This is the most sought-after application of blockchain technology.
Currently, many financial institutions are exploring the possibility of using blockchain technology to simplify, automate, and speed up the costly and time-consuming post-trade settlement process.
Faster, Cheaper, and More Transparent
To understand the problem better, the trade life cycle is described briefly.
A trade life cycle contains three steps: execution, clearing, and settlement.
Execution is concerned with the commitment of trading between two parties and can be entered into the system via front office order management terminals or exchanges.
Clearing is the next step whereby the trade is matched between the seller and buyer based on certain attributes such as price and quantity.
At this stage, accounts that are involved in payment are also identified.
Finally, the settlement is where eventually the security is exchanged for payment between the buyer and seller.
Why This Matters for Blockchain Technology
In the traditional trade life cycle model, a central clearinghouse is required to facilitate trading between parties which bears the credit risk of both parties.
The current scheme is somewhat complicated, whereby a seller and buyer have to take a complicated route to trade with each other.
This comprises of various firms, brokers, clearing houses, and custodians but with blockchain, a single distributed ledger with appropriate smart contracts can simplify this whole process and can enable buyers and sellers to talk directly to each other.
Notably, the post-trade settlement process usually takes two to three days and has a dependency on central clearing houses and reconciliation systems.
Key Points to Remember
- Post-trade settlement This is the most sought-after application of blockchain technology.
- Currently, many financial institutions are exploring the possibility of using blockchain technology to simplify, automate, and speed up the costly and time-consuming post-trade settlement process.
- To understand the problem better, the trade life cycle is described briefly.
- A trade life cycle contains three steps: execution, clearing, and settlement.
Going Deeper: Advanced Concepts
With the shared ledger approach, all participants on the blockchain can immediately see a single version of truth regarding the state of the trade.
Moreover, the peer-to-peer settlement is possible, which results in the reduction of complexity, cost, risk, and the time it takes to settle the trade.
Finally, intermediaries can be eliminated by making use of appropriate smart contracts on the blockchain.
Also, regulators can also see view the blockchain for auditing and regulatory requirements.
Conclusion
Post-trade settlement represents one of the many innovative layers that make blockchain technology so powerful and transformative. As distributed systems continue to evolve, a solid understanding of these core concepts becomes increasingly valuable — not just for developers, but for anyone building, investing in, or working alongside blockchain-powered systems.
Whether you are just starting your blockchain journey or deepening existing expertise, mastering these fundamentals gives you the tools to think clearly about decentralized systems and make smarter decisions in this rapidly evolving space.