Last week, Microsoft and Consensus Systems (ConsenSys) unveiled Ethereum Total Return Swap (eTRS) to the developer and architect decision makers of Microsoft’s financial banking clients, such as Morgan Stanley, Reuters, Citibank, JPMC, Bank of America, among others attending the Connect conference. eTRS serves as a proof of concept for Microsoft’s banking clients to learn about blockchain technology and highlight the blockchain benefits of workflow improvement, risk reduction and settlement cost savings.
Specifically, the eTRS affords two counterparties whom do not know each other to enter into a MSFT/Gold total return swap. At the onset of the transaction, both counterparties’ identity and reputation are accessed via their blockchain wallets to address AML/KYC attestations as well as collateral requirements. The swap terms are entered into a smart contract and published on the blockchain in conjunction with a storing of the associated ISDA agreement on IPFS. Upon electronic signing of the agreement both counterparties receive the T+0 execution and settlement confirmation via our Balanc3 triple entry accounting application. Each counterparty’s internal accounting system receives the proper debit/credit journals for the trade and collateral posted as well as an immutable entry on the blockchain. Throughout the swap term, risk is reduced by real time automated collateral rebalancing from price and reputation changes. Balanc3 is incorporated at each rebalancing until expiration thereby providing the potential for real time regulatory and audit transparency.
Microsoft and ConsenSys will be inviting banks to come to the Microsoft Center of Excellence in Manhattan to meet and discuss this concept and develop use cases on Ethereum to support their operations and expand their capabilities.