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Goldman Sachs and CitiBank Discreetly Use Blockchain for Equity Swap

Saad Ullah



Stocks: The Tradable

Two of the largest banks in the United States, Goldman Sachs and CitiBank have used Blockchain technology for one of their equity swap operations.

Ethereum Inspired

Both the banks have been able to execute their equity swap using Axoni, a blockchain startup that is based off the Ethereum ecosystem itself. The historic transaction was quietly done, without any fanfare. The swap, in which one of the banks made a payment that was done against returns of another underlying asset was in return for the other which was at a predetermined rate. According to Forbes, this is the start of a string of transactions with nearly a dozen more in pipeline.

Leveraging blockchain brings in a lot of ease and security for financial institutions like Citibank and Goldman Sachs. Legacy systems mean that both companies need to spend considerable man hours and resources to ensure that every step of the process is error free. Currently, if the numbers do not add up against the other bank’s, a large number of hours and even days are wasted in tracing the issue. Greg Schevy, CEO and co-founder of Axoni explains the issue,

“When there is a break, and it could be something as silly as keying the wrong payment dates and accruing interest differently, each party has to go back into their data sets and spend hours or days digging through huge, huge chunks of data.”

Blockchain Swapping

By leveraging decentralized blockchain technology, the banks were able to significantly reduce the time and effort needed for the equity swap. According to a report by International Swaps and Derivatives Association (ISDA), it takes up to an hour for roughly 70% of all swaps, with 15% of swaps taking up to a day. In the end, this can result in disagreements in 2% of all transactions with values in the range of USD 1 to 2 million for each of the swap.

With Axoni, the information is updated in real time and is available to all the participants. This means they do not have to keep separate records for themselves and thus eliminate any chances of difference in values. Information is available in real time and can potentially reduce the time and efforts spent in reconciliation.

“The ability to have synchronous, peer-to-peer processing of data between institutions and have databases natively speaking to each other is just a huge, huge first step toward the future that I think a lot of people have been looking for in capital markets infrastructure,” says Schvey. “And for these huge firms that we’re working with—and then I’d argue for probably most of the world— this is a pretty substantial advancement toward that path.”

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