London’s SETL and New York’s Digital Asset recently entered into a partnership to develop a protocol that may be used by regulated institutions to introduce interoperable tokens.
The protocol, modelled on the Regulated Liability Network (RLN) initiative first introduced by Citibank’s Tony McLaughlin, will be developed and operated as a key part of that global RLN, and enable banking institutions, reserve banks and other regulated entities to create tokens for their clients.
Each digital token should represent a “promise” from the issuer to the holder of the token. Transferring tokens between banking institutions will be handled by the network which will “mint, burn and transfer tokens in a coordinated single operation to achieve real-time settlement between the customers of any regulated institution.”
This announcement follows recent news from SETL “highlighting tests of its version of the RLN implemented on AWS, to a sustained volume of over 1m transactions per second.” The announcement also mentioned that Digital Asset works with various market infrastructures and financial institutions, which reportedly includes BNP Paribas, HKEX, ASX and Nasdaq, among others, in order to “create a range of interoperable smart securities using Daml, the company’s blockchain agnostic smart contract framework.”
The initiative also “chimes with opinions recently published on the New York Fed’s blog suggesting that tokenizing regulated deposits is a better way forward than expanding the less regulated stable coin market.”
Philippe Morel, CEO of SETL, stated:
“There is real momentum behind the RLN model and we are excited to join forces with the Digital Asset team to fulfil the promise of blockchain and DLT for banks and their customers everywhere. This approach will be easy for organisations to embrace and will provide an equally simple model for CBDC, bank and e-money coins, as well as any kind of tokenised liability such as bonds, loans and shares.”
Yuval Rooz, CEO of Digital Asset, remarked:
“We have always taken pride in enabling our clients to innovate and this is no exception. Interoperability is a major goal for us and by working with SETL we will produce a world class network with the ability to connect and communicate across all existing clients’ solutions to serve the regulated community. This network will serve as a key building block as we develop the Global Economic Network and to connect the leading financial institutions and usher in a new wave of innovation across the globe.”
Digital Asset’s Daml language enables banks and custodians to “describe any kind of financial instrument or contractual agreement in a smart contract which then automatically governs interactions between parties during the lifecycle of the arrangement.”
SETL’s RLN network, announced in November 2021, “focuses on speed and scale.” The network applies event management software “to process millions of requests to produce an ordered global state that allows thousands of banks to have a common view of their token activities.”
Shaul Kfir, Chief Architect at Digital Asset, added:
“SETL’s approach to the RLN complements our own technology perfectly. SETL and Digital Asset have an unrivalled combined experience in working with tier-one institutions to solve the unique challenges they have in bringing innovative ideas to their clients. “
As noted in the update, the initiative should be ready for testing later this year and could start onboarding its first use cases “shortly after.”
For now, SETL and Digital Asset will “allow interested institutions to open a partition on its prototype network to test use-cases and to familiarize themselves with the new protocol.”