DTCC Launches Collateral AppChain for Real-Time Asset Management

The Depository Trust & Clearing Corporation (DTCC) has announced the creation of a new platform called the "Collateral AppChain" for "tokenized real-time collateral management." This initiative marks a significant shift in the traditional financial industry's approach to settlement and clearing processes. The DTCC, owned by a consortium of the world's biggest banks, has a monopoly on securities settlement, handling a vast amount of value daily.

In a hands-on demo known as the "Great Collateral Experiment," the DTCC showcased how its Collateral AppChain could mobilize various assets, including treasuries, equities, tokenized money market funds, and even cryptoassets, globally in real time. This demonstration highlighted the potential to eliminate settlement or liquidity constraints, a stark contrast to the current T+X settlement processes.

The DTCC's move to blockchain technology is a recognition of its merits and an update to outdated technology. The Collateral AppChain aims to improve upon the antiquated T+X settlement processes by transitioning to a real-time model. This model would eliminate liquidity bottlenecks caused by market hours or the need to hold extra collateral as a buffer while waiting for settlement.

According to Galaxy Research’s Thad Pinakiewicz, the DTCC is attempting to avoid having its position usurped by co-opting the only technology that can feasibly threaten them. This strategic move underscores the DTCC's recognition of the potential disruption that blockchain technology could bring to traditional financial systems.

The DTCC's Collateral AppChain, built on the Hyperledger Besu Ethereum client, is likely to be a permissioned system and non-composable with DeFi. However, it will have several crucial advantages. The AppChain will be unencumbered by the complexities and costs associated with public blockchains, which are necessary for facilitating onchain securities trading. Additionally, the AppChain will have the liquidity to enable trillions in daily trading, a capability that public blockchains currently lack.

Ask Aime: How will the Collateral AppChain disrupt traditional settlement processes?

The DTCC has traditionally stuck to its suboptimal T+1 netting settlement process because it is more efficient than processing every transaction like a public blockchain does. This efficiency is a key reason why the DTCC's new AppChain could pose a significant challenge to crypto-native efforts, such as Ethena’s Converge chain, which have been building similar settlement layers for traditional financial clients.

Guy Young, founder of Ethena, believes the DTCC’s developments are a “strong validation” of its Converge chain thesis. However, he also notes that these purpose-built settlement layers for traditional finance need real products or assets to be delivered alongside the infrastructure. This is where Ethena and Securitize are uniquely positioned to provide their existing asset base and product set to these pools of capital.