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Blockchain-Based Settlement for Asset Trading

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  • Jonathan Chiu
  • Thorsten V Koeppl

Abstract

Can securities be settled on a blockchain, and, if so, what are the gains relative to existing settlement systems? The main benefit of a blockchain is faster and more flexible settlement, whereas settlement fails need to be ruled out where participants fork the chain to cancel trading losses. With a proof-of-work protocol, the blockchain needs to restrict settlement speed through block size and time in order to generate transaction fees, which finance costly mining. Despite mining being a deadweight cost, our estimates for the U.S. corporate debt market yield net gains from a blockchain in the range of 1–4 bps.Received May 31, 2017; editorial decision May 29, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Jonathan Chiu & Thorsten V Koeppl, 2019. "Blockchain-Based Settlement for Asset Trading," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1716-1753.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:5:p:1716-1753.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy122
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • H4 - Public Economics - - Publicly Provided Goods
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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