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Blockchain: Can it handle real-world trading volumes?

Distributed Ledger Technology (DLT) has received significant attention in recent years and is viewed by many as a technology solution that can reduce operational costs and inefficiency across the capital markets. However, until now, DLT has not been able to demonstrate enterprise maturity, nor scalability sufficient to handle real-world financial market transaction volumes within financial markets.

For this to be possibly determined, it is crucial to analyse a recent independent test of a post-trade benchmark application for the cash equities market.

In researching the performance of existing distributed ledger technologies you can find results ranging anywhere from 3K to 2.5M transactions per second. However, we recently conducted an independent test of the Digital Asset Platform to show true performance of 27,000 full trade transactions per second was achieved via their platform using DLT. It is clear that while there are many claims of high “transaction volumes”, it is the capability to manage full end-to-end trade transactions throughput at high volume that is a much more meaningful figure to measure.

When you consider the number of participants and steps involved in a cash equities trade, you begin to get an appreciation for the scope of what a “transaction” means in this context. The importance of this definition of an individual trade cannot be overstated. The particular application under investigation covers the full post-trade lifecycle, from trade confirmation through to settlement. The goal is to give market operators as meaningful a measurement as possible, to help them accurately understand how DLT can deliver on both the range of functionality and the performance requirements of systemically consequential markets.

New opportunities

Once it was confirmed that the application was built from the ground up to realistic financial market requirements, we could then verify and validate the application and contemplate the many real and enticing opportunities offered by DLT. Only a platform with such a versatile language base could be utilized in a highly performant application.

It is likely that the market reaction to the results of this recent performance test will be extremely positive; helping to dismantle the “performance barrier” on the journey to wholesale adoption of blockchain across capital markets. It is now apparent across the industry that there is definitely a step change in attitude, and that the appetite for blockchain is gaining pace.

It would, however, be foolish to claim that wholesale change will happen overnight. Undoubtedly the cost and risks associated with the limitations presented by the continuing decline of legacy infrastructures, reinventing established working practices and replacing existing franchises still need to addressed and perceptions changed. The outstanding results of this particular test however, will play a major role in helping to allay these existing fears and accelerate take up.

DLT can help enable this by combining a ledger, synchronised amongst market participants, with the deployment and automation of complex, multi-party workflows acting upon that ledger. Consider, for example, how some of the DLT use cases being worked on in financial markets can radically improve the transfer of value - eliminating the need for reconciliation in cash equities clearing and settlement, reduce counterparty risk throughout the lifecycle of credit instruments, lower capital costs for repurchase agreement clearing and netting, provide real-time visibility to regulators - to name just a few of the many benefits.

Now is the time

It is clear that solutions built with this type of DLT technology are not just far easier to develop and far quicker to deploy now, but are, in fact, able to meet the performance requirements of the world’s top market operators. This last piece of information is truly ground-breaking, and thoroughly dispels the criticism that performant applications are not possible on distributed ledger solutions.

This recent DLT project was not only a rigorous testing and validation of technology throughput and capability, but also a chance to observe and understand the viability of a real-world DLT solution with important implications for financial services. Achieving a level of 27,000 transactions per second demonstrates that DLT platforms are now capable of supporting the peak throughput of enterprise applications used by global financial market infrastructures and other market operators.

The future of trading just changed…. DLT and blockchain are now ready for primetime.

 

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David Creer

David Creer

Technology & Innovation Lead

GFT

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15 Oct

Location

Barcelona

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This post is from a series of posts in the group:

Capital Markets Technology

Front Office Trading Trends and Technologies...


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