DTCC’s Digital Dollar pilot results: Reduced counterparty risk and operational efficiencies

Rick Steves

Post-trade market infrastructure DTCC has released its latest whitepaper, “Exploring Post-Trade Security Settlement with a U.S. Central Bank Digital Currency,” in collaboration with The Digital Dollar Project (DDP) and support from Accenture.

The paper outlines key findings from a pilot made with the participation of Bank of America, Citi, Nomura, Northern Trust, State Street, Virtu Financial, and Wells Fargo.

Formerly known as Project Lithium, the pilot was the first private sector initiative to explore how tokenized securities and a wholesale Central Bank Digital Currency (CBDC) could operate within the U.S. settlement infrastructure leveraging distributed ledger technology (DLT).

The pilot programme took place on Corda, one of the most advanced enterprise blockchain platforms in the world, developed by R3. 

Jennifer Peve, DTCC Managing Director, Head of Strategy and Business Development, said: “As a potential digital alternative to cash, a U.S. CBDC should be carefully explored in consultation with key stakeholders across the public and private sectors. DTCC’s pilot with DDP assessed the use of a simulated CBDC and DLT for DvP settlement in the U.S. wholesale markets through direct engagement with market participants. The results of the pilot can help inform market participants and U.S. policymakers about the many requirements related to this new technology and currency paradigm.”

DTCC’s pilot leveraged DLT, with the goal of demonstrating success in settling tokenized securities on DTCC’s Digital Settlement Network prototype against tokenized dollars on a simulated CBDC network provided by Accenture.

Pilot participants provided feedback on the DDP and DTCC pilot through a series of workshops. The design included an architecture that connected two distinct asset networks to enable secure, resilient, and efficient security settlement leveraging CBDCs.

The pilot also assessed network governance, creating mechanisms for a network administrator to resolve transactional issues while otherwise remaining in observation mode, ensuring that assets were settled on both networks, minimizing communication dependencies between parties, and eliminating counterparty risk at the time of settlement.

Key findings from the whitepaper include:

  • CBDC Design: Multilateral settlement and asset encumbrance mechanisms are core functional requirements for post-trade settlement. Broader access to a digital Federal Reserve payments system could present new opportunities within the settlement bank model and drive innovation in traditional industry responsibilities.
  • Network Connectivity & Design: When settlement of securities and cash occur on separate and distinct networks, orchestration between the networks is required to ensure settlement. The pilot’s orchestration model between the two distinct networks reduced counterparty risk at the time of settlement and provided settlement guarantees. Moving forward, this approach may provide a governance model for future implementations.
  • Business Implications for Settlement & Reporting Processes: Based on the pilot results and feedback from industry participants, a CBDC network offers the potential to achieve operational efficiencies and enhance transparency and reporting capabilities.
  • Opportunities for Future Exploration: The whitepaper outlines opportunities for future exploration, including industry adoption rates and implementation costs. These areas should be further evaluated to help key stakeholders better understand the impacts that the introduction of CBDCs may have on settlement.

Jennifer Lassiter, Executive Director of The Digital Dollar Project, said: “The findings from this pilot serve as crucial information to inform worldwide CBDC developments and conversations that are rapidly increasing across sectors. DDP thanks DTCC for their leadership on this pilot and the participants for their thoughtful engagement throughout this effort. Understanding the impact of CBDC technology on this critical aspect of financial market infrastructure is imperative to the evolution of U.S. markets and will inform further CBDC research and experimentation globally.”

David Treat, Senior Managing Director and Global Metaverse Co-lead at Accenture, commented: “Accenture is pleased to have supported DTCC and DDP in their efforts to explore the value of digital currency and tokenization in the evolution of our capital markets. DTCC’s experience, leadership, and innovation paired with the DDP’s diverse community of experts and stakeholders is a powerful combination that will help shape the impact that digital currency will have on the transformation of financial infrastructure.”

Read this next

Digital Assets

OneCoin founder Ruja Ignatova is selling penthouse in UK

OneCoin founder Ruja Ignatova, who steered one of the world’s biggest cryptocurrency frauds, is back into the spotlight more than five years after vanishing from the public eye.

Digital Assets

Bitpay taps MoonPay to offer access to +60 cryptocurrencies

Crypto payment service provider Bitpay said it’s partnering with exchange and web3 infrastructure provider MoonPay to provide its users with easier access to buy cryptocurrency instantly.

Digital Assets

New York investigates Gemini over FDIC insurance claims

New York regulators are investigating Gemini over “false and misleading” claims the Winklevoss-owned exchange had made about whether client funds are insured by the government.

Digital Assets

Binance launches Mastercard-backed crypto card in Brazil

In partnership with Mastercard, crypto giant Binance is launching its pre-paid card offering cryptocurrency “rewards” on customers’ purchases.

Digital Assets

Circle publishes a breakdown of USDC reserves for December

Boston-based stablecoin issuer Circle has revealed a breakdown of its reserves for December 2022, as well as a complete list of USDC reserve custodians.

Retail FX

Monex reports lower revenues as crypto downturn bites

Monex Group has reported its Q3 2022 financial metrics, which saw a reversal in terms of its revenues as TradeStation was grappling with a crypto market crash that has tanked the profitability of its crypto business.

Inside View

Broadridge report finds 27% of firms’ overall IT budget goes to digital transformation

“A new chapter in digital transformation is emerging. In our work with clients across the financial services industry we see leading firms are already reaping the benefits from digitalization and the use of technologies such as AI and blockchain/DLT, as they adapt to economic headwinds and new competitive dynamics”

Executive Moves

Ripple announces Monica Long as President

“I’m incredibly honored to take on the role of President at Ripple as we expand deeper into crypto-enabled services like liquidity, settlement and custody.”

Executive Moves

Arabesque AI appoints Carolina Minio Paluello as CEO

“Arabesque AI is uniquely positioned to service the asset management industry’s need to meet the growing market demand for hyper customised portfolios.”