In a twist on Wall Street’s traditional market plumbing, some of the biggest names in finance used a crypto blockchain to trade US Treasuries for digital dollars — on a Saturday. The deal, carried out on the Canton Network through Tradeweb, hints at a future where trading is no longer confined to the standard business week.
Canton, a public blockchain developed by Digital Asset Holdings, was used as the rails of the transaction, allowing a standard US Treasury repurchase agreement, or repo trade, to happen outside of normal market hours. The on-chain transaction bridges the traditional asset class with crypto, which operates around the clock.
“This is the first time a US Treasury has been natively issued on-chain without the use of a broker-dealer intermediary,” DRW founder and Chief Executive Officer Don Wilson said in an interview. “You’re getting the value of 24-7 movement, without introducing additional counter-party risk.”
The working group that helped facilitate the move are a mix of traditional finance and digitally-native players, including Bank of America, Citadel Securities, Circle Internet Group and Cumberland DRW. Likewise, the transaction took a traditional asset class, US Treasuries, and moved it on a digitally-native, blockchain network.
For the transaction to work, Treasuries held at a DTCC subsidiary were turned into digital tokens and used as collateral to borrow USDC, a dollar-backed stablecoin issued by Circle. The exchange was instantaneous, with both sides receiving their assets at the same moment — avoiding the delays common in today’s markets.
The Depository Trust & Clearing Corp., or DTCC, plays a major role in the plumbing of the US financial system as the central clearing and settlement hub for equities and fixed income products. Many liquid assets in US markets reside at the DTCC in its custody arm, the Depository Trust Co.
In the on-chain repo transaction, the US Treasury was kept at the DTC, which used the Canton Network as its ledger of record. Other forms of tokenization involves intermediaries, where the asset is kept with a broker-dealer and that broker-dealer issues a claim in the form of a token.
“The token here is a representation of a security held at the DTCC. There is no intermediary,” Yuval Rooz, CEO of Digital Asset said. “It’s an on-chain security, rather than an “I owe you” from a broker,” he said.
Supporters say the move could be a step toward round-the-clock access to one of the world’s safest and most heavily traded assets. It could also, in theory, help bridge the gap between traditional markets and the speed of digital finance. Skeptics counter that the technology may be new, but the underlying risks in lending and borrowing remain unchanged — and that winning over regulators and major investors will be essential before such trades become routine.
The concept of tokenization has been promoted heavily as one of the most viable use cases for blockchain, the distributed ledger technology that underpins most cryptocurrencies. BlackRock Inc., Franklin Templeton and KKR & Co. all have announced efforts to tokenize certain parts of their funds but use broker-dealers as intermediaries to do so.
Paul Atkins, the chair of the US Securities and Exchange Commission recently announced a new initiative called “Project Crypto,” in which the agency aims at exploring how to update the financial market rules so that stocks, bonds and other traditional financial assets can be represented as digital tokens and traded directly on the blockchain networks.
Digital Asset used both the Canton Network as the blockchain, and Tradeweb as the application for parties to meet and transact. The Tradeweb platform sits on top of the Canton Network, working together to avoid interruptions and delays, according to Elisabeth Kirby, head of market structure at Tradeweb.
“You don’t have a time-gap or lapse in which a fail could happen because the settlement happens on-chain, in real-time,” Kirby said.
While this was one repo-transaction executed fully on-chain, “several more” like it are coming with more market participants joining between now and the end of the year, according to Rooz who says the goal is to have a large portion of the Treasury market, with trillions of dollars in repo transactions a day, onboard.
“Success next year would be movements of tens, if not hundreds of billions of US Treasury trade volume on the Canton Network,” Rooz said.
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