Economics of blockchain-based securities settlement

Bumho Son and Huisu Jang

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: We undertake economic modeling of the behavior of participants in blockchain-based securities settlement implemented through hashed timelock contracts (HTLCs). HTLCs have been noted to have the problem of failure when one of the participants attempted to void the transaction by making a late signature. We propose that the premium should be paid by a structurally favorable participant and show that failure due to late signatures rarely occurs according to the utilities of the participants after the introduction of the premium theoretically. Then we conduct quantitative analysis using KRX bond settlement data and show that the proposed method provides better settlement results than the benchmark model. In particular, our results help regulator or policy makers consider fintechs in their regulatory and policy decisions without significantly departing from their original framework.

Keywords: Blockchain; Settlement efficiency; Blockchain-based settlement system; Game theory (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531922002288

DOI: 10.1016/j.ribaf.2022.101842

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