Interbank Pilot From Visa, Goldman and Others Seeks Real-World Blockchain Utility

For the past 15 years, blockchain has been attempting to transform the global financial system. Or, if you listen to some of the earlier adherents of the digital asset sector, attempting to replace it.

However, the inherently anonymous nature of the crypto industry’s web3 technology allowed for flagrant misuse of the blockchain’s technical architecture, leading to a rash of scams, scandals and criminal activity and a dearth of real-world financial utility other than that surrounding the capacity of tokenized digital assets to serve as a store of value.

Still, that hasn’t kept the regulated and traditional financial system from looking both askance at crypto, as well as at times with interest, particularly as the past 15 years of sector-wide digital transformations have continued to evolve the global financial landscape’s offerings while and positioning blockchain’s distributed ledger technology (DLT) as increasingly providing the potential for innovation to large firms seeking efficiencies.

A newly completed pilot project from the likes of Goldman Sachs, Visa Inc., BNY Mellon and over three dozen other participants including BNP Paribas, DTCC, DRW, IEX, Nomura, Northern Trust, Standard Chartered, State Street and Wellington Management, is looking to reframe assumptions about the use of blockchain-based applications within traditional finance.

The project, called the Canton Network, launched last May and was completed Tuesday (March 12). It brought together 15 asset managers, 13 banks, four custodians, three exchanges and stablecoin issuer Paxos Trust Co. to explore the potential of a privacy-enabled open blockchain network allowing for real-time settlement and immediate reconciliation across counterparty systems.

During the course of more than 350 simulated transactions, the project proved that the blockchain could be leveraged to streamline and synchronize financial applications while at the same time adhering to regulatory asset control, security, and data privacy requirements that often hamstring blockchain use cases.

Exploring the World of Enterprise Blockchain

As PYMNTS wrote last month, proponents of blockchain’s underlying technical capabilities are increasingly eager to separate the technology from its associations with cryptocurrency, in “large part by finding historical opportunity areas within the traditional financial sector that digital assets were originally designed to replace.”

The Canton Network pilot was designed to show the interoperability of 22 independent distributed ledger applications (dApps) in the capital markets domain and prove how a network of interoperable applications can seamlessly connect to enable secure, atomic transactions while reducing counterparty and settlement risk.

The pilot’s key finding was the ability of distributed ledger networks to both leverage blockchain technology and at the same time preserve the privacy and controls needed by regulated institutions. Historically, the lack of control over data and the need to sacrifice interoperability for privacy have limited firms’ ability to leverage the efficiencies that blockchain technology delivers.

“Canton allows previously siloed financial systems to connect and synchronize in previously impossible ways while abiding by the current regulatory guardrails,’ said Yuval Rooz, CEO and co-founder of Digital Asset, in a statement.

Per the pilot’s results, banking participants highlighted that efficiency gains through unified data remain a key driver for investing in blockchain.

The real-time synchronization and workflow automation across organizational boundaries achieved by the pilot resulted in the elimination of inefficient, manual, paper- and staff- intensive processes around reconciliation, as well as a reduction in the operational, capital and opportunity costs of multi-day processes and settlement cycles.

An Interconnected Network Suitable for Regulated Finance

Blockchain technology enables the automation of various processes, such as asset transfer and settlement, reducing the need for intermediaries and associated costs. This can lead to significant cost savings for enterprises across different industries.

“The true intrinsic value of blockchain, which is around programmability of transactions, immutability of transactions, and the ability to do delivery versus payment and always-on types of payments, has yet to be unlocked,” Mastercard Chief Digital Officer Jorn Lambert told PYMNTS last year.

And in order to capture these savings, enterprises are increasingly exploring blockchain solutions that offer interoperability with existing systems and can be seamlessly integrated into their operations. This enables smoother adoption and implementation of blockchain technology within large organizations.

“There’s a huge global trend going on right now into exploring the intricacies, complexities, difficulties and benefits of leveraging the properties of DLT for the financial system,” Daniel Field, global head of blockchain at UST, told PYMNTS in July.