Bank of America (BoA) has joined with Paxos Blockchain Stock Settlement Network in the latest sign that Wall Street is inching closer to crypto.
It was announced Monday that Bank of America has joined with Paxos, a blockchain-based settlement network for U.S. equities. BoA becomes the third bank, along with Credit Suisse and Nomura, to try out the Paxos Settlement Service. The regulator-approved service is currently limited to internal transactions.
The second-largest U.S. bank has been conducting internal transactions for months on its own. Now, if approved as a clearing agency, Bank of America will begin to offer the service to customers as well.
The Paxos Settlement service allows two parties to settle equities trades in minutes using blockchain. This process traditionally takes days. The Securities and Exchange Commission (SEC) gave the project the go-ahead back in October 2019.
The system Paxos employs has become one of a few select ways that banks have begun to use blockchain to evolve their interaction with markets. Since 2020, JPMorgan Chase has been using a version of Ethereum (ETH) to execute overnight repurchase agreements. The daily transactions for these agreements exceed $1 billion. Goldman Sachs Group Inc. also appears ready to dive into the market.
The move toward a faster and more flexible stock settlement is great for banks, but no so much for the Depository Trust & Clearing Corporation. The DTCC has held dominance in equity markets for decades. Only trades that are submitted by 11 a.m. to the DTCC are able to be settled in the same day and miss more than 75% of all stocks traded on any day, according to Paxos COO Chad Cascarilla.
Currently, settlement times are about two days which causes delays for buyers to receive money from sellers. The funds, at least briefly, are just floating in the ether waiting their turn to be processed.
To combat this, the Paxos system connects eager investors directly via the Ethereum blockchain and allows settlements in real-time. Bina Kaloa, Bank of America’s head of global banking, said that flexibility and change to bilateral settlement are of great interest to the company and is excited to see that “everyone is partnering.”