Distributed ledger technology (DLT) emerged with Bitcoin as a censorship-resistant way to conduct payments between distrusting peers. After a period, traditional financial institutions began to explore the technology, recognizing the potential of its immutability, decentralization, and programmability to redesign financial instruments and workflows.
However, a foundational issue has stalled many enterprise blockchain projects at the pilot stage: the data integrity problem. Moving from controlled test environments to production systems introduces attack vectors and failure modes that don’t exist in traditional centralized systems – a challenge that is particularly pressing for institutions like DZ BANK that are pioneering enterprise DLT adoption.
To solve these challenges, DZ BANK and Google Cloud built an architectural solution for trustworthy data delivery to blockchain applications. This post describes how market data can be securely fed into DZ BANK’s Smart Derivative Contracts (SDCs) using Google Cloud technology.
2025 is the year of strategic engagement
Distributed ledger technology (DLT) has reached a maturity inflection point. Regulatory frameworks are stabilizing, scalability limitations are being addressed, and the Eurosystem’s validation work demonstrates that smart contract protocols enable efficient settlement across separate DLT infrastructures. The exploratory phase is ending — institutions that haven’t moved beyond pilot projects risk being left behind as competitors deploy production blockchain systems.
The technology’s core value proposition — immutable, programmable, decentralized execution — enables new digital financial products that weren’t previously feasible. Smart contracts can eliminate counterparty risk, automate complex settlement procedures, and enable peer-to-peer financial interactions without traditional intermediaries. But realizing these benefits requires solving a fundamental challenge that early blockchain systems were designed to avoid.
Eurosystem research shows that smart contract protocols enable efficient settlement for financial instruments and functional interoperability across separate DLT infrastructures. Based on these results, the Eurosystem recently announced plans to strengthen activities in this field, aiming to create a harmonized digital European financial market infrastructure.
The need for trustworthy data
While DLT was conceptualized as a technology where code is law, banks, asset managers, and clearinghouses require off-ledger data from external sources. This includes price feeds, interest rate feeds, KYC/AML attestations, legal event triggers, proofs of reserves, IoT sensor data, and payment confirmations.
Data trustworthiness is paramount in DLT systems. Wrong data can have unintended consequences in any system, but DLT transactions are often irreversible. A payment using an incorrect interest rate can be cancelled in traditional systems, while DLT transactions are typically final – especially when participants are pseudonymous and unreachable by legal interventions. This creates new attack vectors: attackers who manipulate off-ledger data can cause significant financial harm, including theft of on-chain assets.
Building trustworthy oracle architecture
Off-chain data is supplied to DLT systems via oracles –- interfaces that deliver external information to smart contracts. Trustworthy oracle services require addressing three key aspects:
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Data must be correct at the source – underlying systems must produce accurate information.
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Data must remain untampered during transit and processing.
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Data must be delivered timely and reliably.
The combination of Google Cloud’s secure, highly available infrastructure with DZ BANK’s vision for standardized, deterministic financial protocols meets these requirements. Google’s global technical infrastructure provides security throughout the entire information processing lifecycle, ensuring data integrity and reliability at source and in transit. DZ BANK’s focus on technology-agnostic, deterministic patterns for financial instruments enables trustworthy, automatable financial innovations. Together this approach provides the foundation for delivering timely, untampered data to any DLT system and establishes scalable protocol standards for secure digital financial services.
This architectural pattern provides a blueprint for other institutions facing similar challenges, creating reusable components for trustworthy data delivery across different financial smart contracts and blockchain networks.
The Smart Derivative Contract: a DLT-based financial instrument relying on trustworthy data
The Smart Derivative Contract (SDC) use case covers a fully algorithmic financial product lifecycle that relies heavily on external data, serving as an archetype for oracle-based financial data feeds produced on Google Cloud and consumed by smart contracts. The deterministic settlement cycle requires robust oracle services to determine settlement values. Key functionalities include deterministic valuation, automated margining, netting, and trade termination handling to remove counterparty credit risk in OTC transactions. These processes depend on reliable real-time market data from oracles to determine net present value (NPV) and settlement amounts.
The underlying protocol is published as Ethereum Request for Comments (ERC) 6123. Based on this open protocol, DZ BANK has conducted several pilot transactions with binding legal effect and successfully validated the use case on Bundesbank’s DLT infrastructure (the Trigger Solution).
Why are derivatives the hardest test case? They require precise mathematical calculations using current market data to determine NPV for settlement. Interest rate swaps, for example, need current swap quotes to bootstrap discount and forward rate curves before calculating settlement amounts. The entire process must be deterministic and tamper-proof, with cryptographic evidence of data integrity throughout the pipeline. A secure oracle service is essential for the SDC lifecycle and automated settlement.
Source Credit: https://cloud.google.com/blog/topics/financial-services/blockchain-oracles-dz-bank-solution-defi-enterprise-applications/
