stella and all of those involved seem to be more in favour of adopting a securities settlement method known as “Delivery versus Payment” (DvP).
The report states that settlement will occur when operating systems link the transfer of two assets in such a way as to ensure that the transfer of one asset occurs if and only if the transfer of the other asset also occurs. The report continues that, “DvP could be conceptually and technically designed in a DLT environment with cash and securities on the same ledger (single-ledger DvP) or on separate ones (cross-ledger DvP.”
The concept of a cross-ledger DvP is made a reality by using cross-chain atomic swaps. Anatomic swap is a process which allows the transfer of value from one blockchain to another. This is the main purpose that has been pursued by the Lightning Network which will be fully implemented in the Bitcoin and Litecoin network in due course.
This announcement follows news from the Bank of England on the 27th of March that they intend to use Blockchain for real-time gross settlements.
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