The chairman of the United States Commodity Futures Trading Commission (CFTC) has recently made some waves with blockchain-related comments. Specifically, he praised blockchain technology’s adaptive and speedy characteristics, noting that blockchain technology could have helped deal with the 2008 global financial crash.
Blockchain technology could have enabled an overview of the situation
The CFTC’s chairman, Christopher Giancarlo, made these remarks during the 4th Annual DC Blockchain Summit in Washington D.C. on March 6th. Moreover, Giancarlo stated how the usage of blockchain technology could have transformed the real-time responses of regulators to the 2008 crash.
Furthermore, Giancarlo also referenced his personal experience being the executive vice president at the GFI Group brokerage. In 2008, Giancarlo explained, GFI Group supposedly operated one of the world’s premier trading platform for credit default swaps.
Giancarlo also noted the widespread panic and disarray prevalent on GFI’s trading floor as the financial crisis became a reality:
“I remember a call from a U.S. bank regulator asking about CDS trading exposure of several major banks, including Lehman Brothers. In fact, trading conditions were deteriorating by the hour. It was clear that the regulator had little means, short of telephone calls, to read all the danger signals that the CDS markets were broadcasting.”
However, Giancarlo went on to explain that blockchain technology could have significantly exacerbated this information asymmetry plaguing the market. Moreover, blockchain technology would have enabled a ”golden record of the real-time ledgers of all regulated trading partners.”
In addition, this would have served to unify how regulators attempted to maintain order within the markets, as this systemic market failure became evident.
Giancarlo: ”What a difference it would have made”
At the time, regulators did not have access to anything akin to the real-time distributed ledgers of today. Consequently, regulators needed to ”assemble piecemeal data to recreate complex, individual trading portfolios.”
This meant that regulators were forced to manually contact brokerage firms, such as GFI, to get a handle on current market information. Giancarlo explained how this would not have been needed if blockchain technology had been employed:
“What a difference it would have made a decade ago if blockchain technology had been the informational foundation of Wall Street’s derivatives exposures. At a minimum, it would certainly have allowed for far prompter, better-informed, and more calibrated regulatory intervention instead of the disorganized response that unfortunately ensued.”
Ultimately, Giancarlo argued, the usage of blockchain technology and ”modern cognitive computing capabilities” could have been used to reveal that ”the $400 billion notional of outstanding credit default swaps written on Lehman Brothers represented under $8 billion in net market exposure to failure of the firm.”
Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.