Milestone in blockchain development: Wall Street’s DTCC officially announced the use of blockchain to reshape the $11 trillion credit derivatives platform

The Depository Trust & Clearing Corporation (DTCC) will use blockchain technology as the core infrastructure to rebuild a platform for managing and processing credit default swaps (CDS), a credit derivative product worth up to $11 trillion.

The platform, which provides post-trade services to the global financial services industry, announced today that it has selected some companies to help them develop a blockchain platform. Specifically, technology giant IBM and financial blockchain startups Axoni and R3 will use blockchain technology to develop and rebuild DTCC’s Trade Information Warehouse (TIW).

The TIW is responsible for DTCC's record keeping, automated lifecycle events and management of more than $11 trillion in cleared and bilateral credit derivatives. Essentially, a credit default swap (CDS) is an insurance contract that pays out in the event of a bond default.

In mid-2016, DTCC President and CEO Michael Bodson wrote a letter to stakeholders concluding that blockchain could be a solution to transform the post-trade model. He added:

“We have a once-in-a-century opportunity today to modernize the post-trade environment. We need to work together to ensure we take advantage of this opportunity.”

DTCC said that this reconstruction of the infrastructure based on blockchain will help us reduce the processing costs of derivatives, while also simplifying and automating the derivatives processing process. Before the official announcement of DTCC, in April 2016, blockchain development company Axoni and many banks participated in a successful blockchain trial.

IBM will lead the project’s transition to blockchain technology in terms of project management, expertise, and integration of Bitcoin’s underlying innovations. Axoni will provide infrastructure and smart contract applications, while R3 will serve as a solution consultant.

Axoni CEO Greg Schvey called the deployment of blockchain technology on the scale of DTCC a “watershed moment for the industry.”

Bridget Van Kralingen, senior vice president at IBM, said:

“DTCC, together with its member banks, is reshaping the credit derivatives process as part of one of the largest and most groundbreaking distributed ledger projects ever undertaken by the financial services industry.”

Development of the new DTCC platform will officially begin this month and will be built on Axoni’s distributed ledger software protocol ‘AxCore’. Once completed, the project will be submitted to the open source Hyperledger project and, if the solution is successful, is expected to go live in early 2018.