Paxos, which operates a cryptocurrency exchange and several stablecoins, won the SEC (Securities and Exchange Commission) approval to run a pilot project to use the blockchain for the stock market.
Settlement of shares with blockchain
Last week, Paxos received the no-action relief letter from the SEC. It confirms that the regulator is not interfering with the startup’s blockchain trial.
Paxos intends to build a blockchain-based infrastructure to enable it to process and settle equity trades faster and cheaper. The pilot is being carried out with stocks such as AT&T, General Motors and some other company shares.
While there is no guarantee that the project will be successful, blockchain could transform the US stock market by lowering costs for banks and investors. This would be the next big break for the US stock market after the NASDAQ came out in 1971.
Paxos’ blockchain project aims at warehouse accounting and settlement processes. Settlement is the process of delivering inventory from sellers to buyers. Elsewhere, clearing refers to warehouse operations from the time the trade was agreed upon with settlement. Starting today, stock deals will take two business days to process and Paxos hopes to shorten that time by closing deals at the end of the day.
Paxos is promoted as a direct competitor to DTCC
For the past three decades, the Depository Trust & Clearing Corp (DTCC), owned by a consortium, has been the only large organization that handled the majority of the clearing and settlement of US equities. In 2018, there was an average of $ 1.3 trillion in stock trades per day, and now it’s facing competition from Paxos.
The blockchain startup has already been supported by several large banks, including Credit Suisse Group and Société Générale.
Charles Cascarilla, chief executive of Paxos, told the Wall Street Journal (WSJ):
“In the last 20 years there has been so much innovation in the way people act, with people acting in microseconds, but there has been no real innovation in clearing or settlement.”
Even so, the DTCC admitted that it welcomed the competition. Stock clearing and settlement director Michael McClain said blockchain is helpful to the industry.
The WSJ visualized how the Paxos settlement system will work:
If the process is successful, the US stock market could adopt blockchain and follow in the footsteps of the Australian stock exchange. The ASX is replacing its clearing and settlement system (CHESS) with a blockchain platform created by Digital Asset.
Do you think Paxos will be successful with his project and bring the blockchain to the US stock market? Share your expectations in the comments!
Images via Shutterstock, Wall Street Journal