DTCC and Digital Asset Complete Successful Pilot to Test Collateral and Margin Optimization through Tokenization
NEW YORK, Sept. 23, 2024 /PRNewswire/ — Digital Asset, a leading provider of blockchain solutions, in collaboration with The Depository Trust & Clearing Corporation (DTCC), today announced the results of the U.S. Treasury (UST) Collateral Network Pilot, an initiative focused on leveraging DLT applications to support market connectivity across the collateral management lifecycle to enhance mobility, liquidity and transactional efficiency of tokenized assets.
In the pilot, Digital Asset, four investors, four banks, two central counterparties, three custodians/collateral agents, and a central securities depository operated fourteen Canton nodes, connecting four types of cross-application transactions through ten distributed applications, leveraging DTCC’s LedgerScan solution to support dynamic tracking and governance of the assets involved in the pilot transactions. Participants successfully executed 100 transactions, demonstrating tokenized collateral assets’ robust functionality and potential. This pilot builds on the successful Canton Network Pilot completed in December 2023, which established the foundation for composable applications across a global economic network.
“The successful completion of this pilot proves that tokenized assets could be leveraged to optimize collateral,” said Kelly Mathieson, Chief Business Development Officer at Digital Asset. “In addition to the liquidity and operational efficiencies gained, the pilot demonstrates how tokenized collateral can improve market transparency, legal certainty of ownership in seizure/close out scenarios, and significant real-world benefits, including faster collateralization and enhanced regulatory oversight.”
“This pilot successfully demonstrated the power of tokenization – and its potential to enhance collateral mobility and unlock liquidity,” said Nadine Chakar, Global Head of DTCC Digital Assets. “The collaborative effort behind this innovative pilot reinforces DTCC’s commitment to partnering with the industry to harness DLT’s capabilities to advance a scalable and resilient infrastructure that ultimately drives increased value for our clients and the industry.”
The UST Collateral Network Pilot, conducted in June and July, proved the feasibility of more complex real-world transactions, including the creation of a digital twin of USTs, utilizing the tokenized UST assets in real-time to satisfy margin calls, completing asset recalls, and evidencing secured party control over the assets in closeout scenarios.
- Creation of Digital Twin for USTs: Investors directed custodians/collateral agents to create digital twins of USTs in their portfolios, updating holdings instantly and setting aside equivalent real-world assets.
- Margin Call Delivery: Secured parties made margin calls, and USTs were used as collateral, with real-time transaction status updates and instant settlement, ensuring legally enforceable collateral.
- Margin Call Return: Investors called for the return of margin, with collateral released and transactions settled instantly, significantly improving liquidity and collateral optimization.
- Closeout Due to Default: In hypothetical default scenarios, secured parties seized pledged assets, transferring ownership in atomic transactions, ensuring legal certainty and control.
“Most blockchain pilots focus on initiating or completing transactions, but in this pilot, that lifecycle was extended to include default. This is crucial because collateral isn’t just about mitigating risk—it ensures that in the event of a default, secured parties can take legal possession of the collateral. This demonstrates blockchain’s potential to support the full lifecycle of financial transactions, beyond just execution,” said Jenny Cieplak, a partner at global law firm Latham & Watkins.
“Article 12 and the revisions to Article 8 of the Uniform Commercial Code start to establish a framework for using distributed ledgers to represent securities interests in the indirect holding system, which is where the vast majority of securities transactions take place today. Blockchain represents the next step in the evolution of securities books and records maintained by broker-dealers, much the way record-keeping previously evolved to cloud-based platforms,” said Cieplak.
Digital Asset and DTCC provided the necessary infrastructure, applications, and connectivity for market participants to test complex business scenarios. The pilot leveraged existing registry and margin applications from the Canton Network, with the network’s Global Synchronizer ensuring synchronization and enabling atomic transactions across applications and parties.
To learn more about the pilot, visit here.
About the Canton Network
The Canton Network is the financial industry’s first and only public chain that can achieve on-chain privacy, control, and interoperability, making it the most suitable network for institutional assets. The Network launched for testing with the participation of a group of leading financial institutions, infrastructure providers, technology firms, and consultants in August 2023. Initially built upon Digital Asset’s technology, the Network’s controls, governance, and app development have been open-sourced and decentralized to be managed by all participants, with the goal of fostering greater innovation and Network utility.
The Canton Network’s design overcomes the shortfalls of existing blockchain networks by enabling previously siloed systems in finance to become interoperable and synchronized in ways that had been impossible before. Offering the privacy and controls required for highly regulated organizations, the Canton Network creates a safe environment in which assets, data, and cash can move freely across applications in real-time, unlocking new efficiencies and powering innovation.
Press Contact:
Chatsworth
DigitalAsset@chatsworthcommunications.com
SOURCE Digital Asset (US) Corp.
