Solana’s New Settlement Program Aims to Complete Institutional Trades in Seconds

The Solana Foundation has launched an open-source delivery-versus-payment (DvP) standard aimed at enabling institutions to settle trades on-chain within seconds instead of waiting one to two days. JPMorgan contributed settlement expertise to the project.

The foundation unveiled Solana DvP on Oct. 6, describing the system as a way for institutional participants to complete asset and payment transfers atomically on Solana. The two sides of a trade are designed to settle at the same time, with finality in seconds.

Traditional financial markets typically rely on a network of clearinghouses, custodians and other intermediaries to process securities and cash transfers. Settlement can take one to two days, keeping capital tied up and exposing participants to principal risk if one side of the transaction settles while the other does not.

Solana DvP is designed around a simple condition: both legs of the trade must settle, or neither does. This means a participant cannot receive the asset without the corresponding payment being completed, reducing the need to rely on a counterparty’s promise to deliver later.

The standard is also intended to replace the customized smart contracts institutions have often needed for individual on-chain transactions. Instead, participants can use a common settlement framework across the Solana ecosystem.

Catherine Gu, Solana Foundation’s head of product for Digital Assets, said atomic settlement addresses counterparty risk embedded in traditional finance. She said Solana DvP provides institutions with an open standard operating on public infrastructure and offering settlement finality in seconds rather than days.

The foundation views faster settlement as a way to reduce the friction associated with transferring value on-chain, which could support the expansion of tokenized assets.

Solana has already hosted institutional tokenization activity, including a J.P. Morgan-arranged commercial paper transaction for Galaxy Digital that settled in USDC. A standardized DvP system could allow similar institutional transactions to move beyond bespoke, one-time implementations.

JPMorgan Contributed to the Design

JPMorgan helped shape the framework by providing information and expertise related to institutional settlement. Its input covered requirements such as settlement deadlines, escrow isolation and controls required by regulated token issuers.

The framework supports features available through Solana’s Token-2022 standard, including pausable tokens and transfer hooks. Pausable tokens include an emergency mechanism that allows an authorized administrator to freeze transfers when necessary.

Rhodel D’souza, head of markets digital assets at J.P. Morgan, said institutional participants need open, shared infrastructure that can support larger-scale activity without introducing additional settlement risk or counterparty exposure. He said the bank welcomed the opportunity to contribute its settlement expertise.

Other Blockchain Settlement Models

Solana DvP is entering an established field rather than creating the first blockchain-based DvP system. Its distinguishing feature is its open-standard design on public infrastructure.

JPMorgan’s Kinexys has tested a cross-chain DvP transaction with Ondo Finance, linking its permissioned payment infrastructure to the public Ondo Chain testnet.

ClearToken has developed another model using fully permissioned and regulated applications on the decentralized, privacy-enabled Canton Network.

The Solana Foundation said its DvP framework has passed external security audits and is ready to support real funds. It plans to add privacy features that would allow settlement information to remain confidential.

Privacy is likely to remain an important consideration for institutional blockchain adoption. At Consensus Hong Kong in February, institutions highlighted strong privacy capabilities as a key requirement for bringing blockchain technology into wider institutional use.