- The Wall Street giant makes a key decision to expand blockchain technology into financial services.
- But institutions remain cautious about using private blockchains.
Aiming to expand private blockchain technology in the financial services industry, Goldman Sachs, one of Wall Street’s most prestigious banks, is expanding its digital assets platform, the company announced in a press release Monday.
The planned platform, which will operate separately from the bank, has tapped TradeWeb, an e-commerce company, as a strategic partner, according to the release.
“It’s in the best interest of the market to have something that’s owned by the industry,” said Mathew McDermott, global head of digital assets at Goldman. Bloomberg in an interview.
Private Blockchains
Goldman Sachs’ existing digital asset platform uses a private blockchain that requires bank permission to send transactions. This is different from public blockchains like Ethereum and Solana which do not require such permissions.
Other Wall Street players, like JPMorgan Chase, are already using private blockchains in their own digital asset platforms.
But these companies struggle to grow because other companies are reluctant to use systems created and controlled by their competitors.
By launching its platform as a separate entity, Goldman Sachs hopes to allay this concern and expand the use of private blockchains in areas such as tokenizing 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 transactions of blockchain versions of financial assets, such as bonds.
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Because the platform operated solely on a private blockchain, it went largely unnoticed by the crypto mainstream, which just suffered the $8 billion bankruptcy of Sam Bankman-Fried’s FTX exchange.
Now, as more Wall Street firms take blockchain and related technologies seriously, Goldman Sachs is seizing the market opportunity.
Still, private blockchains are not the first choice for financial institutions because they have less liquidity, Lamine Brahimi, co-founder and managing partner of tokenization platform Taurus, said previously. DL News.
SEC Rule
“When given a choice, financial institutions deploy their production on public blockchains,” he said. “When they have no choice, they do it with permission.”
Banks operating exclusively in the United States must limit themselves to private blockchains due to a 2022 Securities and Exchange Commission rule known as SAB-121.
It created accounting obligations for companies to protect the crypto assets of platform users, obligations that cannot be met on public blockchains.
This rule poses a barrier for many U.S. companies seeking to issue and trade traditional financial assets on public blockchains.
Still, many are hopeful that the situation could change under the next administration of President-elect Donald Trump.
Trump has often signaled that he plans to take a more lenient approach towards crypto.
Many of his picks for high-profile positions, like SEC chairman, have expressed a desire to create a tailored set of crypto rules to ease the regulatory burden on U.S. crypto companies.
First steps
Plans for the Goldman Sachs spinoff are in their early stages, and there is nothing stopping the new venture from expanding to public blockchains in the future, if the regulatory winds change.
The company said it also plans to continue researching financial applications of blockchain technology internally with its current team.
Tim Craig is DL News’ DeFi correspondent based in Edinburgh. Contact us with advice at tim@dlnews.com.
