Fintech

Two mainstream blockchain developments already

Two mainstream blockchain developments already. Main image: spaxiax, Shutterstock.com
Written by Chris Skinner

Chris Skinner’s forecasts for 2017 are taking shape. Two great examples broke out this week, including CME using bitcoin, and the DTCC using blockchain developments.

So one of my 2017 forecasts is coming true already: it’s the year that blockchain moves out of proofs of concept and work and into the mainstream. Two great examples broke out this week from skunk works to media. The first I spotted was the Chicago Mercantile Exchange (CME) Group using bitcoin for various means, one of which is to record digital gold with the Royal Mint. From the Royal Mint’s website:

Royal Mint Gold (RMG), an innovative new product launching in 2017, will see The Royal Mint issue RMGs as a blockchain based digital record of ownership for gold stored at its highly-secure on-site bullion vault storage facility. CME Group, the world’s leading and most diverse derivatives marketplace, will develop, implement and operate the product’s digital trading platform which will see gold traded on an exchange using blockchain technology. The RMG solution will provide an easier, cost-effective and cryptographically secure alternative to buying, holding and trading spot gold.

From RMG: Bringing blockchain to gold trading

Pretty innovative for a 1,000-year-old institution. In an interview with Forbes, Sandra Ro, head of digitisation initiatives at CME, says that its Royal Mint Gold product “will change the way traders and investors will trade, execute and settle gold”. The product’s digital trading platform will operate 24/7, the way bitcoin trades. “Unlike the traditional physical spot cost model for investing in gold – the management fees and ongoing storage charges – RMGs will actually offer ownership of the underlying gold with the option for conversion to physical gold with zero storage costs,” says Ro. “That’s significant from an investment standpoint.”

You can hear the whole view of what CME Group is doing with bitcoin and blockchain at Laura Shin’s blockchain podcast, Unchained.

DLT framework

The other big blockchain announcement came from the Depository Trust & Clearing Corporation (DTCC), which has chosen to work with IBM, in partnership with Axoni and R3, to provide a blockchain-based distributed ledger technology (DLT) framework for derivatives post-trade life cycle events.

The firms will work on the DTCC’s Trade Information Warehouse (TIW) for the service. The TIW currently automates the record keeping, life cycle events, and payment management for more than $11tn of cleared and bilateral credit derivatives. The project will be based on the Hyperledger open source platform and industry standards, and has been developed with input and guidance from a number of market participants, including Barclays, Citi, Credit Suisse, Deutsche Bank, JP Morgan, UBS and Wells Fargo, and market infrastructure providers, IHS Markit and the Intercontinental Exchange (ICE).

Under the agreement, IBM will lead the initiative, provide programme management, DLT expertise and integration services, and offer the solution-as-a-service. Axoni will provide distributed ledger infrastructure and smart contract applications, with R3 acting as a solution adviser. Development starts now and will be built on Axoni’s AxCore distributed ledger protocol, which will be submitted to Hyperledger when the solution goes live early in 2018.

DTCC says its latest announcement follows the “successful” completion of a proof-of-concept (POC) for North American single-name credit default swaps (CDS) last year with Axoni, IHS Markit and several market participants. The POC demonstrated that “complex” post-trade events inherent to CDS can be “managed efficiently” with distributed ledger technology in a permissioned, distributed, peer-to-peer network.

Talking of R3, its CEO David Rutter has just announced it is about to close the biggest funding round of any blockchain development to date. That is its $150m spin-off for Corda developments, with 77 backers including founding members Barclays, BBVA, Credit Suisse, Commerzbank, SEB and Société Générale (current members).

READ NEXT: The best free research papers on fintech and blockchain

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: spaxiax, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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