Two of the world's largest multinational investment banks, Goldman Sachs and Citigroup, recently completed a successful transaction using blockchain technology. The two giants made the first stock swap of its kind, but 13 more are pending completion. As reported by Forbes, Citigroup and Goldman Sachs finalized the successful transaction on January 28.
What makes this stock exchange different is the platform used called the Axcore blockchain, which came from startup-backed distributed ledger company Axoni. Similar to the Ethereum network, Axcore also enables the deployment of smart contracts. Distributed ledger technology (blockchain) provides an inordinate amount of profit, which was helpful during the equity exchange transaction. It allows each counterparty on each exchange to see and use the same data, unlike traditional equity swaps.
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According to Greg Schvey, co-founder and CEO of Axoni, blockchain technology can disrupt the financial sector, and this is a great first step:
“The ability to have synchronous peer-to-peer data processing and to have databases that natively communicate with each other is just a great first step towards the future that I think many people have been looking for in capital markets infrastructure. ”
For these large companies we're working with, and then I would say probably for most of the world, this is a pretty substantial step in that direction. It's worth noting that in 2017, Citigroup participated in Axoni's Series A funding round, which raised over $20 million. Previously, Wells Fargo, NEX Group, and F-Prime Capital were among the other major companies that invested in the blockchain-based startup, now backed by Goldman Sachs.
How does Blockchain improve capital exchanges?
Traditional equity swaps must be constantly updated for countless variables. These include fluctuating interest rates, corporate actions such as dividend payments and stock splits, and end-of-day market prices. Financial institutions must employ numerous people to monitor the process until the swap is completed, which in some rare cases can take months.
Furthermore, disagreements occur regularly because each counterparty in a transaction operates its own records. Therefore, the time required to complete a transaction is very resource-intensive, according to a recent report by the International Swaps and Derivatives Association (ISDA). The report concludes that a 2% disagreement rate could result in losses of up to $2 million per transaction.
Schvey believes his company's blockchain technology can provide the necessary tool to solve these costly and time-consuming problems. Puneet Singhvi, head of financial market infrastructure and blockchain leader at Citi, also spoke on the topic. He noted that the technology is replacing the unnecessary hours and costs of running manual verification processes.
