A financing transaction from US Treasuries against USDC stablecoin has been completed on the Canton Network, the latest initiative of a working group aiming to facilitate real-time financing.
Kelly Mathieson, chief business development officer at working group member Digital Asset, told The DESK, “In the TradFi market, there are several challenges in how trading and investing activity is supported with collateral and margin management.”
She drew attention to a 2024 statistic from SIFMA and Finadium, which found that just 10-11% of marketable, high-quality liquid securities are used in collateral or margin management.
“That’s not because the demand for more collateral, to support increased trading volumes, increased investing volumes, and to be able to tailor certain hedging strategies, isn’t there. It’s because the legacy systems and the trades are bound by settlement times, market cutoff times, custodial cutoff times,” she explained.
“The securities end up getting locked or trapped in markets or in time zones. If you wanted to use a US Treasury to meet an Asian obligation, for example, you would have to decide two days prior to move that Treasury so that it settles.”
In this transaction, USDC was the cash leg with on-chain UST as collateral. This provides continual liquidity, removing the barriers of traditional cash and market hour restrictions, the group says. The transaction was executed on Tradeweb, on chain, and settled atomically.
Prime brokers held client UST in custody at The Depository Trust & Clearing Corporation (DTCC) subsidiary The Depository Trust Company (DTC). Clients could then create on-chain UST through the Canton Network.
Growth in the crypto and digital finance sector, accelerated by more favourable political attitudes in the US, has sharpened interest in the need for collateral availability, Mathieson explained.
“Emerging crypto markets and new digital exchanges operate 24 hours, but you still have all of those challenges around liquidity, asset availability, capital and balance sheet efficiency, settlement, operational risk. But now it’s compounded, because adding in those challenges of immediacy of settlement,” she said.
“When you put that package of five or six challenges together, that’s what prompted this working group.”
The group includes Bank of America, Circle, Citadel Securities, Digital Asset, DTCC, Cumberland DRW, Hidden Road, Societe Generale, Tradeweb, and Virtu Financial.
Mathieson added that changing US attitudes have helped the group to accelerate its projects.
“It has given clarity. The notion that organisations can walk, if not run a little faster on the path to pursuing some of these expansions of market opportunity has given the whole initiative a bit of a lift.”
The group’s work is far from over, Mathieson shared, stating: “This isn’t a one and done type thing. This kicks off a path. It will eventually expand to all US securities. This working group is still together, and the idea is to build on it with more real transactions. We will do another series before the end of September, and a third series of transactions before the end of the year, each attempting to build a little on demonstrating the abilities of this strategy.
“I think before the end of the year, you’ll see some non-traditional players come into the overall solution.”
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