Distributed Ledger Technology (DLT) has received significant attention in recent years and is viewed by many as a technology solution that can reduce operational costs and inefficiency across the capital markets. However, until now, DLT has not yet demonstrated enterprise maturity, nor scalability sufficient to handle real-world financial market transaction volumes.
With over 30 years of experience, GFT has built a reputation on excellence and innovation as service providers and technology leaders to the financial services industry. We occupy a unique perspective that allows us to see up close and personal the problems our clients face, including the top global financial institutions, while offering innovative, customized technology solutions to help improve our clients’ business. So when we were asked by our partners at Digital Asset (DA) to independently test their post-trade benchmark application for the cash equities market, which they purported out-performed anything currently available, we were intrigued.
In researching performance of existing distributed ledger technologies we found results ranging anywhere from 3K to 2.5M transactions per second. Though DA claimed performance of approximately 27,000 transactions per second was achieved on their platform using DLT, it became clear that there was currently no standard definition of “transaction”. Therefore there is no meaningful number against which to gauge DA’s claim, nor relate DA’s results to commonly understood measures of transaction throughput in financial markets.
When you consider the number of participants and steps involved in a cash equities trade, you begin to get an appreciation for the scope of what “transaction” means in this context. The importance of this definition of an individual trade cannot be overstated. Consequently, the DA application covers the post-trade lifecycle from trade confirmation through to settlement. The goal is to give market operators as meaningful a measurement as possible, to help them accurately understand how DLT can deliver on both the range of functionality and the performance requirements of systemically consequential markets.
From our collaborative work, GFT have confirmed that the DA application was built, from the ground up, to realistic financial market requirements. Working with DA to verify and validate their application allowed GFT to contemplate real and enticing opportunities. A platform with such a versatile language as DAML, the Digital Asset Modeling Language, can now be utilized in a performant application.
We believe the market reaction to the results of the performance test will be extremely positive and will help to dismantle this barrier on the journey to wholesale adoption of blockchain across capital markets. Through our discussions with partners, clients and others in the industry there is definitely a step change in the attitude, and appetite for blockchain is gaining pace.
It would be foolish to claim that wholesale change will happen overnight because undoubtedly the cost and risks associated with the limitations presented by the continuing decline on legacy infrastructures, reinventing established working practices and replacing existing franchises still need to addressed and perceptions changed. The outstanding test results will play a major role in helping to allay these existing fears and accelerating take up.
DLT can enable this by combining a ledger, synchronized among market participants, with the deployment and automation of complex, multi-party workflows acting upon that ledger. Consider, for example, how some of the DLT use cases being worked on in financial markets can radically improve the transfer of value: eliminating the need for reconciliation in cash equities clearing and settlement; reducing counterparty risk throughout the lifecycle of credit instruments; lowering capital costs for repurchase agreement clearing and netting; providing real-time visibility to regulators; to name just a few.
We also found that solutions built with DA’s DLT technology are not just far easier to develop and far quicker to deploy, but are, in fact, able to meet the performance requirements of the world’s top market operators. This last piece of information is truly ground-breaking, and we believe thoroughly dispels the criticism that performant applications are not possible on distributed ledger solutions.
For GFT this project was not only a rigorous testing and validation of technology throughput and capability, but also a chance to observe and understand the viability of a real-world DLT solution with important implications for financial services. Importantly, achieving this level of 27,000 TPS performance throughput demonstrates DLT platforms, specifically the Digital Asset Platform, are now capable of supporting the peak throughput of enterprise applications used by financial market infrastructures and other market operators. To read in greater detail about the tests performed, we invite you to read our case study here. But next time you hear transactions per second, be sure to ask how many trades that is!