The Digital Dollar Project (DDP) and the Depository Trust & Clearing Corporation (DTCC) published the results of their securities settlement pilot project on November 30. The project tested a simulated digital dollar in transactions with tokenized securities on a blockchain network under real-world conditions.
The project was designed “to better understand the implications of a United States central bank digital currency (CBDC) in post-trade settlement,” especially in DvP (delivery versus payment) settlements, sometimes called atomic settlements, which they ensure that value transfers only take place simultaneously or nearly simultaneously with payment. No CBDC has yet been developed or licensed in the United States.
DTCC Managing Director, Jennifer Peve, wrote in the foreword of his company
“These efforts, detailed in this white paper, simulate future settlement capabilities while ensuring optionality for customers, as well as the same – or higher – levels of security as DTCC’s existing settlement solutions.”
The pilot used a third-party “orchestrator” between the prototype DTCC Digital Settlement Network and the Dollar Digital Network to execute instructions and eliminate counterparty risk. This is because the parties to a transaction may have different settlement banks that will not have full visibility on both networks. Assets were encumbered in both networks during transactions.
In addition, it was used “an algorithmic encumbrance mechanism to enforce asset release conditions, which leveraged smart contracts to control the asset instead of a third party.” Transactions in the test system have a total of 12 steps.
The pilot system allowed for a variety of clearing and settlement options spanning intraday and end-of-day Q2, Q1, and Q0.
JUST RELEASED: Results from @Digital_Dollar_ and @The_DTCC Security Settlement Pilot, the first private sector initiative to explore how tokenized securities and a wholesale #CBDC could operate within the US settlement infrastructure leveraging #DLT. https://t.co/I5NApRwlls
— The Digital Dollar Project (@Digital_Dollar_) November 30, 2022
Settlement practices in the United States differ significantly from the rest of the world. The settlement test results were evaluated by participating banks, including Bank of America, Citi, Nomura, Northern Trust, State Street, Virtu Financial, and Wells Fargo.
This was the first of five planned pilot projects. The Digital Dollar Project was created in 2020 by the Digital Dollar Foundation and the technology consultancy Accenture. In September he created a technical sandbox. The DTCC handles the vast majority of securities transaction settlements in the United States.
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