A world of frictionless commerce relies heavily on lenders being able to trust they’ll be repaid – or if not, that they’ll get something else in return.
But this “something else” – collateral – isn’t nearly as easy to move as the money itself.
To solve this problem, a group of international depositories and stock exchanges called the Liquidity Alliance united this year to launch LA Ledger, a blockchain solution designed to do to collateral what bitcoin did for value transfer. Now, having completed the proof-of-concept, the group is ready to launch a commercial product with only one thing left in its way: regulatory approval.
While the participants have been in conversation with regulators since Q2 of last year, last week, the group transitioned from “informal conversations” to a “more formal presentation” with regulators, according to Liquidity Alliance member and chief commercial officer for post-trade services at TMX Group Brian Gelfand.
Specifically, the blockchain built using the open-source Hyperledger Fabric is designed to break down borders between pools of collateral trapped within national systems by migrating traditional collateral from a central escrow to a distributed blockchain.
And the technology has proved beneficial.
“The technical solution is very elegant,” said Steve Everett, general manager of collateral management at Strate, which is also part of Liquidity Alliance. “We are meeting with the regulators … and nine out of ten of the questions – because the solution is so elegant – are more on the legal and regulatory front.”
While many proofs-of-concept have languished on the shelf since the early days of blockchain enthusiasm, Liquidity Alliance’s latest push signifies a growing momentum behind central securities depositories (CSDs) seeing their work come to fruition.