Policy Lab RH-001: Settling the Unsettled

Last year, the Policy Lab awarded a Research Hub grant to Natasha Vasan for research on legal issues related to settling financial transactions using public blockchains. On the heels of last week’s House Financial Services Committee Digital Assets Subcommittee hearing on tokenization, we’re excited to publish Natasha’s research as the first Policy Lab white paper. The paper can be accessed here.

Natasha’s paper argues that public blockchains can be used to settle financial transactions, even in the absence of deterministic settlement finality — showing that skeptics who argue otherwise (and point to permissioned blockchains as the only solution) are wrong. In addition to laying out some important facts on the legal underpinnings of settlement as a financial construct, the paper also walks through various scenarios where settlement issues could arise and highlights legal and market-based solutions for mitigating risk and uncertainty. The paper creates a taxonomy of settlement risks for different kinds of transactions involving public blockchains, highlighting that principal settlement risks are uniquely salient in the context of “hybrid” cross-chain or onchain-to-offchain transactions.

Given the surge of projects operating at the crypto x TradFi nexus and subsequent regulator and lawmaker interest, we believe Natasha’s research is an important contribution to a growing body of work, one that helps surface real challenges that builders are working to solve.

If there are topics you find interesting that have a novel policy twist, the Paradigm Policy Lab may be able to help. Reach out at policylab@paradigm.xyz.

Acknowledgements

Natasha thanks Mikołaj Barczentewicz and Joshua Rivera for their assistance with the paper.