Distributed ledger technologies (DLTs) have garnered growing interest in recent years and are making inroads into traditional finance. One purported benefit of DLTs is their ability to bring about “atomic” settlement. Indeed, several recent private sector projects (SDX, Fnality, HQLAx) aim to do just that. But what exactly is atomic settlement? In this post, we explain that atomic settlement, as it is often defined, combines two distinct properties: instant settlement and simultaneous settlement, which should be kept separate.
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New technologies have the potential to modify the way financial transactions are settled. DLT platforms may allow for an expanded set of DvP settlement, for instant settlement, or for both at once. While instant settlement may be desirable for some trades in some markets, such settlement may not be desirable in all cases as it may come with drawbacks.
Regardless of what the market decides regarding the benefits of instant settlement, this post argues that it seems desirable to keep separate the concepts of instant and simultaneous settlement, rather than combine them into one definition. In our view, it is more useful to define atomic settlement as being equivalent to simultaneous settlement.
The full article is available at https://libertystreeteconomics.newyorkfed.org/2022/11/what-is-atomic-settlement/