- Wall Street giant makes key move to expand blockchain technology in financial services.
- But institutions remain wary of utilising private blockchains.
In a bid to expand private blockchain technology in the financial services industry, Goldman Sachs, one of Wall Street’s most prestigious banks, is spinning-out its digital assets platform, the company said in a press release on Monday.
The planned platform, which will operate separately from the bank, has tapped TradeWeb, an electronic trading firm, as a strategic partner, according to the statement.
“It’s in the best interest of the market to have something that is industry-owned,” Mathew McDermott, Goldman’s global head of Digital Assets, told Bloomberg in an interview.
Private blockchains
Goldman Sachs’ existing digital assets platform uses a private blockchain that requires the bank’s permission to send transactions. It’s different from public blockchains like Ethereum and Solana that don’t require such permissions.
Other Wall Street players, such as JPMorgan Chase, are already using private blockchains in their own digital asset platforms.
But such ventures have struggled to grow because other firms are reluctant to use systems created and controlled by their competitors.
By launching its platform as a separate entity, Goldman Sachs is hoping to assuage this concern and expand the use of private blockchains in areas such as the tokenisation of funds and issuing collateral for financial transactions.
Blockchains on Wall Street
In late November 2022, Goldman Sachs first launched a digital assets platform to issue and settle trades of blockchain versions of financial assets, like bonds.
Because the platform ran solely on a private blockchain, it went largely unnoticed by the crypto mainstream, which has just suffered the $8 billion bankruptcy of Sam Bankman-Fried’s FTX exchange.
Now, with more and more Wall Street firms taking blockchain and its associated technologies seriously, Goldman Sachs is seizing the opportunity in the market.
Still, private blockchains aren’t the first choice for financial institutions as they have less liquidity, Lamine Brahimi, co-founder and managing partner of tokenisation platform Taurus, previously told DL News.
SEC rule
“When they have the choice, financial institutions are rolling out production on public blockchains,” he said. “When they don’t have the choice, they do it on a permissioned one.”
Banks operating exclusively in the US must confine themselves to private blockchains due to a 2022 Securities and Exchange Commission rule known as SAB-121.
It created accounting obligations for companies to safeguard crypto assets for platform users that cannot be met on public blockchains.
The rule is a roadblock for many US firms looking to issue and trade traditional financial assets on public blockchains.
Still, many are hopeful the situation could change under President-elect Donald Trump’s coming administration.
Trump has frequently signalled he plans to take a more lenient approach to crypto.
Many of his rumoured picks for top roles like chair of the SEC have expressed the desire to create a set of bespoke crypto rules to ease the regulatory burden on US crypto firms.
Early stages
Plans for Goldman Sachs’ spin-out firm are in the early stages, and there’s nothing stopping the new venture from expanding to public blockchains in the future, should the regulatory winds shift.
The firm said it also plans to continue researching financial applications of blockchain technology in-house with its current team.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
