DTCC Launchpad & The Great Collateral Experiment

Transcript

Right. [Music] Hi everyone. My name is Zach Short. I'm the director of blockchain engineering for DTCC digital assets. I I run the teams that do the smart contract and blockchain development for DTCC. I love blockchain technology. I love Ethereum and I'm super excited to be here today in beautiful cons uh to speak with you. So, thank you uh for attending this session. Uh we're doing a lot of great work here at DTCC digital assets and I'm excited to jump into that with you.

So, first just some background on DTCC. Uh DTCC is the um settlement and clearing layer for the US markets. DTCC has a is is the record keeper of over 100 trillion worth of assets and they settle and clear quadrillions worth of value per year. I believe last year they did a little bit over three quadrillion. So just some historical context as to how significant DTCC is and where it's going. So decades ago, I think even half a century ago now, the uh a lot of the financial institutions settled trades directly with each other. This resulted

in a lot of uh paper receipts being manly handed back and forth, a lot of phone calls. It was a very manual process. It was very inefficient and it was not scalable at all. I believe settlement uh times were around 5 days or more. Um and it it was not scalable. Eventually DTCC came in and became the settlement layer for all these financial institutions. So instead of having to uh do trades directly with each other, they would do it through DTCC uh in a standardized and scalable way.

Today DTCC uh processes quad quadrillions through this model um in t plus one meaning all it's all settled in one day. Now we believe through blockchain technology this will eventually lead to t plus zero or t plus seconds with autonomic settlement. This is what the new model is starting to look like. So in that bottom layer there you can see uh the DTCC inventory. Again this is over 100 trillion worth of assets and this is composed between uh bonds, equities, securities etc.

What we've developed at DTCC digital assets well is a lot uh but the first thing I'd like to look at is the conversion order there. The conversion order service is what is a tool that enables DTCC to tokenize its inventory. So for example, if we wanted to tokenize uh some treasuries, we can go to our conversion order service and execute that conversion. We have a tokenization engine um that handles that process and we're able to tokenize on many different kinds of blockchains including Ethereum, public and private, and even non-EVm chains like Canton. So just to be crystal clear that means DTCC now has the technical means to tokenize over 100 trillion

worth of assets. Current projections for uh tokenization in general is around 19 trillion by the end of 20 around 2030 but uh we have reason to believe it could be much more and much sooner. We've also developed some other things in there and all this is hosted in our launchpad which is a open industry sandbox where we work with industry leaders and partners um and even uh seen some um DeFi partners um on PC's experiments and charting a clear path to production.

You can see in the middle there we have something called institutional app chain. So in the great collateral experiment we we created a collateral app chain which is a hyperledger bezu based network specialized to handle uh uh collateral processes. We also have a data layer there an integration layer. Uh those are some other tools we've developed uh called ledger scan and capital markets platform. Ledger scan is a advanced data analytics and accounting tool. It's able to look at all the different blockchains and even traditional ledgers and consolidate all that data.

Capital Markets platform is an integration tool between traditional and blockchain systems allowing you to uh manage portfolio and token life cycles. Now, the most significant experiment we've done in this launchpad so far uh is the great cloud experiment. This was a live uh demonstration we did on April 23rd. Um, it was a live production broadcasted live. It's like an hour or two. Uh, it's worth watching. I'll include a QR code at the end of this talk so you can see it.

So, you might be wondering why would DTCC care about collateral? Well, DTCC has identified collateral as a killer app for blockchain technology. There's a lot of current inefficiencies with current collateral processes. So for example, there's lack of 24 hours uh settlement. Um there a lot of issues with different markets being closed. Um lack of liquidity in some cases because of that. And what the collateral app chain enables is 247 settlements, uh worldwide collateral pools, uh distributed between different markets, um and more transparency and just general efficiency. Here we can look at the the anatomy of the

collateral app chain a little bit. So here what we can see uh on our bottom layer here we have uh some traditional ledgers. So our collateral app chain is able to connect to those traditional ledgers through the conversion order service. Um so in this case we would be able to tokenize assets from DTCC euro clear stream etc. Using Anera's technology, we were also able to bridge to other blockchain networks. So like Ethereum uh and even non EVM chains like Canton. In our collateral app chain, we have some very important smart contracts. So we have the concept of a net asset pool which is a netting uh smart contract account which is which is used uh to manage many uh collateral agreements um

and netting functions. Then on the top there, we have our collateral agreements, which are also smart contract accounts. What's cool about those is you can actually move collateral between accounts uh with ease u assuming they share the same eligible assets. So again, the great cloud experiment was a a live broadcast. Um we went through different scenarios. Um we really went with a theme of showing um different scenarios in different time zones. uh so like in Tokyo, Paris and so on. Uh really to emphasize how collateral mobility can be improved um worldwide um and really take advantage of 247 settlement and really being able to

access those other markets when normally you would not be able to. We won't have time to go through every single scenario uh but I would like to at least go through one. So here we have our Tokyo scenario and we created this fictitious bank margin core. In this case there's two u margin core locations one in Tokyo one in New York. Uh in this case they have two collateral agreements one with JSC uh one with uh crypto X um and they both have margin calls and require some cash. uh in this scenario uh margin Tokyo unfortunately doesn't have enough cash to to cover those positions. Um it's it's poss

but unfortunately it's outside US uh US hours and Tokyo can't access that that collateral. In cases like this in the traditional current form uh you would have to do a lot of workarounds. So for example, they might have to do a repo agreement with a local bank to get that cash and ultimately this leads in a unnecessary intraday liquidity pressure and inefficient inefficient use of capital. The new model you would be able to have a net asset pool connecting those two locations and be able to access and move collateral in between at any time. So even outside of US markets if the US markets are closed. So in that case they would be able to avoid having to do a repo, avoid having to do all these

workarounds and meet their collateral obligations immediately. Um so I would actually like to take a moment to uh show live the collateral app chain. One moment. Okay. So here is the claral app chain. So web based u application. Um for those of you familiar with DAPs, it's it works pretty much the same way. Uh this is all hosted in our launchpad environment.

U again this is a hyperledger hyperledger based uh bezu uh network. Here on the top right we can see details about the wallet and the blockchain network. So in this case uh I'm using our margin core Paris wallet. It's actually getting this name from ENS. Uh we can see the currency that it's configured for. So um if you're in Europe, you want U0, US, you might use USD and so on. Uh this network is configured to be gasless. So here we can see the gas price is zero. We can see the block number and so on.

On our left nav here, let me just do a quick tour. So first we have our utilities. Here we are able to have a dynamic price and haircut services powered by off-chain oracles. Um we have our compliance smart contracts. So all this is smart contract based. Um but here you can manage allow lists blacklists roles permissions. Here we have our data framework. To be honest, the data framework deserves its own uh presentation. I'll give a brief overview. Um essentially what we did is we made an onchain uh data framework. So you can create schemas and then attest to those schemas. So for example maybe

I'm creating an ERC20 token representing bonds or to be more specific corporate bonds. Uh what you can do is define an onchain schema that would and a schema is a a collection of properties. So you might have like a QIP is you know whatever properties that would be associated with that asset. Um so you can create schemas based on uh ISDA standards or CIA standards you know whatever you want and that way whenever you create the C20 token you can have it inherit that schema and now that data would be accessible on chain you'd be able to ask that your C20 token what is your QIP what is your ISO we think this is going to be super important for advanced onchain uh uh processes especially around collateral

we have our tokenization engine here let's just take quick Look at that. So, we got a bunch of tokens we made here. Let's find a good one. Uh, so with our tokenization engine, we can create year 20 tokens, 721 tokens, different variations of them. So, you can create a soulbound 721. Uh, we're working on supporting 3643 that should be coming soon. Let's drill into one of these. So here we created a ERC20 token for uh French government bonds. Um you can see a brief summary over it. You can look at the actions like what functions will be available, the activities, what kind of

transactions have occurred and by whom. Um who the holders are. You can see this data section. This is from that data framework. So here I could see you know what is the asset class, what is it, what is its rating and so on. And again this is all accessible on chain. Now for the good part, we have our collateral section here. Um, four main pages to look at. We have our provider, so that's our borrower. We have our receiver, which is our lender, and we have our triparty agents, and then we have our conversion order service.

Let's take a look at the provider view. So here we're looking at the margin core Paris net asset pool. uh it's providing all the netting data across our different collateral agreements. In this case, we have two collateral agreements. Uh we can see the net excess or deficit for those cloud agreements. So in this case, we have a an excess. We could see the total liability between collateral agreements. We can see the total uh collateral between agreements. Uh I can go to my collateral agreements over here and I could do all kinds of uh actions with them. So I can allocate additional collateral if I need to. uh recall move collateral from uh one agreement to another and you can do it all through

the net asset pool or directly with the collateral agreements. Let's drill into one of these collateral agreements. So we have our cloud agreement here. Um you can see you know general information about it the provider receiver uh the triparty agent. We can see our asset diversity. So what kind of assets is this uh uh is in this collo agreement overall overview uh we can see the configuration uh the terms of the agreement and so on. Let's take a quick look at the conversion order.

Okay. So here is the conversion order service I was talking about earlier. Um you can see we're connected to many different ledgers here both traditional and blockchain. Uh so some traditional ledgers here are DTCC, BNY, uh Euroclear and so on. And then we can connect to tradition or blockchain ledgers. So like Ethereum, um Hyperledger Bezu networks, um and even some non EBMs like Canton. Here we we see that we have a Apple token or or Apple shares. Um we can see its data. So again, that's all coming from its data framework all on chain. Um we can see how much is stored in the traditional depository. So, in this case, a little bit over 995,000.

And then we can see that we have 4,000 uh of those shares on chain. So, let's see what that would look like if we wanted to uh get some additional tokens on chain or additional shares on chain. So, in this case, I'm just going to do 500. And what's cool about this is not only can you uh tokenize shares from the traditional ledger, you can actually do it in reverse as well. So, if you wanted to take uh tokens off the chain and put it back into the traditional ledger, you would be able to do so. So, we had 4,000, we now have 4,500.

Um, so we see a lot of potential with collateral mobility in general. We see uh really a robust collateral mobility infrastructure forming that will revolutionize finance, really create a lot less friction in the financial system, get things moving a lot faster, more efficient and through the conversion order service. Um a lot of potential there. Um so much we can tokenize and so many possibilities. Uh that concludes my presentation. Thank you so much. Uh really appreciate your time.

And there are some QR codes here. So if you're interested in joining the Launchpad, maybe you have a project or maybe you just want to learn more about it, um you can use that QR code there. If you want to watch the great collateral experiment video, um you can access that there as well. And again, I highly recommend it. It's a lot of fun. Very interesting. Thank you. Thank you very much. We have only three minutes for Q&A if you have any questions. Yeah. You mentioned that the support was coming from for 3643. Does that kind of imply that eventually like you know regular people like not through a large financial institution will be able to face DTCC directly through platforms and

such. Is that the expectation or it's a possibility? Yes. Um we're definitely going to be doing a lot of work with ERC 3643 in general. Um and uh but yeah, it's it's not completely official what you proposed, but um are are there any other competing like uh compliance standards or anything like that for KYCML that you're looking at or is is 3643 kind of the one that's emerging as the front runner? It is the front runner. Have a question. Okay.

Thank you, Zach. Very pleasure to see you here. Um, you mentioned like you can jump from one network to another. So, is it possible for instance like the asset that you see tokenize here, they can move to let's say if you're mennet or any L2s and vice versa, you could get some assets over here and bring them here. And I guess in each of those direction, what would be like there maybe requirements that would be necessary for this to happen? Yeah, sure. Um, so there would definitely be like embedded compliance rules to see where a token can move and who it can move to. Um, and and crosschain as well. So there would be u something we've been working on is like an onchain registry uh to really define onchain rules as to what tokens can move

where, how and and so on. I I don't Can you tell more a little bit a little bit about you know you tokenize a lot of assets in here and what's the legal framework for those you know like because you you work very close to the uh the official you know like um collateral management in the US like Steve Mer I think the name is but but so is right now the way we see you you you tokenize assets is almost like the the the compliance in the the official way that everyone should should follow or is this already approved approved by the uh by the uh by the legal authorities.

Yeah. So this is more ideation uh but we do want to work with the industry uh to really uh form standards uh around processes like this. Uh the legal and regulatory parts are definitely the the hard part uh relative to the implementation. Um so we are definitely engaged on that. uh working closely with the SEC um and other institutions on how to best bring these kind of capabilities uh to the uh global markets in the most secure um compliant safe way. Thank you. Do you have a timeline for when this will be live in production? I understand it's currently just an

ideation, a vision, but when do you see this being actually used? Yeah, great question. Um we're targeting uh the first half of 2026. Uh this will require a lot of legal regulatory work. Um a lot of standardization. So we're looking working with some partners on that. Uh getting feedback from the industry. Uh multiple smart contract audits. So so definitely and and some features to add as well. So a lot of work to do. Uh but first half of 2026 is the target. Okay. Thank you very much, Zach. Thank you everyone. Thanks everyone.

[Applause] [Music]