Australia Securities Exchange, ASX, the country’s primary securities platform, has pulled the plug on a six-year project to move much of its workflow to a shared, distributed ledger similar to the blockchain. The decision will result in a pre-tax charge of $165 million to $171 million in the first quarter of next year but won’t impact dividends, according to a statement released by the exchange on Thursday in Sydney.
Started in 2016 as an upgrade to the existing Clearing House Electronic Subregister System (CHESS), the potentially groundbreaking project to accelerate settlement times and reduce the costs, was set to go live two years later. Instead, it was canceled after an independent review by the accounting firm Accenture and an internal review by ASX.
The cancellation is the latest setback among global exchanges looking to leverage blockchain, and a number of other efforts to implement permissioned versions of the open technology popularized by bitcoin.
“We began this project with the latest information available at that time, determined to deliver the Australian market a post-trade solution that balanced innovation and state-of-the-art technology with safety and reliability,” said ASX Chairman Damian Roche in the statement. “However, after further review, including consideration of the findings in the independent report, we have concluded that the path we were on will not meet ASX’s and the market’s high standards.”
He continued: “On behalf of ASX, I apologise for the disruption experienced in relation to the CHESS replacement project over a number of years.”
The cancellation is a long fall from the heady days of 2016, when ASX’s project was heralded as the flagship of institutional adoption of blockchain, helping its technology partner, New York-based Digital Asset Holdings, raise $307 million from JPMorgan, Goldman Sachs, and International Business Machines. The huge client also aided Digital Asset’s then-CEO Blythe Masters, a former head of JPMorgan’s global commodities business, in building her reputation as a leader in the movement to capture the best of so-called public blockchains like Bitcoin and Ethereum
As one of the earliest and largest efforts to implement distributed ledger technology (DLT), ASX paved the road for the adoption of other applications of blockchain by institutions, many of which were reluctant to even say the word “bitcoin” in public for fear of scaring investors. By moving complicated transactions involving multiple accounting systems to a shared, distributed ledger that only invited members could access, the hope was that settlement times could be reduced, resulting in cost reductions and, eventually, entirely new kinds of products.
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By December 2018, however, the project was facing a number of obstacles, including resistance from companies on the platform to use the shared ledger. That month, Masters unceremoniously resigned from Digital Asset and the project languished ever since. The final nail in the coffin appears to be the Accenture report commissioned by ASX that noted “the absence of appropriate design artefacts, rigour, or inconsistent design discipline to model the expected behaviour within the constraints of the technology.”
The CHESS upgrade was not the only product under the Digital Asset banner to run into difficulty. Another early Digital Asset client is the Depository Trust & Clearing Corp. (DTCC), which is behind over $1 quadrillion in trades annually. The firm is looking to DLT as a way to speed up its processing activities. The project was delayed for years and only recently began to employ blockchain technology to process 100,000-160,000 equity transactions daily. The DTCC has not replied to request for comment at the time of publication.
The underlying smart-contract system designed by Digital Asset, called DAML (digital asset machine language) also ended up at the core of Facebook’s failed Libra/Diem cryptocurrency project. ASX was last year listed as one of Digital Asset’s clients in a $120 million Series D capital raise.
Although this project won’t likely register in the broader crypto industry, it is yet another notable demise of a groundbreaking exchange using blockchain. Last week cryptocurrency exchange FTX collapsed, erasing an estimated $32 billion, and surely contributing to some broader soul-searching among enthusiasts looking to incorporate blockchain into traditional businesses.
It remains to be seen whether the cancelled CHESS replatforming is a harbinger of more enterprise blockchain project failures. Many enterprise blockchain projects are alive and well and are featured every year in the Forbes Blockchain 50. In recent years we have seen a trend of enterprises and institutions getting more comfortable with privacy technology on public blockchains and so-called layer two solutions that sit on top of public blockchains to increase their efficiency.
As for ASX, the cancelled project frees up about $10 million annually, which it plans to use to focus on a new design solution.