The Depository Trust & Clearing Corporation (DTCC) developed the first prototype to explore how a CBDC could work in the US clearing and settlement infrastructure by leveraging distributed ledger technology (DLT).
The prototype, known as Project Lithium, will measure the benefits of a CBDC and inform the future design of the company’s clearing and settlement offerings.
It will also explore how a CBDC could enable atomic settlement, a conditional settlement that occurs if delivery and payment are received at the same time.
“DTCC has been experimenting with, engaging and leading the conversation around the digitalization of financial markets for several years, and Project Lithium represents the next major step in our exploration of DLT, tokenization and other emerging technologies,” said Jennifer Peve. , Managing Director, Head of Strategy and Business Development at DTCC.
“Project Lithium will lay the groundwork for the financial community to better assess the implications of a CBDC throughout the business life cycle, as interest in this style of financing continues to grow.”
As markets evolve and become more digitized, the use of printed U.S. currency continues to decline while the adoption of tokenized securities grows at a rapid pace.
Unlike private cryptocurrencies such as bitcoin, a CBDC would be issued and backed by the Federal Reserve, just like US dollars and coins.
With this prototype, DTCC, in partnership with The Digital Dollar Project (DDP), aims to demonstrate direct, two-way cash token settlement between participants in real-time delivery versus payment (DVP) settlement.
The pilot will also identify how it can leverage DTCC’s strong clearing and settlement capabilities to fully realize the potential benefits of a CBDC, including: reduced counterparty risk and trapped liquidity; increased capital efficiency; a more efficient automated workflow; ensuring that cash and securities are delivered; and more transparency for regulators.
Project Lithium is the latest effort in DTCC’s ongoing journey to lead the industry toward greater digitalization.
DTCC is developing its Project Lithium pilot project in conjunction with The Digital Dollar Project, a non-profit organization led by former US regulators, renowned technology leaders and executives from consulting firm Accenture.
With seed funding from Accenture, DDP is facilitating a series of retail and wholesale pilots to assess how a central bank-issued currency might work within the US financial infrastructure and social landscape.
“A CBDC could improve time and cost efficiency, provide broader access to currency and central bank payments, while mimicking the characteristics of physical cash in an increasingly digital world,” said J. Christopher Giancarlo, co-founder and executive chairman of The Digital Dollar Project and former chairman of the CFTC.
“We thank DTCC for partnering in the first of a series of pilot projects and its deep commitment to helping the financial community better understand and realize the potential benefits and challenges of a US-backed digital currency.”
David Treat, Global Metaverse and Blockchain Lead at Accenture and Co-Head of DDP, said, “Project Lithium is another key facet of modernizing the infrastructure of major capital markets. The direct exchange of tokenized assets for central bank digital currency provides a formidable foundation for simplification, efficiency, and a new frontier of product and service innovation. We salute DTCC’s continued leadership and direction. »