Blockchain’s Next Trillion-Dollar Market

The march toward bringing blockchain to new applications and services continues.

As The Wall Street Journal reported Tuesday (March 29), Depository Trust & Clearing Corp. (DTCC), which WSJ said is “at the center of Wall Street’s trading infrastructure” and which settles trades in various financial markets, is looking to see if blockchain can be used in conjunction with the repo market, which is worth about $2.6 trillion.

The firm said that it will use blockchain to, as WSJ noted, “help smooth over problems” with illiquid repurchase agreements (“repos”), even in short-term lending arenas. The financial instruments themselves keep cash and other conduits of value, such as securities, in play across financial firms that include hedge funds and banks.

By pushing blockchain across the repo market, parties on opposite sides of transactions would be able to keep real-time tabs on trades. That also keeps big banks on the sidelines a bit, as regulations are in place that do not allow those firms to take on additional risks.

There is, seemingly, room for improvement in repo (and other financial markets) activity. One firm, Autonomous Research has said that as much as $120 billion in capital is “tied up” due to regulatory requirements. The introduction of blockchain in this way could shave off $6 billion from that number, which could then be redistributed to other parties.

DTCC has other issues at hand, such as the continued search for $50 billion in committed capital from banks and financially smaller players. Committed capital would also serve as a credit line to work with Fixed Income Clearing Corp., a DTCC unit.