Barclays has recently deployed a very intuitive way to get feedback from the members of the crypto industry involved in the development of blockchain technology. The UK banking Giant has announced a hack-athon in which the blockchain developers will contest for developing a blockchain based application to efficiently model post trade processing of derivative contracts based on the International swaps and Derivatives Association’s (ISDA) Common Domain Model (CDM). This contest is being arranged as to see what the multiple blockchain based platforms are best for incorporating in the banks to handle derivative life cycle smart contracts in an efficient and elegant manner.
The contest called Derivhack will be conducted in two cities, one in New York, and in London. The contestants will have to select a distributive Ledger Technology, applying CDM to design an application for post-trade processing of Derivative contracts. The event is being co-sponsored by the several well-known corporations, namely The International Swaps and derivatives association (ISDA), and Deloitte and Thomson Reuters.
Barclays has been putting efforts to make blockchain a part of the derivatives space since last year. In order to incorporate the distributive ledger there was a need for the development of a set of rules governing all the sort of exchanges which were being made. CDM was proposed as an answer to that. Barclays also set up a working group within the company in order to further explore how smart contacts could be combined with CDM.
Sunil Challa from the business architect team at Barclays said,
There is a shiny new technology promising to be a panacea for fixing many post-trade processing issues. So, now is an opportune moment to re-engineer our processes, simply replicating the existing fragmented state would be a colossal missed opportunity.
As previously mentioned, the goal of this contest is to determine which blockchain platform can support an elegant solution to the problem at hand. The commonly used platforms for this are R3’s Corda, Hyperledger Fabric and Ethereum. Dr. Lee Braine of the CTO Office at Barclays Investment Bank said,
It’s up to each team to decide what they code on; it is a good, and genuinely open, question which will perform the most efficiently. I think the sort of things that will come out of this hackathon will include exactly that.
Lee also suggested that there might be a certain enhancement that could be made to the available versions of blockchain-based platforms that could help improve their compatibility with CDM. This involves making very small changes that could lead to significant differences. He also hinted that the updating of a system, that incorporates multiple data structures to maintain the record about the life cycle of a trade, has to be flexible. Java programming language which supports the object-oriented paradigm for instance can be used to instantiate classes and its abstractions. Lee further said,
You could imagine this being equivalent to adding some extra classes to raise the level of abstraction closer to that of the CDM.
He added on that the unique features that a CDM model entails would allow the judges to pick out a winner.
Because it is the ISDA CDM, it will be very clear what are the inputs and expected outputs for each life cycle event – but it will be up to the hackathon coders to implement the smart contracts using a programming language and platform they think is appropriate.
This hackathon provides a unique opportunity for the employment of blockchain-based model development in accordance with the CDM. Clive Ansell, head of market infrastructure and technology at ISDA said,
Following the release of ISDA CDM 1.0, it is important that the model is explored and validated by a broad set of industry participants.
The contestants will be provided access to the derivatives experts who can provide valuable guidance on the application of ISDA CDM. It is deemed important that there should be standards so that a common base can be provided to all. Doing this will provide multiple banks the ability to connect and communicate over the distributive ledger. Dr. Lee Braine said.
If we were able to use a common domain model, we would be able to use exactly that same data. We wouldn’t need to write two versions of what’s going on, one just for the risk model.
Adding to the same subject Sunil Challa said,
If the industry is to realize potential efficiencies and reduce costs via the adoption of standards, then there needs to be greater compatibility across different solutions in capital markets.
To conclude, in the current situation multiple banks have their unique main trading data, and if the use of the DLT is to become global, standardization becomes a necessity. However, this seems to be a goal which is unattainable any time soon. Therefore, it can only be hoped that the competition would bring forward such a solution, which would be amiable to all and globally adaptable.