Enable Settlement with Simultaneous Delivery versus Payment
Use Cases
About
wCBDC
This use case involves two banks using blockchain infrastructure to achieve synchronized delivery versus payment settlement for a securities trade.
Description
Key Stakeholders:
Banks
Story:
Bank A's client sells securities to Bank B's client. Trade details are agreed.
On settlement day, Bank A receives payment from Bank B using a blockchain-based asset.
Simultaneously, Bank A transfers ownership of the securities to Bank B on the blockchain.
The payment and securities transfer occur atomically via smart contracts.
If either leg fails, the entire transaction is rolled back.
Settlement finality, interoperability and investor protections are ensured.
Postconditions:
Synchronized delivery versus payment settlement occurs between the two banks via blockchain infrastructure and smart contracts. Settlement finality and atomicity are achieved.
Example of Solution Provider
Wholesale CBDC can be used for real-time gross settlement (RTGS) systems, allowing financial institutions to settle interbank transfers instantly using a digital currency backed by the central bank. This can reduce settlement times and counterparty risks.
Domestic interbank payments vs international
Delivery versus Payment (DvP) crosschain interoperability involves transferring securities in a ledger on blockchain A while the corresponding payment for the securities takes place on an blockchain B.
1) For example, in DvP, a securities earmark will be placed between two accounts in a function on a Corda ledger. The transaction data emitted from the transaction will then be sent to a DvP contract deployed on Ethereum. The aim is for the DvP contract to verify that the securities were earmarked on Corda, without direct interaction, but rather in a decentralised and trustless manner. The DvP contract essentially trusts the parties (among which is a Corda notary and custodian) that signed the Corda transaction. Upon verification of the earmark, the DvP contract will execute a transfer of the agreed exchange amount for the securities on a token contract also deployed on Ethereum. An event and proof of the transfer on Ethereum will be sent to the Corda chain, which will then also be atomically verified before completing the transfer of securities. An exchange of securities for funds should ideally occur in such a manner that either both legs of the exchange happens, or both legs are rolled back.
Source: Adhara Labs
2) Project Jasper (Bank of Canada) Pilot by Payments Canada, R3, and Canadian banks to settle interbank payments using an integrated securities and RTGS DLT system. Simulates interbank payment settlement and Government of Canada bond settlement on the same platform. Provides DvP settlement by linking transfer of cash with transfer of securities on the ledger.
Monetary Authority of Singapore (MAS) Settlement System MAS has developed a DvP proof-of-concept using DLT and smart contracts on Ethereum. Allows banks to settle interbank obligations for multiple assets including tokenized bank deposits, bonds, equities etc. Atomic settlement logic is encoded in smart contracts to seamlessly settle cash and securities legs.
HSBC FX Everywhere HSBC's FX platform linking custody accounts, payment infrastructure, trading apps on R3's Corda DLT. Enables real-time DvP settlement for FX trades between HSBC accounts globally. Removes settlement risk for counterparties by linking FX payment and value transfer.
SIA DLT Settlement Platform Joint project by SIA, R3, and banks to develop a DLT platform for Europe’s financial markets. Facilitates synchronized DvP settlement through delivery of securities versus euros on blockchain.
Day 1: Bank A's client sells 100 shares of Company XYZ to Bank B's client at $10 per share. The total transaction value is $1,000.
Day 2 (Settlement Day): Using a wholesale CBDC, Bank A receives $1,000 from Bank B. Simultaneously, Bank A transfers the ownership of the 100 shares of Company XYZ to Bank B. This is a "Delivery versus Payment" (DvP) mechanism, where the security (shares) and the payment (wholesale CBDC) are exchanged simultaneously.
MAS and Singapore Exchange (SGX) announced on 24 August 2018 that it is collaborating to develop Delivery versus Payment (DvP) capabilities for settlement of tokenised assets across different blockchain platforms. This will allow financial institutions and corporate investors to carry out simultaneous exchange and final settlement of tokenised digital currencies and securities assets, improving operational efficiency and reducing settlement risks. Three companies, Anquan, Deloitte and Nasdaq were appointed as technology partners for this project. They will leverage the open-source software developed and made publicly available in Project Ubin Phase 2.
The successful conclusion of the DvP project was announced on 11 November 2018. The project demonstrated that DvP settlement finality, interledger interoperability and investor protection can be achieved through specific solutions designed and built on blockchain technology.
Following its conclusion, MAS and SGX have jointly published an industry report, Delivery versus Payment on DLT (5.85 MB), which provides a comprehensive view of automating DvP settlement processes with Smart Contracts . The report also identifies key technology and operational considerations to ensure resilient operations, and defines a market framework that governs post-trade settlement processes such as arbitration.
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