BoA to use Blockchain Technology to Settle Transactions

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  • Bank of America joins Paxos’s blockchain-based settlement network to facilitate high-speed stock trade settlement.
  • Blockchain technology is an appealing solution for financial institutions looking for better alternatives.
  • A surge in blockchain adoption can ease the way for mainstream cryptocurrency adoption.

Bank of America, the second-biggest bank in the United States, has reportedly joined the Paxos Settlement Service, a blockchain-based network created by Paxos Trust Co. that facilitates stock trade settlement within minutes.

Joining the leading Swiss financial services company Credit Suisse Group AG, and the Japanese financial holding company Nomura Holdings Inc, Bank of America (BoA) is the newest sign of Wall Street’s growing adoption of blockchain technology.

The Paxos solution is one of the most notable methods where banks employ blockchain technology to improve the way they interact with markets. Starting last year, JPMorgan Chase & Co was the first financial institution to use Ethereum to perform overnight repurchase agreements. Now, the company’s daily transaction volume surpasses $1 billion.

Shifting to the Faster Blockchain-based Solution

BoA along with most of the financial services providers were using Depository Trust & Clearing Corp. (DTCC) for stock settlement. However, generally, the settlement through DTCC is T+2, meaning the settlement date is two days after the transaction date. And only for trades that occur before 11 am ET, the settlement date is same-day.

On the other hand, with the help of the Ethereum blockchain, the Paxos system enables same-day transaction date (T+0). According to Kevin McCarthy, Head of Financing and Clearing at BoA, the flexibility and cost savings offered by Paxos absorbed the bank.

“We can determine the settlement cycle down to T+0,” McCarthy said, talking about Paxos’s fast settlement solution. “We then can free up the collateral we’d have to post on an overnight basis,” which could lead to big savings. “The return-on-assets in this business would improve, which has been a challenge,” he continued.

Blockchain Adoption is Key for Cryptocurrency Adoption

Chad Cascarilla, CEO and co-founder of Paxos, said that pushing blockchain acceptance in financial industries especially banks is essential for this technology to succeed and prosper, he said:

The way we get mainstream adoption is by having firms like Bank of America come on and feel comfortable.

Managing Director and head of Global Strategic Direct Investments at BoA, Bina Kalola, stated that the bank is earnest to explore and adopt the emerging innovations. “We will go through this journey together, and the collaboration and partnerships really matter,” she said. “We will see a new way of doing things that will benefit everyone.”

Earlier this year, BoA revealed a report named “Bitcoin’s Dirty Little Secret.” The report aims to criticize Bitcoin in terms of viability and utility. However, in the same report, the bank praised DeFi innovations. Despite having a questionable look towards cryptocurrencies, especially Bitcoin, BoA seems to be interested in the technologies behind these innovations.