Hyperledger Foundation Capital Markets SIG, 14 Mar 2023

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From YouTube: Tokenization in Financial Services with Daniel Szegö - FMSIG Mortgage Industry Subgroup Update

Description

The March Mortgage Industry Subgroup Update was happy to be joined by Daniel Szegö, DLT Architect, who discussed tokenization in financial services.

Hosted by Mortgage Industry subgroup co-chair Marvin Bantugan and James Hendrick providing an update on the state of blockchain in the mortgage industry.

Daniel Szegö is a software architect who has worked with various distributed ledger technologies for over five years, including but not limited to #hyperledgerfabric, #indy, #ethereum, and #polygon - also an active member of the Hyperledger community.

Timestamps:
00:00 Welcome and presentation
02:22 Community information
03:51 Status of blockchain in the mortgage in the mortgage industry
12:00 Tokenization in financial services with Daniel Szego
46:00 Q&A

Join the FMSIG Mortgage Subgroup Wiki: https://wiki.hyperledger.org/display/CMSIG/FMSIG+Mortgage+Industry+Subgroup

Subscribe to the mailing list to receive the latest updates: https://lists.hyperledger.org/g/financial-markets-sig

Follow the Hyperledger Financial Markets Special Interest Group LinkedIn page: https://www.linkedin.com/showcase/hyperledger-financial-markets-sig/

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A

Okay, good morning, good afternoon, good evening to everyone. Thank you for joining us for the March hyperledger financial markets. Mortgage subgroup, I think we have a great uh agenda today and just to to let everyone know uh we are recording this call, um and also, at the beginning of these things, I'd like to express our appreciation to the financial markets, special Industry, Group and hyperledger for their ongoing support in making this group possible. Our speaker today is Daniel zagu, he's a DLT architect and he's going to be discussing tokenization.

A

So let's go ahead and get started.

A

Okay, okay, um before we get started, Daniel I, there are a couple things that we want to go through in terms of the agenda. um We always like to review the antitrust policy. Please note that this meeting is being recorded and it's under the umbrella of the hyper Ledger foundation. So we ask that everyone abide by the antitrust policy and the code of conduct the antitrust policy states that we avoid discussion of companies, specific pricing products and projects.

A

We don't make negative remarks about other companies or products, and the code of conduct means that we treat each other with respect, never discriminate, communicate constructively. We fully support hyper religious policy of openness, equity and inclusion and for new participants. We welcome you and, if you'd like, please introduce yourself in the chat and let us know if there's any specific areas of Interest or or just say, hi.

A

Okay, uh the next slide. Here's our agenda for today, we've just gone over the general introduction of Welcome Anti-Trust code of contact, we'll have a couple of minutes on hyperledger Community Information James is going to provide the update for the blockchain in the mortgage industry and then Daniel will cover the tokenization of financial services and we'll have a q a at the end. If you do have questions during the course of this presentation by all means, uh raise your question or type it in the chat.

A

Okay, we always cover the slide in each of our meetings, and this is to reinforce that we're all on the same blockchain Journey, but we may be at different points along that path. This group is meant to help everyone on that journey and to demonstrate the feasibility of blockchain Technology through mortgage industry, use cases or financial services use cases and Define the potential path for the mortgage industry. What does a mortgage company need to implement blockchain? How difficult is it and how we can all help each other along that path?.

A

Okay, so our community information, we always cover the the next three slides really briefly- um and this is primarily for people that are new to the group. This slides provides link to different different hyperledger resources. The second from the bottom one uh provides the link to the mortgage industry subgroup Wiki, so I invite you to take a look at that. These are great resources and we'll reference several of them during the course of our presentation.

A

Okay, how do you access these resources? You need an lfid. This slide will walk you through that I'm not going to go through it, but this is how you access those resources and then the last one hyper light dropper's free, blockchain training. This is how I got up to speed on blockchain and hyperledger highly encourage it. It's free. So please Avail yourself of this, and with that that brings us to James's update for the mortgage industry James. Take it away.

B

Marvin perfect, thank you very much. um Moving on to the first slide, so you know, and sticking with the theme with Daniel being here, I wanted to talk a little bit about some of the things that we're seeing going on relevant to tokenization.

B

um So you know as we're looking at the real estate industry, um so real estate tokenization can convert real estate into a token stored on the blockchain.

B

These divisible tokens represents a fractional share of ownership in the real estate and they provide several advantages from lower barrier to entry, allowing lower minimums and smaller investment amounts compared compared to your traditional real estate, Investments uh ability to create liquidity, so real estate tokens are easily and securely transferable by way of the blockchain allowing investors to diversify on their portfolios and help minimize their risk, there's lower transaction costs and post management and security.

B

You know traditionally, when a real estate asset is sold, there's a heavy process of transferring documentation that must occur and through blockchain, as we all know that can heavily eliminate it. uh You know great article from block works.

B

It was actually posted via LinkedIn um I'll talk about the wiki when we get a couple slides in and you'll be able to access all of these articles from the wiki, the wiki over in uh JP Morgan world, so JP Morgan's recently proposed A, New Concept called a deposit token deposit tokens are transferable tokens issued by a licensed institution on a blockchain as evidence of a deposit claim against the insurer.

B

So, given that deposit tokens are Commercial, Bank money embodied in a new technical form, basic competitively as part of the banking ecosystem, subject to regulation and supervision applicable to commercial Banks. This includes existing Bank minimum capacity and liquidity requirements and other technology risk management regulations and supervisory expectations. The bank argues that deposit tokens are much safer than stable coins, as they don't pose.

B

Systemic uh risks to the financial system and JP Morgan has claimed that deposit tokens may have may enable Advanced program about programmability features the ability to exchange funds with other digital assets and the transfer of Commercial Bank money on ledgers that enjoy transparency and immutability that you have within a blockchain.

B

Taking a look over in Europe there's a German Bank Deca bank, that's collaborating with Medico, which is a digital asset management company. It plans to launch a new blockchain platform in 2024. The partnership will launch harmonize the core blockchain based platform, providing institutional digital assets according to, according to Andrea sack who's, the digital asset custody executive at Deca Bank. The new infrastructure is focusing on the tokenization of bonds, stocks and other funds, that'll open up a new token economy.

B

Additionally, Deca bank has decided not to trade crypto Assets in collaboration with Medico the bank's interested only in regulated products under the German electronic Securities act regulation. So we're starting to see a theme Here, particularly from these last two article that banks around the world are seeing the benefits of blockchain but they're. Looking for our alternative solutions to crypto that'll work within the existing Financial ecosystems that are currently available, um Marvin, let's go ahead and move on to the next slide. So yeah I wanted to bring up.

B

Cb insights has issued their annual state a blockchain report for 2022.. You know as you'll recall throughout last year. We would pull highlights out of their quarterly reports um and we do have the 2021 uh CB insights report available on the wiki as well. um So you can do a comparison, but you know to glean over a few of the highlights from this report, so 26.8 billion in global blockchain funding last year.

B

Most of those deals hit during the first quarter very strong first quarter, but then, as the crypto Market had its impacts, we went into what they called the crypto winner, causing three straight quarters of declines as investors repeatedly scaled back um due to macroeconomic pressures, stable coin collapse, multiple crypto bankruptcies and, ultimately, the fall of uh FTX that we talked about last month.

B

um 50 percent, none of that funding is in U.S based companies. U.S has been leading the blockchain funding year over year, though the fourth quarter of last year, both Europe and Asia, matched the U.S and blockchain funding.

B

That's definitely appearing to be a trend um and it's kind of anticipated in 2024, both Europe and Asia May overtake the U.S in the funding that's available, you know taking a look at some of the downsides for last year, a 48 drop in funding to crypto exchanges and wallets um Venture funding, as we mentioned, dropped dramatically during the last three quarters, also a 23 percent drop in funding and institutional uh crypto and custody. Though it's noted that influential players like BlackRock and uh bny Mellon, they remain bullish on institutional interest in crippo crypto.

B

However, the tokenization of Securities, not crypto, is an emerging area to keep an eye on. We've also seen an 81 percent growth last year in funding in both infrastructure and developments within the blockchain world. So it's a great report. They produce every year, it's roughly about 160, Pages uh photographs and information. They break down the report by global Trends. They Spotlight web3 nfts D5, the metaverse, as well as giving a geographical breakdown by U.S, Europe and Asia uh Marvin. The next slide.

B

So just a reminder here is our Wiki site, we'll uh drop into the chat, um a link convenient for everybody to click on and get access to um over, on the left hand side. If you're looking for any of our past presentations over the last year and a half you'll actually see those listed on the left hand side, you can see both the recordings as well as the presentations that we did.

B

All of the articles that we discussed today, you'll see those over on the right hand, side if you're looking for that CB insights report scroll down on the far right hand, side and under um the global mortgage industry research. We have another research section that the CV insights report is on, but do take a look. um Marvin shared the information on how to set up your lfid. It's also in the upper right hand, corner right under resources, the directions for that.

B

But if you do go ahead and sign up at the Wiki, whenever we're posting articles there making updates or posting copies of these monthly presentations, you will receive automatic notification of those uh Marvin next side. I think we're up to Daniel. Now fantastic I'll pass it back over to you guys.

A

Thanks James uh great information, dad that's a real, interesting uh CV insights report. So thank you. uh Next I'd like to introduce Daniel Zago he's a DLT architect. Daniel has been working in different distributed, Ledger Technologies for five plus years, including but not limited to hyperledger fabric Indie, ethereum and polygon. He's made multiple presentations on blockchain topics, including Atomic cross chain, swap between hyperledger Fabric and ethereum hyperledger Fabric and Consortium blockchain challenges, cross-border cbdc, tokenization and DLT, and a deep dive into key certificates and access control of hyperledger fabric So Daniel.

A

It's an honor to have you here today and take it away. I'll turn it over to you.

C

Awesome, uh so thanks a lot for the invitation. uh Let me just give a shots and then uh share my screen. uh You cannot. Okay, just a second.

C

Awesome um so, theoretically, you should see my screen. uh I just turn my camera. uh It's gonna be better, uh so hi everybody good morning, good afternoon and good evening, everybody uh this is Daniel and the today. uh Today's brief presentation is gonna, be on on tokenization and and especially uh selling use cases. As talking as a financial securities, uh I would say uh it's gonna be just an introduction, so we can't go very much deep into the DTs, uh but perhaps in a subsequent presentation. ah First of all, I would like just to apologize.

C

My network is a little bit buggy, sometimes so it might happen that I will I will just have like a 20 second unintended break. uh So if you see that that you know I mean that's, that's practically time for a for a coffee I mean, supposing you have, you have the cafe actually on board. So let me just start uh with the presentation. Us again: that's going to be like an introduction to tokenized financial services and let me just start from blockchain, so I'm I'm more like a technical.

C

Actually, guy uh I have some Financial background as well, but I have more more experience with technology, so I would just start from blockchain and if you just take a look on blockchain, Evolution I mean everything started with Bitcoin. The next step is something which is public, smart or public or Consortium. Smart contract system uh started with ethereum, but practically uh what's what's more.

C

Is that this kind of innovation, splits from public smart contract systems- and we have like two directions- uh two way of innovation- one is the so-called infrastructure Innovation, uh which is likely a one scaling, Layer, Two scaling or cross chain uh cross chain swaps or cross chain. Cooperation of this kind of infrastructure service is kind of very, very technical. You know it just makes you know: blockchain, faster, better, uh more private and so on, and so, but what's an interesting direction is the other direction and I would say that's kind of an application.

C

Level Innovation and it starts with tokens, so basically application, Level Innovation goes a little bit into the direction that this kind of application or abstract tokens or abstract things can be actually interpreted uh independently from the underlying infrastructure. If you take a look, for instance, even Visa started something with tokenization, which is not a blockchain at all.

C

This application, Level Innovation I mean the the major direction that that we saw practically in the last two years. One is like nft. uh That was a big hype. Another one is defy. It was again a little bit type and yeah I would say the bubble is a little bit exploded at the moment, and perhaps the third Direction which is coming is kind of classical financial securities that are tokenized on different blockchains or I would say on different infrastructure.

C

So this is like a blockchain Evolution. So let me just continue. What is the token? Basically, uh so a token is is I would say it's like a poker chip up that there's no exact definition but token as far as I know, so I would just give like an intuition definition. Intuitive definition, that's like a poker chip which moves on the blockchain. Basically, uh so you get to talk an abstract or virtual pocket chip. You can imagine there can be like many different chips, uh poker chips. They can be different based on size, color amounts.

C

Perhaps even the shape can be different and what's important. This abstract entity is interpreted only on the blockchain for the first round and what blockchain does uh it gives you practically a kind of an obstruct ownership or a quasi-ownership I would say it's quasi because that's not a physical ownership. That's a so-called cryptographic ownership, so practically it means if you get the private keys and you can make a signature with this case, then do you do you you own this token? But it's important to note. This is not a legal ownership for the first round.

C

This is a kind of cryptographic ownership and then, if you own this token in a cryptographic sense, then you can transfer this to cash. If you, if you get like multi-token systems, so let's just imagine we get. We get the yellow, yellow chip, yellow poker chip and and.

C

And you can you can just transfer them, but we can exchange them somehow somehow and all of these functionalities. All of these uh exchanges or transferring stuffs are defined on the blockchain, practically, uh as the Royal token is defined on the blockchain as well. uh The implementation itself is is usually something something to do with smart contracts. uh There are native tokens as well, but I'd say this is like it's like uh it's getting it's getting technically deep, so I, just don't don't follow this direction.

C

uh This is just one slide. You probably know. Actually this these basic token types. uh So these are the basic token types you get like fungible tokens uh in fungible tokens. uh One token is, is absolutely identical or or practically the same same as another one. So if you just imagine the idea, if you, if you want to tokenize like money, then one one dollar is is the same as another dollar practically you can use it in the same way. So practically they are the same.

C

If you just like to tokenize like natural resources, one one gallon or one liter of water should be actually the same as another one, so they are practically the same. uh Examples are currency or cryptocurrency or or stuff like that. These are the fungible tokens and exactly the opposite is the is the so-called nfts. These are the non-fungible tokens in non-fungible tokens. One token is totally different from another one, so I mean just take an example.

C

You want to tokenize like art or fine art like you want to model to tokenize more and then, if you just imagine that that Mona Lisa is represented by a token and Picasso is represented. By another token, then these tokens are different, so some Mona Lisa is absolutely different from from because so and the tokens representing these ads are different as well. So these are the nft tokens. uh Perhaps it's important to point out that these are the is.

C

Data may seem- and we know so- uh there are many other- um they are less less known so like Hebrew tokens, like kind of something which is which is fun in between fungible and non-fungible tokens. So if you want to do like fractional ownership for for Picasso, for instance, it is possible, that's gonna, be like kind of for every token, and then it's important to point out I mean this field is under Innovation as well.

C

So the fact that we have these token types doesn't mean doesn't mean that it it's it's not going to be uh developed further or Innovative. Further. Perhaps it's in five years we're gonna have like I, don't know five ten hundreds new token types as well, but again. So these are the basic types so like fungible and non-fungible tokens.

C

So if we speak of tokenization uh I I, usually I usually find it uh practical to point out that I mean the whole context of tokenization and then so. So we can imagine uh that.

C

A

C

Let me just speak of that IO, for instance, a mobile phone uh or something and then in terms of ownership. uh We can Define like free categories and I. Think it's important to understand these three representations of an asset, because then we we can understand and better grab. Most of the discussion. That's happening on the world in terms of legal.

A

B

A

I think we just lost your audio.

A

Okay, I'm going to send him a quick chat.

C

So I have my break now, uh but that was like the coffee break, because this is a yeah. This is a hard topic anyways, so so I think it's important to understand or or see this deep three different kind of asset representation and one is basically physical. So if I have like a mobile phone I have it in my hands so basically I physically have this. This mobile phone I can give it to somebody. So it's like kind of a physical transfer of that asset of that object.

C

uh We can speak of something which is kind of a legal or institutional ownership, so so, for instance, uh there's there's a legal system uh which defines, for instance, that I'm I'm, the owner of uh of a real estate, for instance, or of a car, for instance uh independently, if I, if I physically, have it or not, and basically, uh in this word the legal system defines something which is ownership and the legal system defines something which is which is a transfer of that ownership.

C

And then basically, it's important to note that I mean this physical ownership and legal or institutional ownership. They are not the same, uh but it has like you know, having the connection between these. Between these two words is like having like 2000 ERC story. So what happens if I live in my real estate, but it's not mine from a legal point of view and it is transferred legally, but it's not physically, um so for for kind of a disputes.

C

Basically I mean in the system, which makes some, which makes some resolutions for uh between these two words. But the point is that we get something new here and I would say: that's the third category at the moment and that's that's tokenization.

C

um So if we speak of basically blockchain and token, we get again a poker chip on the blockchain, which is defined uh as an ownership from a cryptographic point of view, if I have the keys and if I can sign signatures, basically believe that I I own that token, from a cryptographic point of view.

C

So most of the discussion and most of the problems are with blockchain I think is somehow combining these three words uh and it is a specially true if we speak of like like financially instrument instruments.

C

um If you speak of financial instruments, uh I would say these are like mostly kind of kind of legal or institutional constructs, so physical, physical institutes or physical instruments that are not necessarily physical, although, although there can be some some physical characteristics as well, but tokenizing in the financial World basically usually means a kind of somehow combining this classical legal and the institutional thinking with the blockchain tokenized thinking uh and then- and there are many variations and many solutions. How this can be. This can be done. um Usually I would say there are.

C

There are two big directions and the one big direction is starting from the blockchain word from the from the cryptographical version um and the quantities there are. A lot of crypto assets are like, like Bitcoin like ethereum like eager, which are basically native crypto assets, so they didn't exist previously and then the question is how this kind of native token is born on blockchain tokens, Can Be, somehow put into the classical or institutional world how they can be handled, for instance, in a full legal one.

C

So, for instance, is Bitcoin a security or or it's not a security? What happens if ether initial? Is it a security? Is it a financial security or is it not a security?

C

What happens if I go to D5, for instance, and I just combine two two assets, so I I put like an on-chain fund uh having postseater and Bitcoin and then just retoconize. It is it something which is which is legally a financially instrument or is it? Is it something different? So these are the hard questions, and this is one way. Basically, this is like the crypto and token regulation and there are many initiatives. Actually, uh there are initiatives for security tokens.

C

There's like separate regulation, in example, and then I'm sure there are like regulation attempts over all the world. But what we are talking about uh in this presentation is rather the the other dialect Direction and let me just have kind of financial, classical financial instruments which are which are very known, uh which are very well established.

C

You know, I mean really good Frameworks uh like, for instance, classical classical money, for instance uh that we have like, like the the the the the the the the the Euro, for instance, is a classical money uh which already exist even in physical form, or that we have like like corporate bonds or stocks, and let me just try to put them to the blockchain in a tokenized form. So if we speak of like tokenized Securities, then this is the this is debate.

C

This is the direction that we are that we are considering and I would say it is sometimes easier from a from a legal point of view. It has some other challenges, I would say so.

C

um There are some hints, basically how you can bind, for instance, a token uh with with kind of with kind of a legal, uh legal or something uh so so I'm, not a lawyer. So so I can't see much on the on the on the legal side, but technically what you usually can do. You can have, for instance, a classical contract under your or you can buy, for instance, a classical written contract.

C

With your token, uh there are like it's a classical digitized written contract, which is not a smartphone contracts, registration and you can just upload it to a decent, live storage, and you just bind it with your token, for instance, with hash or something similar. There are even systems that that are capable of doing it uh out of box. It's like the R3 quarter is, for instance, such a system. So this is one you know technical way of combining these. These two words. Certainly there are other challenges.

C

Jesus well, so like, for instance, classical blockchains or special public blockchains use, something which is upselled organization. uh It's not a very it's not the best idea in a classical legal system. You know it's it's difficult, I mean I, mean the whole legal orientation, institutional system or or or financial system based on identity. So it's combining something with the southern immunization is sometimes hard. uh Then usually there are like technical challenges. It's like. So, if you sign basically with your with your private key, uh then then you can transfer your token on the blockchain.

C

But this signature is is not necessarily legally binding, digital signature, uh but it's again it's just kind of a technical, uh technical uh problem or challenges, and let me just oh, let us just see a couple of big areas uh where this, that is, that is tokenized security, but is is heavily involving or or heavily uh heavily. Improving.

C

um One I would consider money as a tokenized security. uh It's just in a little bit broader sense. Perhaps, uh but one big direction is is cbdc. uh That's like Central, Bank, digital digital currency and it's I mean it's I mean yeah. So so the core idea is very simple. uh Let me put classical money like like the like the euro in the EU and and let you just have it in a tokenized form and there's every discussion of how this tokenized form would work. But basically I mean foreign.

C

There can be like two big areas where you can consider, such as cbdc, it's again kind of tokenized, money or tokenized payment and, if I say money or payment up. This is like, like money of a central bank um like like money or officially issued money uh of a central bank or or officially official liability of a central bank like the like the European Central Bank.

C

So that's what I mean by cbdc: it's it's not a stable coin, and especially not a not a cryptocurrency but from a technology to a point of view are pretty similar.

C

So we got a couple of cbdc use cases. I mean there and, and it's still heavily discussed where exactly cbdc can be used. uh The idea is, is using like retail in retail cbdc, so so practically in in every every shopping. uh If I, just you know, I mean I mean by by a piece of bread, for instance in the supermarket, then I can pay by cbdc. That's the that's the retail cbdc Direction. uh Another direction is the whole cbdc.

C

That's like, inter banking money, uh what's probably even more interesting, is kind of cross-border uh cbdc or cross-border uh cbd's use cases, and even in crossbar there we can. We can just uh differentiate two areas. One area is is kind of cross-border retail and the other one is like cross-border horses cbdc. uh These are like I, mean I, mean practically International Management.

C

Challenging because so let me put it that way, they have the you know, I mean the need for optimization and making it cheaper and faster and stuff like that. But these are the classical use cases. uh We got some Innovative use cases just like as well are they they are? They are still very, very in early phase and pretty much in brainstorming.

C

So um there's like the question: if we can use cbdc in web free or if you can use cbdc in D5 uh or especially if I mean the question is: uh supposing that there's gonna be metal, Wares and I'm sure there's going to be metal West like in 10 years, perhaps not not in two years, as everybody promised but I'm sure, there's gonna be like metaverse, so metal verse is not just like, for instance, a virtual reality, but it it focus.

C

It has very strongly meant to have a very strong tokenization uh behind netos and of course the question is: what's gonna, be the payment in metaverse uh I mean one idea is, is cbdc uh which might provide kind of um you know, I mean more regulated aspects to the Royal field. uh Of course, the other direction is just having like stable over here so cryptocurrency, but basically I mean nobody likes.

C

That idea in the in the regulated world and they're not even initiate these I'm, if I'm not mistaken, in Singapore, for instance, uh to have something which is which is more like a synthetic cbdc in synthetic cbdc is, is kind of a stable coil uh which is practically issued indirectly by the Central Bank. uh So it would practically use I mean these use cases supposed to have like uh their own interest to infrastructure, so something which is which is either either Consortium, blockchain or perhaps perhaps even without blockchain, like with a classical message-based system.

C

um Synthetic cbdc is something which is meant to use like public blockchain platforms and work in a similar way as stable cryptocurrencies. At the moment, uh the only the only thing is that they can be somehow uh issued, perhaps not directly, by central banks, but indirectly by uh by Central events.

C

um So that's like synthetic cbdc and from the technological point of.

A

View it's perfect Daniel if I could interrupt you. I might just put a question in the chat, is Swift moving to blockchain or is there a private blockchain alternative.

C

I, don't think sleepy is moving to the to the to the blockchain blockchain direction. I mean I mean I mean so so that's like, uh let me just have the the other. uh The other part of my slide uh and and I will just try to answer the question as far as I can so from a technological point of view. It's it's not a must. uh That CBD sees is implemented on blockchain, it's it's not sure at all.

C

um So, for instance, the the latest directions from the European Central Bank is going going rather to a message based system, probably uh and not to blockchain I mean blockchain. Having like many issues at the moment, it's a special scalability and so on. It's just you know, I mean idea, mostly with blockchain, so I just follow actually more like the more like the initiatives that are on blockchain, but there are many many considerations of having cbdc on on classical message based systems. That's like Swift!

C

That's like that's like Visa, uh that's like uh ISO, twenty thousand twenty ten twenty Direction. These are the classical message-based systems and then, as far as I know, Swift is not not moving to blockchain. They they might have some some blockchain initiatives um if they have something, I would say it's like kind of a kind of an interoper interoperability initiative so like like having something with with swift core platform and and somehow exchanging data or token or asset uh with a blockchain platform. I think that direction, but if Swift is, is classical message based platform.

C

So the core platform is issuing at the blockchain platform. Okay I mean they might have some some blockchain initiatives, but.

A

Hey guys, I think this is our coffee break.

C

Change everything uh you know to blockchain in a in a shorter shorter time, so this is like the technology uh so and then I mean. If it's not a message base, we got some some ideas. uh How cbdc can be done?

C

um It's usually, of course, I'm in One Direction is like like on General distributed Ledger platforms, uh One Direction is having like Consortium blockchains, uh and then there are even initiative.

C

Doing some single public blockchains so usually I mean the idea is having something on Consortium ledgers, uh because because it's like it's like cbdc, it's it's like you know, banking money, so they don't like tokens put into the to divide internet. uh The only problem is that yeah, so like causation blockchains are sometimes not so easy. You know it's just not so easy to set up a platform uh and then sometimes public blockchain technology evolves faster uh from a technological point of view and I'm, assuming there are even initiatives to start something on public blockches.

C

So as far as I know, for instance, uh there are at least two uh like cross-border initiatives uh between that was the um French French central bank bong, the France and the and the Swiss National Bank I. Think it's a schweitzerland, so they they have. They have like some initiatives for cross-border.

C

And I think partly they involve like a light public ethereum networks. uh Again, it's not so typical, but but but there are ideas and just especially if I just go back like like for synthetic cbdc uh I mean the idea is, for instance, using something similar as a stable coin on a public blockchain.

C

um It is just just issued by not by anybody from the white uh but by by regulated institutes or or even directly from from Central events.

C

So this is the use case, and this is the technological roadmap for cbdc, uh but I mean there are many other directions and and other interesting ideas as well. So um as as James James mentioned as well, um I got I got this one on my slide as well.

C

And it's I would say it's kind of a logical step because I mean I would say central banks sometimes move pretty slow, um which is certainly not a bad thing from a stability point of view, but especially in terms of innovation, perhaps not the best, uh but you know I mean practically Banks issue their private money in enormous sense, which is I, mean connected somehow to Central Bank many money with the bar, so I mean I mean it's a logical idea that commercial Banks uh can create their their own tokenized money as well, and there's even a framework for uh for that and and a good white paper from from GP Morgan.

C

So the idea is practically kind of a tokenized tokenized deposit accounts um which are the which are the deposit tokens. Basically, so it's a very, very interesting and novel and nowhere way of of doing doing something thing, I'm, not quite sure about the technological basis, I think they they promote like kind of a Consortium network, if I'm not mistaken, but I, don't exactly know the details and of course I mean there are ideas to like having a classical financial securities and putting them to the blockchain.

C

um So one example is like tokenized bondage issuance uh and it's like a two weeks. uh Article I think so, for instance, Siemens, uh which is I, mean I, mean, isn't necessarily considered the most Innovative company on the world issued digital Bond um I'm, not special on which on which blockchain. But it was surely a tokenized bond and it's uh it was an initiative. uh They said uh I mean they issued practically the token. uh So you can hold the token, uh which represents a bond. Of course I mean the legal uh constraint.

C

There's there's a company guarantee for for sure from from Siemens. So if you have the, if you have the bonds, then the, if you have the token, then the company practically guarantees for you that that's a bond uh and as far as I know it was a Hebrew solution or a hybrid uh digitized.

C

So there's there's still no digital, you know uh so. For this reason, uh payment uh was done practically in the classical uh banking system with with Fiat money, uh but the bond itself uh is represented on the blockchain and I think I think uh they.

C

They said as a result that, even if that's the hybrid system and we don't get payment uh practically on chain, just just on on classical uh banking infrastructure, I mean I mean having just the bombs on on blockchain um has like a much faster, much better, much flexible system uh than there used to be. uh Then there are some other examples that I just listed here.

C

um There's something which is green, Bond uh I would say it's like a different category. It's like uh BMP pariba. If I can pronounce it correctly, uh they they issued like green bonds. um Tokenized on the ethereum blockchain uh I would say. I mean green bond is, is especially an interesting topic because it is very Innovative and if it's, if it's a green Bond, uh it is usually connected.

C

Somehow, with like, like you know, like carbon carbon emission or or some some environment friendliness or sustainability, and what you can do, if you totalize green Bones on the blockchain, you can, you can somehow, or you can technically prove that this is really a green Bond. So it's not just like green washing, but you know, I mean I, mean the error initiatives, even at hyper Ledger like putting carbon emission to the blockchain.

C

So if you just if you have like carbon emission or metan emission information on chain- and if you, if you provide tokens which are which represent green Bond as well on chain, then you can practically combine the two. So you can, you can make kind of uh you know. I mean I, mean I mean less trust leads and most more more flexible uh system where practically everybody has a has a better view that, if that, if that bond is said to be green, it is it is really green in some sense.

C

So, like you can just cover the the emission data behind, for instance, uh which is on chain as well and last but not least, there are initiatives for for talks.

C

Issuance so it's it's classical tokenized stock I mean I. Just have like two examples here. So like signal bank, it's I think it's Switzerland. uh They do like uh classical uh ibos, but they had like a better listing uh practically uh stocks or company shares in the Singapore digital exchange as well, uh and then one example.

C

um It's like I think it's at least six months old. It's like what that bioscience, which which tokenized like company shares, for instance, on on blockchain as well. uh If it's about uh stock, um it can be combined and it looks that way so I would say ah so. If this token kind of a company share, then then for companies share. You get like two things uh which is I would consider more like physical uh properties.

C

uh One is voting, I mean you can vote for a company if you have a share and the other one uh getting getting paid practically at the end of the year. If there's, if there's like profit and I would say, I mean I mean both of these features can be somehow technically combined with your token.

C

So if you have a token- and if you have like a digital voting system, then then practically you can digitize this voting uh for for a company stock, a company share which is which is a token itself, and if, if at the end of the year, there's Revenue, then even the paid man can be actually done on somehow uh on the more on a more transparent way on the blockchain. So that was basically the introduction.

C

uh I think it wasn't so short, you know, but uh so this is a big field, I would say, uh and I would just go back to the to my first slide. So we are speaking about this direction here, which is kind of a tokenized financial securities, which is an evolving field and I would say uh so. It can be really big like in the next five years.

C

So that was my presentation. uh Let me just check the questions. If I can answer them at all, um so there's there's no really questions just uh but again so I don't think Swift is moving uh to a private, blockchain or alternative I I saw some initiatives from Swift, but I think uh it's kind of an interoperability between these Swiss core system and with kind of a blockchain. uh But but who knows yeah and.

A

Daniel, um if I could interject uh Mike as uh further answering your question, we've included in the chat, uh an article um that talked about Swift they're, doing a proof of concept on blockchain. So we put that article in the chat. If you want to take a look at it, so I I think what Daniel's saying um they haven't made a any great steps toward it, but they're taking a look at it. So um it'd be interesting to see now Daniel, you talked about quite a few things. Thank you that that was a great presentation.

A

One question that pops into my mind, especially as we take a look at the mortgage industry, I mean there is some tokenization tokenization, that's taking place already, but a lot of these efforts are on different blockchain platforms. So, if tokenization is taking place within Bitcoin within ethereum within I, think Redwood trust was using stellar.

A

What are the implications around interoperability? If I'm On One blockchain platform? How do I get a token from another blockchain platform? Can you kind of tell us how that works? Sure.

C

uh So so technically blockchain interoperability is is solvable. uh So so you can, you can do it. You can do it if you want it's like it's like a pretty much ever having field. So there are, there are yeah, so I would say um it probably needs like five year. Research and development, but already you can do like uh cross chain swaps um cross chain swap, is a way that you that one transaction on one blockchain can be done if and only if another transaction can be done on another blockchain.

C

So it's like exchanging for for Bitcoin to ethereum uh the you can get I mean you can get the ET ether on ethereum if I get the Bitcoin for instance, and then there's a guarantee that the two transactions are done. uh In the same time, the other one that is mentioned here is like cross chain Bridges and cross Chain Bridge. What you do. Basically you look. You practically map one token to another to another uh to another chain. So what you do?

C

Basically, you lock your token on one chain and you issue kind of a wrap token on another one, and then, if you just burn that rep token, then you release your original token. On the on the first blockchain and there's there's usually kind of a a bridge which guarantees this consistency, so I would say so that's that's the two things that's the freeway is uh survey as well. uh It's it's always a question.

C

If you do like uh cross chain a cross chain, interoperability, if you need to avoid like cross chain double spending in these two two examples like cross chain across chain, Bridges, uh cross, chain, swaps and and stuffs, you need to avoid basically uh cross chain double spending. But usually that's not the case uh or sometimes it's not the case. You just get a piece of information that you want to mirror everywhere. uh Then you don't need to worry about like like question double spending. Then then you can do basically be done with an oracle.

C

uh That's the third Direction and there's like ongoing uh research. If you want to do like cross chain interoperability in a way that you you want somehow to to execute a business logic in the middle of your swap or of your chain in a trustless way, and it's pretty much uh I would say in in research and development, but the the modern, modern, zero knowledge systems are gonna solve or might provide solutions for. For for for such problems as well,.

A

uh And that someone mentioned in in the chat I think it was Mike as well about the uh security concerns around that which I've heard about as well. But then the other concern that um I've heard about and I share is the energy consumption for that type of Step In already with the proof of work. Consensus mechanisms within blockchain ethereum has now gone to proof of stake in.

A

If you try to have that type of interoperability, it's just uh for energy consumption, that's going to be pretty significant or at least increase, and then transaction processing, speed.

C

Yeah so uh so energy consumption comes from the consensus algorithm and then so. If you've got like two two blockchains and one working with proof of work, then then energy consumption.

B

C

B

Hey Daniel, this is a great presentation. We appreciate you coming today. um You know I I wanted to reflect back as.

C

Well, but usually that's not the case uh yeah. So let me just somehow try to do it one by one. So so I don't think that the that the you know I mean cross chain. Interoperability will have like bigger like energy consumption than than the individual chains, and then the point is or then the question is uh yeah so like what's gonna happen with Bitcoin, uh which consumpts a lot of energy, of course, and then they don't don't plan to you know I mean I mean upgrade to like a proof of stick.

C

uh So then, then that's the question that practically remains I would say uh yeah, so there's there's a question actually are like the privacy concerns around retail cbdc, and that's that's indeed, actually a big question um and I would say um so this this point is like a little bit more complicated. uh It's it's more complicated because there's like two at least two aspects. One is a technological aspect and the second one is is more. Like uh you know, I mean I, mean political and and and Society aspect of this question.

C

So, from a technological point of view, you can, you can do on a blockchain, uh practically tokens uh with the safe same privacy currency guarantee as cash. uh That's like that's like Z cash, that's like Dash! uh These are privacy coins. uh They have. They have practically the same privacy guarantee as as cash, uh especially with like with like these zero knowledge movement. At the moment, perhaps in a couple of years, even on ethereum, you can do like private transactions as well.

C

They they gonna, have like almost the same uh privacy guarantee as as cash for instance. uh So this this is the technological point of view uh from the from the political and Society Society point of view, especially I mean the question: if, if you know infer, if a central bank wants to to issue like fully private money uh and that's like a more complicated question and and I and I I, just just wouldn't do very much deep into this question, because this is like a really big discussion.

C

So usually, like you know, I mean most central banks, don't plan to issue um so private money. Then then, then, that short Z cash, for instance uh there's there must be a level of priority. But somehow, like you know, I mean the the uh the the kyc and and a lot of regulations which are not exactly you know. Privacy friendly should be somehow kept, so this is one one I mean side of the coin, the other side of the coin, uh which is the Privacy level uh which is which is accepted by the society.

C

So it might happen, then you know I mean perhaps sometimes Banks just monitor each and every transaction. um Certainly it's not necessarily kind of a cbdc design uh which is which is accepted by the by the society. So if that happens, practically nobody will use that system so again um from the so I can answer more the technological point of view again and all the other aspects are just just more controversial, but from the technological point of view you can you can do it practically as private as you want. I mean I mean already.

C

There are initiatives and, and there's gonna be much much more as xenology proof system proof systems uh come come to life, uh to production.

A

Hey Dad, thank you, Daniel! uh Are there any other questions for Daniel on tokenization uh as Daniel's been saying it I think as we're all learning. This is a very broad topic with a lot of complexity and we're just starting at the very beginning here and I. Think Daniel, you've done a great job of giving us a totalization primer and uh we'll continue in the future meetings to dive deeper and deeper into this, and we definitely appreciate you getting started and we'll probably want to have you back for future discussions as well.

A

So let me just open it up to the team to everyone else. uh Any additional questions.

B

Yeah Daniel I did have a quick question for you, so on slide, seven in your presentation, you mentioned the challenges with Consortium blockchains. Could you expand a little bit on that? We've been talking with this group over the last year, um bringing very various articles to the table on different banking institutions that are forming these consortiums and I'm interested from your perspective as to the challenges for that.

C

uh So the way I see, but that's my opinion are so if you, if you want to do something with Consulting blockchains, uh there are two yeah two challenges: one. You need to have the your your full infrastructure up and running. So it's not the same as you know, if you, if you're, if you're a DF developer, uh you can you can Implement and develop and put something on a public chair in two days.

C

If you want to you know, I mean deliver practically infrastructure uh for for five banks.

C

That's that's gonna, be a big project, I mean I, mean I mean just just imagine, I mean if you, if you just just want to develop, deliver any kind of uh software for five banks you get a lot of Regulation uh the infrastructure size is, is not the easiest. If you speak of blockchain, it's not just five independent uh note, for instance, or or component that you deliver for five banks, but these are five components that must basically uh communicate with each other. uh So it might even be no I mean even bigger challenge.

C

For instance, uh you know I mean just just giving one example. Just just imagine you get five banks uh each having like like different ideas for, and processes for, making good change. You know modifying something in a system, but but you can't Implement five different change. uh Changing your construction blockchain! You get one Consortium blockchain.

C

That should be like one process, one way of making changes on the system so, but as your five banks, having like five totally different something you're gonna have a lot of discussion uh and, and you need a lot of energy uh making to a compromise. uh That's my experience. Basically! So that's one of one of one of the big challenge. The second big challenge that I see um so sometimes uh crypto is evolving faster and especially the infrastructure below crypto, evolving faster as well.

C

So, for instance, uh like again the USB or newest uh wave of infrastructure, Innovation gonna be like the the zero note draw UPS uh you can find them on on practically every second public blockchain you you don't even find them on, like I mean as far as I know, there's there's no initiatives, for instance for like hyperledger Fabric or for our free quarter. It's just I mean they are just behind a little bit.

C

So this is the second challenge that I see uh in terms of like Consortium blockchain, but again so I would say the biggest biggest challenge. Is you know again? If you have a public blockchain you can have, you can have an app uh the app practically or a token up and running in in a couple of days. uh That's not a problem. If you need to install infrastructure to five banks uh that might be like a half year. One year process.

B

A

Thank you and Daniel. uh We have time for one last question Ramesh uh put into the chat: is there any spec for cbdc implementation.

C

So it's it's a good question. What do you mean by spec are there's the uh there's, the open, cbdc platform, which is uh which is which is open source? That's that's only one uh wall cbdc implementation. It's it's not just the spec, but it's it's an implementation as well with white paper and and stuffs like that. It's it's like, uh partly for my MIT I, think and initiated by some banks in Boston.

C

If I'm not mistaken, so so you you can even find systems uh which, which is meant to be like, like uh um as a cbdc system, if you, if you need like documentation uh so the last one I saw basically it's uh it's a good summary on requirements on technical, require, Technical and non-technical requirements for a cbdc, that's from That's from the bank of England, uh for instance.

C

uh But basically there are many reports uh you can find almost on a monthly basis, one one good report for for having one cbdc, um you know I mean Direction and it's a little bit different as well. um You know I mean I mean so so, for which purpose do we want to use your cbdc because again, I mean I mean retail. Cbdc uh has like totally different requirements than than an OSL or a crossbody I mean cbdc.

C

You need, like I, don't know couple of 10 200 2 million transactions per second, which is sometimes not even solvable uh with blockchain. In a in a in a whole series you, you might need like a couple of hundred transactions per second uh or even less, which is which is totally solvable, uh perhaps even by public golf chances as well.

A

Thank you, Daniel and thanks James uh Ramesh James, put into the chat a link to the open, cbdc uh white paper from uh MIT uh and everyone that brings us to the top of the hour. uh Daniel again, thank you for joining us and you clearly have a depth of knowledge in this, and we appreciate you uh sharing your knowledge with us and answering these questions. It's been a great discussion and we definitely like to bring you back for a future discussion, because this is just the beginning of the tokenization discussion um with that.

A

Thank you to everyone. We will post the recording to this call because usually we have uh several hundred people asking or um accessing the recordings to these calls at a later Point. uh Thank you. Everyone have a good day and we'll see you at our next uh hyper Ledger meeting.

B

Have a great one, everybody thank you. Daniel.

C

Excellent invitation, bye, bye.