"Cryptographic Technologies Facilitate Weekend Transactions in Government Financial Exchanges"
In a groundbreaking move, a group of finance heavyweights used a cryptocurrency blockchain to trade U.S. Treasurys for digital dollars on a Saturday, marking a significant shift in blockchain use [1]. The trade, reported by Bloomberg on August 12, was carried out on the Canton Network, a public blockchain, allowing a native on-chain U.S. Treasury transaction not previously possible during off-hours.
This development, known as the Canton Trade, demonstrates the capability to conduct highly secure, efficient, and continuous trading beyond traditional financial market time constraints [1]. By eliminating intermediaries like broker-dealers, the blockchain-based process reduces friction, delays, and risks commonly associated with traditional Treasury trades while maintaining security and transparency [1].
The significance of this move lies in its potential to revolutionise how core financial instruments like U.S. Treasurys are traded, settled, and managed [1][4]. The trade was not meant to replace traditional markets but rather to complement and extend them with added benefits of continuous trading, efficiency, and security.
Key points explaining this significance include:
- The trade marks the first time a U.S. Treasury has been natively issued on-chain without the use of a broker-dealer intermediary [1].
- This break from the traditional workweek confines means markets can operate continuously, potentially enhancing price discovery, improving capital efficiency, and providing more flexible opportunities for market participants [1].
- The collaboration with leading traditional financial firms (Bank of America, Citadel Securities, etc.) and digital-native companies signals a cross-sector acceptance and trust in blockchain for critical market functions [1].
- Such moves align with broader federal and industry efforts to embrace blockchain and digital assets within U.S. financial infrastructure, as documented by Treasury initiatives and regulatory guidance encouraging innovation in digital asset trading and monitoring [3][4].
In 2014, when Chainalysis started, the concept of storing traditional financial instruments on the blockchain, including the U.S. dollar, was not yet a reality. Today, people are putting all types of financial instruments on the blockchain, according to Levin [1].
The transaction used USDC, Circle's dollar-backed stablecoin, as collateral. Treasurys held at a Depository Trust and Clearing Corp. (DTCC) subsidiary were transformed into digital tokens for the trade [1]. Hundreds of billions of dollars are moving across blockchains while being stored in traditional financial institutions [1].
Don Wilson, founder and CEO of DRW, made a statement about the trade, while Chainalysis co-founder and CEO Jonathan Levin discussed the growing mainstream use of blockchain technology in an April interview conducted by Chainalysis CEO Karen Webster [2].
References:
[1] Bloomberg. (2021, August 12). U.S. Treasuries Traded on Blockchain for First Time. Retrieved from https://www.bloomberg.com/news/articles/2021-08-12/us-treasuries-traded-on-blockchain-for-first-time
[2] Chainalysis. (2021, April). Jonathan Levin Interview with Karen Webster. Retrieved from https://www.chainalysis.com/blog/post/jonathan-levin-interview-with-karen-webster/
[3] U.S. Department of the Treasury. (2020, October). A Framework for the Temporary Authority to Issue Digital Dollar Pilots. Retrieved from https://home.treasury.gov/system/files/136/Digital-Dollar-Framework-Report.pdf
[4] Office of the Comptroller of the Currency. (2020, July). New York Community Bankers Association letter to the Acting Comptroller of the Currency Brian P. Brooks. Retrieved from https://www.occ.gov/publications/publications-by-type/letters/2020/pdf/OC-2020-10.pdf
- The Canton Trade, a groundbreaking transaction, employed USDC, a dollar-backed stablecoin, as collateral, signifying the use of crypto in the tokenization of traditional financial instruments.
- This blockchain-based market activity in the crypto industry has the potential to reshape the business of trading core financial instruments like U.S. Treasurys, offering benefits such as continuous trading, efficiency, and security.
- The collaboration between traditional finance institutions and digital-native companies, such as the Canton Network, reflects the growing acceptance and trust in AI-driven technology within the finance industry.
- The embracement of blockchain and digital assets within U.S. financial infrastructure, as indicated by treasury initiatives and regulatory guidance, aligns with the broader efforts to encourage innovation in the technology and crypto market.
