Would a Blockchain have prevented LIBOR fraud?

I am massively sceptical of any claims that Blockchain can be useful. I even took the Certified Blockchain Professional course so I could better understand the batshittery.

At the risk of appearing on QTWTAIN, and seeking a papal indulgence from Betteridge, I think I might have stumbled on a retroactive use-case for Blockchain!

First up, what is LIBOR and what was the scandal which led to several bankers going to prison?

Here's the over-simplified explanation. The London Inter-Bank Offered Rate was a financial measure. Banks can borrow money from each other. They charge each other interest for this. These inter-bank interest rates are important - they reflect the financial health of the institutions and are used for all sorts of derived financial products.

Banks reported those LIBOR rates and, as a consequence, financial stuff happened. Those reports were sometimes lies.

The fraud investigation was long and complex. But it boils down to this - sometimes it was advantageous for the bank to lie about its rate. On at least 257 occasions, bankers would collude with each other to manipulate the rate.

For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”.

Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.

So, would a Blockchain have prevented this sort of fraud? I'm going to go with a very cautious "maybe".

Let's take a look at the seminal Blockchain paper from NIST which contains this flowchart:

Taking the points in order:

• Do you need a shared, consistent data store?
  • Yes. This data is read by multiple parties. It needs to be consistent - that is is Bank A lends at 1.23%, Bank B should record borrowing at 1.23%.
• Does more than one entity need to contribute data?
  • Yes. Multiple parties will need to record their lending.
• Data records, once written, are never updated or deleted?
  • Yes. These data are immutable. The caveat being that, as with all Blockchain projects, preventing fat-finger errors is difficult. But, with suitable UI work, it might be possible to prevent 1.23% being recorded as 123%.
• Sensitive identifiers WILL NOT be written to the data store?
  • Yes. There's no GDPR for financial institutions. As these data are meant to be public, there should be nothing private or sensitive on there.
• Are the entities with write access having a hard time deciding who should be in control of the data store?
  • No one institution should be in control of these data - that would be a recipe for corruption.
• Do you want a tamperproof log of all writes to the data store?
  • Yes. Once borrowing is agreed, it should be recorded irrevocably. No manipulation or rewriting of events.

So, that looks pretty positive, right? A multi-stakeholder, decentralised ledger, which accurately records cross-party transaction, in an incorruptible and auditable manner.

The end of LIBOR came in 2024. It was replaced by the delightfully named "SONIA" (Sterling Overnight Index Average).

Did the financial institutions end up using a Blockchain? Of course not!

The way SONIA works is by having the data reported directly to the Bank of England. The Bank then checks the data for plausibility and errors, calculates the rate, and then publishes it.

I don't know how easy it would be for bankers to lie in their returns to the Bank of England - but off-chain fraud is also possible. Similarly, perhaps it is possible to bribe whoever collates and publishes the data.

But the point here is that this is close to textbook case of where a Blockchain could have been useful - and they rejected it.

The hunt for a real-world use-case for Blockchain continues in vain.