When you think about it, blockchain is the perfect tool to use for an exchange’s clearing and settlement layer: Transactions and contracts can be settled with transparency and immutability, meaning records can’t be hastily edited on a whim.
Compared with the offerings seen on Wall Street and elsewhere, several other advantages spring to mind.
First, this technology has the opportunity to slash costs substantially — delivering savings to traders who execute a high volume of transactions.
Better still, the settlement process can also be completed faster. Many old-fashioned institutions have convoluted backend processes that mean transactions are only finalized in a couple of days — infrastructure that’s built for banking hours but isn’t suited to the 24/7, non-stop world of crypto.
Lastly, blockchain offers a chance to eliminate intermediaries.
To build an excellent exchange, entrepreneurs need to find a solution for their clearing and settlement layer that eradicates counterparty risk (in layman’s terms, this is the danger that one of the parties involved in a transaction will default on their contractual obligation). Due diligence is nothing short of essential for finding the right infrastructure.
An exchange’s users may not see this layer or interact with it directly, but they’ll know if something is amiss.