The financial sector stands at the edge of transformation, with blockchain potentially offering unprecedented efficiencies in real-time settlement and delivery versus payment (DvP). Yet, despite its promise, adoption among institutions has been slow. Regulatory challenges, technical limitations, and privacy concerns continue to hinder progress. This article explores why blockchain remains a compelling solution for institutional finance, its current limitations, and a potential “third way” to unlock its full potential.

The Broken Systems of Today

Imagine a financial system where settlement for stocks takes two days (T+2), and cross-border transactions crawl through a web of intermediaries. This isn’t the past – it’s the present. Payments and delivery of securities and other assets happen on separate tracks, riddled with delays, inefficiencies, risks and reconciliation issues.

Blockchain has long been heralded as the antidote. Its ability to enable real-time settlement with atomic delivery versus payment (DvP) eliminates the need for intermediaries, slashes costs, and boosts transparency. But regulatory constraints and technical limitations have left the promise largely unfulfilled.

DeFi’s Glimpse of What’s Possible

Decentralised Finance (DeFi) has already shown us the power of blockchain when unleashed. Powered by smart contracts, DeFi enables round-the-clock trading, instant settlement, and peer-to-peer transactions – bypassing the inefficiencies of traditional finance while enabling checks and balances to be in place. Real-world asset tokenisation could bring these breakthroughs to institutional finance.

But there’s a catch: public blockchains like Ethereum expose all transaction and account data to the world. For financial institutions transaction privacy is non-negotiable, exposing every trade, asset holding and payment to the public can be a deal breaker. The challenge isn’t just leveraging blockchain – it’s doing so without compromising confidentiality or control.

Institutional Blockchain: Current Approaches

Over the past decade, financial institutions have taken cautious steps toward blockchain adoption, experimenting with various models.

The centrepiece of this approach has been the private blockchain architecture, where each institution hosts its own node housing its transactions. Each transaction is only shared with the node of the transaction counterparty. Privacy is fully maintained. The problem is the tradeoffs:

• No unified view: Sharing only individual transactions “piecemeal” means that there is no unified view of each asset.
• Limited provenance: This means that full provenance of an asset cannot be easily / efficiently verified, in the way it would normally be verified on a public blockchain, where the entire ledger is visible and independently verifiable.
• No true DvP: This also limits the ability to achieve true atomic delivery vs payment (DvP), meaning that the efficiency gain isn’t there.
• No composability: Lack of single ledger also limits the ability to create an ecosystem for multiple applications using the same assets.

These limitations highlight an uncomfortable truth: existing solutions force trade-offs. Institutions need a new model—one that delivers privacy whilst being able to leverage the efficiencies of blockchain.

"Nirvana is [Silent Data], it's the ability to get the reach and distribution of a public blockchain, but to obfuscate data, so that sensitive data is only viewable by the people you want to see it. And that's why we're so pleased to be working with Applied Blockchain and Silent Data”
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– Simon Barnby, CMO at Archax

A Third Way

Enter Silent Data, a different approach which is already being adopted by tokenisation platforms such as Tokeny and Archax, bridges institutional demands with blockchain’s true guarantees. By combining the level of privacy and control achieved in private blockchains with the verifiability and security of public ones, this innovation charts a new course.

Silent Data combines widely used open-source EVM blockchains with zero knowledge (ZK) rollup technology and hardware-secured trusted execution environments (TEE) to provide the optimal blockchain environment for institutions and businesses. This model preserves privacy, ensures compliance, and allows institutions to harness the efficiencies of true atomic swaps and real-time DvP.

Key benefits of this model include:

• Privacy Without Compromise: Sensitive data remains invisible to external parties, meeting institutional requirements.
• Cost-Effective Infrastructure: Institutions no longer need to maintain expensive private blockchain networks, nor force their counterparts to install infrastructure in order to participate. A single node is adequate.
• Enhanced Security: By inheriting the security of a decentralised public blockchain, without sharing any of the data, Silent Data delivers robust protection against fraud and tampering. Data is guarded by hardware protections and the host only sees data that they have been permissioned to see based on the rules of a smart contract. Users and customers can independently verify the integrity of the ledger, and tap into additional liquidity and composable applications.

Why This Matters

In 2024 Franklin Templeton’s CEO Jenny Johnson said, “If you ask me what the most disruptive trend will be, it’s blockchain”. However, not all blockchains are equal. The AI tools of 10 years ago cannot achieve the results that are possible with generative AI today. The private blockchain architectures of 10 years ago cannot enable the efficiencies seen in public blockchains and DeFi today. This is why a third way is now required.

The writing on the wall: tokenisation and blockchain are not fringe ideas – they’re the foundation of the next financial revolution. Silent Data offers a practical path forward, proving that institutions don’t have to choose between control and innovation.