Blockchain-based Settlement For Asset Trading

Jonathan Chiu and Thorsten Koeppl

No 1397, Working Paper from Economics Department, Queen's University

Abstract: Can securities be settled on a blockchain and, if so, what are the gains relative to existing settlement systems? We consider a blockchain that ensures delivery-vs-payment by linking transfers of assets with payments and operates via a Proof-of-Work protocol. The main problem is to overcome settlement fails where participants fork the chain to get rid of trading losses. To deter forking, the blockchain needs to restrict block size and block time in order to generate sufficient transaction fees which finance costly mining. We show that large enough trading volume, sufficiently strong preferences for fast settlement and limited trade size and risk are necessary conditions for blockchain-based settlement to be feasible. Despite mining being a deadweight cost, our estimates based on the market for US corporate debt show that gains from moving to faster and more exible settlement are in the range of 1-4 bps relative to existing legacy settlement systems.

Keywords: Club Good; Securities Settlement; Blockchain; Block Size; Block Time; Transaction Fees (search for similar items in EconPapers)
JEL-codes: G2 H4 P43 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2018-01
New Economics Papers: this item is included in nep-fmk and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1397.pdf First version 2018 (application/pdf)

Related works:
Journal Article: Blockchain-Based Settlement for Asset Trading (2019)
Working Paper: Blockchain-Based Settlement for Asset Trading (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1397

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