Instead of ignoring blockchain, financial organizations are scrambling to leverage it for their own benefit. I’ve talked about how it’s currently a horse race amongst some of the biggest banks on the planet, and today was no exception.
We learned of their latest attempt at breaking ground: a consortium of fifteen banks are working with The Depository Trust & Clearing Corporation (DTCC) to use a blockchain-based system for trading credit derivatives.
What we know is that DTCC is building a cloud-based distributed ledger, aimed specifically at its credit derivatives trade and information warehouse.
While 14 of the banks involved are unnamed, British multinational investment bank Barclays is known to be involved in the trial.
Lee Braine of Barclays was quoted saying, “We are pleased to be working with DTCC, our partners and colleagues on this exciting project to bring distributed ledger technology to life in a demonstrable way that will enhance efficiencies and lower costs and risks for the industry”
Here is what you need to know:
You probably haven’t heard of DTCC. It’s alright, neither have I. And yet, DTCC processed over $1.61 quadrillion in securities transactions in 2017.
Think about the potential of disrupting even 1% of that figure. It’s certainly possible given the archaic infrastructure DTCC is using.
Even still, they process over 95% of all credit derivatives globally. They serve a the transaction and settlement point connecting hundreds of banks and financial organizations across the world.
But, as we know, any centralized conduit is ripe for disruption by a distributed ledger, especially one that is faster and more secure.
To their credit, DTCC have chosen to embrace blockchain as a nascent technology instead of ignoring it.
However, they are simply trying to replicate their existing warehouse model on a blockchain. It’s the same uphill battle we’ve seen play out over and over this decade: newer technology moves faster than old methods trying to adapt. Why was Amazon able to completely demolish the brick and mortar retail industry? Because they didn’t have to try and retrofit an existing solution or method. They simply needed to improve upon it.
So, when it comes to what DTCC is doing, they are ripe for disruption because they simply are approaching this from a corporate perspective: lower costs by retrofitting the current system instead of building from the ground up.
This represents a huge opportunity for the entrepreneur able to challenge the DTCC’s monopoly. We’re still years away from any serious contender, but nonetheless the fight is very real.
What excites me the most is that this is just one industry of many that blockchain is suitable for and disruptive of.
I hope your seatbelts are fastened. We’re in for a big decade ahead.