BNP Paribas’ former blockchain head writes smart contract code into clearing bank

Rage Review : A four-person team formed by Collin Platt, former head of blockchain development at BNP Paribas, and David Acton, a co-founder and colleague at BNP Paribas, have written smart contract code into the clearing bank and created a proof-of-concept mechanism for creating contracts and registering transactions, mainly serving the U.S. Treasury and other cash-like short-term fiscal instruments in Europe. London-based DPActum is using blockchain technology to reduce the risks of central counterparty clearing houses (CCPs) by copying some services to the blockchain.

Translation: Nicole

Collin Platt, former head of blockchain development at BNP Paribas, believes that even centralized clearing houses will eventually be built on blockchains or even replaced by blockchain systems. He tested this market theory through his own blockchain startup earlier this year.

London-based DPActum is using blockchain technology to reduce risk for central counterparty clearing houses (CCPs) by replicating some of their services on a blockchain so they can perform their mission successfully even in the face of eventual disruption.

Following investment reports from several major financial institutions, Platt said his team of four is working on building a prototype application using technology from the open source Hyperledger project.

“What we’ve done is create a new scaling process that will be managed by the derivatives CCPs,” Platt told CoinDesk. “That allows the clearing houses to go back to the level of individualized authorization by using blockchain technology and the distributed ledger system that we’ve built.”

The team , working with co-founder and BNP Paribas colleague David Acton, has created a proof-of-concept mechanism for creating contracts and registering transactions through smart contracts, primarily for the U.S. Treasury and other cash-like short-term fiscal instruments in Europe.

Smart contracts represent bilateral contracts, where each party is backed by a different guarantor, who is usually a member of a CCP clearing house. Smart contracts will be managed by the CCP.

In Europe, CCPs such as European Central Counterparty NV and Eurex Clearing serve counterparties use both funds from buyers and assets from sellers, managing risk in a variety of ways. In the United States, DTCC performs similar functions.

But some risk-mitigation methods are themselves risky, according to Platt.

Security Risks

Platt divides CCPs’ value proposition into four categories.

The first two categories — managing operational tasks to reduce settlement risk and tracking the credit risk that counterparties may pose — are perfectly suited to being encoded into smart contracts and run on a distributed ledger, he said.

By encoding operational tasks into the blockchain, Platt believes he can give users the power to specify who has access to what information, and what kind of information.

Collin Platt

"They can see more information, so they can better assess the real risk," he said.

He argues that even if other services are “bound into cold, callous smart contracts,” CCPs’ other two value propositions will still be valuable.

He said the more "detailed" the service, the less likely it is that blockchain smart contracts will eliminate the intermediate links in transactions such as commodity circulation, including dealing with counterparty breach of contract and managing system risks.

Specify the futures date

Contrary to previous reports that DPactum is a member of the Post-Trade Distributed Ledger Group (PTDL), Platt said his company is not a member, saying, “PTDL is primarily focused on regulating existing services.”

In his previous work, Platt focused primarily on the actual trade, rather than the aftermath, and he hopes that will remain the case for now.

Separately, when the U.K. opted to leave the European Union earlier this month, he said his team’s early plans were to offer a pilot version of a derivatives blockchain product for trading futures and options.

He said this would be postponed until September this year.

“We’re building a prototype right now, and we want to work with these companies to figure out how we can do this on a small scale,” Platt said.