Digital Asset and DTCC Launch Successful US Treasury Collateral Network Pilot

Successful Completion of US Treasury Collateral Network Pilot Project

According to Cointelegraph, blockchain solutions provider Digital Asset and the Depository Trust & Clearing Corporation (DTCC) have achieved a significant milestone with the successful completion of their US Treasury Collateral Network pilot project.

Overview of the Project

Executed on the Canton Network, this initiative saw participation from 26 market participants, facilitating 100 transactions. A primary goal of the project was to demonstrate transaction flows and scenarios relevant to collateral management using tokenized 'digital twins' of Treasury bonds, referred to as USTs.

Use Cases Addressed in the Pilot

The pilot project showcased four distinct use cases that reflect diverse market activities:

1. Creation of Digital Twins: The first use case involved creating a digital twin of real-world assets (USTs) for an investor. This digital twin was then registered with the central security depository, enabling its utilization for trading, lending, or collateral purposes.
2. Margin Call Response: In the second use case, the tokenized UST assets were encumbered in response to a margin call. This collateral transfer was executed as an atomic transaction, which was visible in real-time.
3. Instant Settlement for Margin Return: The third scenario illustrated an investor retrieving their margin, a process that was settled instantly rather than the typical one-day timeframe.
4. Handling Investor Default: Finally, in the event of an investor default, counterparties could notify the custodian to seize the encumbered USTs. The margin app operator efficiently computed the transfer quantities while ensuring that the ownership transfer remained fully traceable and auditable on the Canton Network.

The Role of the Canton Network

The pilot utilized sovereign blockchains on the Canton Network, which was launched in June 2023 by Digital Asset alongside major financial institutions. This network is notable for ensuring instantaneous transactions, enabling each involved party to maintain control over their data and privacy.

DTCC's Essential Role

The DTCC played a crucial role in tracking and reconciling changes to the tokenized and underlying holdings throughout the market. Their involvement reinforces the integrity and transparency of the transactions conducted within the pilot.

Adoption of the Concept of Digital Twins

This project marks a step forward in adopting the concept of digital twins, which was supported by the Commodity Futures Trading Commission’s Global Markets Advisory Council for Digital Asset Markets Subcommittee earlier in 2024.

Legal Framework and Integration

Importantly, the project report highlighted that claims on assets are governed by the Uniform Commercial Code (UCC), with variations depending on the underlying blockchain technology used. In this pilot, securing these claims was intricately tied into the app code, workflow, and accompanying legal contracts.

Conclusion

The completion of the US Treasury Collateral Network pilot project demonstrates a new avenue for enhancing transaction efficiency and security in financial markets. As blockchain technology continues to evolve, initiatives like this lay the groundwork for integrating digital assets into broader financial systems.