One of the UK's banking giants, Barclays, is pitting blockchain startup companies against one another this year. But the way it sounds is very different to what it actually means, as Barclays is asking the respective teams to help revamp the global derivatives market at a hackathon next month.
Taking place in both New York and London, DerivHack will be taking place between the two venues from the 20th to 21st of September hosted at Barclays Rise accelerator spaces.
Along with Barclays, the event is being co-sponsored by a number of well known international companies such as The International Swaps and Derivatives Association (ISDA), Deloitte and Thomson Reuters.
As part of the process, participating teams will be asked to provide the Common Domain Model (CDM) for the ISDA, this refers to a set of processes and data standards, all through the use of their chosen Distributed Ledger Technology (DLT) platform. The ultimate aim? To create highly efficient post-trade processing of derivatives contracts.
CDM works to harmonize the way in which data is presented and reported between different companies and platforms. CDM has become such a commonly practiced system that many companies regard it as a pre-requisite for the financial industry to adopt DLT and smart contracts.
One of the underlying outcomes of the international hackathon is to find out which sort of blockchain would serve to handle the derivatives lifecycle more effectively, between commonly used DLTs like R3's Corda, Hyperledger Fabric or ethereum.
Dr Lee Braine of Barclays' investment bank's CTO's office pointed out that teams must use their own prerogative to decide which DLT they'll use for the hackathon.
“It's up to each team to decide what they code on… It's a good, and genuinely open, question” as to which one will be the best DLT.
“I think the sort of things that will come out of this hackathon will include exactly that.”
One of the other aspects of the hackathon, according to Braine, may be to demonstrate ways in which existing DLTs cane be modified to make them more effective for the specific task.
One reference the Dr made was to the coding language, Java, which uses classes to define data formats and procedures for a specific type of class or object, adding “you could imagine this being equivalent to adding some extra classes to raise the level of abstraction closer to that of the CDM.”
Braine added that the CDM, which is all about how users can alter data and its structure before and after each life cycle event through a trade. Examples of this include amendments, modifications or terminations of contracts. Each of these various approaches mean that judges will need to measure the success and adaptability of each team and their DLT.
“Because it is the ISDA CDM, it will be very clear what are the inputs and expected outputs for each life cycle event – but it will be up to the hackathon coders to implement the smart contracts using a programming language and platform they think is appropriate.” Braine added.
A Fresh Set of Eyes on the Task
For the ISDA, the upcoming hackathon will allow them to get a series of fresh eyes on the use of CDM, and obtain some constructive feedback in the process.
According to Clive Ansell, the CDM needs to be put in the hands of users before it can be fully implemented.
“Following the release of ISDA CDM 1.0, it is important that the model is explored and validated by a broad set of industry participants.”
One of the critical elements involved in the standardization of smart-contract enabled, post-trade processing of derivatives are smart oracles, which are responsible for piping in data to the contracts. One of the first companies to apply this technology was, in fact, Thompson Reuters, which introduced it back in June 2017 thanks to BlockOne IQ.
“Making this capability available during the hackathon is a great opportunity to explore the evolution of standards for blockchain-based financial instruments, as they are a much-needed component in shaping the industry's future infrastructure.” – Sam Chadwick, the director of strategy in innovation and blockchain at Thomson Reuters.
Within the two days, participants will have ready access to professionals that are already well versed with CDM, allowing them to provide support and guidance on how to apply ISDM's CDM technology. This will be key, regardless of the teams general experience level, from student developers looking to bolster their portfolio, or an already established Fintech.
Sunil Challa, speaking on behalf of Barclays business architect team, successfully summarised the event.
“If the industry is to realize potential efficiencies and reduce costs via the adoption of standards, then there needs to be greater compatibility across different solutions in capital markets.”