This document lays out SETL’s approach to blockchain and its use in financial services.
Ledgers and Ownership¶
Ledgers of asset ownership are an essential part of commerce. Ownership is commonly thought of as a bundle of rights and the owner the beneficiary of those rights. The fact of ownership provides for the deployment of capital and facilitates the savings and investments mechanisms of society. The recording of ownership, however, can be crucial in what benefits flow from a capital-based system. Specifically, the effective recording of property rights enhances the following;
Clear, provable, and protectable ownership;
The standardisation and integration of property rules and property information as a whole;
Increased trust arising from a greater certainty of punishment for cheating in economic transactions;
More formal and complex written statements of ownership that permit the easier assumption of shared risk and ownership in companies, and insurance against risk;
Greater availability of loans for new projects, since more things could be used as collateral for the loans;
Easier access to and more reliable information regarding such things as credit worthiness and the worth of assets;
Increased fungibility, standardisation and transferability of statements documenting the ownership of property, which paves the way for structures such as international markets for companies and the easy transportation of property through complex networks of individuals and other entities;
There has been much discussion recently about using blockchains to record ownership and to facilitate the transfer of ownership. Blockchain, however is not a single homogenous concept and can be deployed in a range of configurations. A blockchain can be permissionless (such as Bitcoin), it can be set up to be operated by a group or consortium of partners or it can be run entirely by a single entity.
SETL Blockchain Applications¶
SETL divides its set of business applications into three major streams (or ‘verticals’) – Market Infrastructure, Asset Management and Payments. At the heart of each of these is an ownership ledger which provides the immutable provable structure of this ledger and the control mechanisms that facilitate multiple permissioned participants.
SETL’s award-winning technology can be used to build both financial and non-financial applications. SETL Labs is here to allow innovators to experiment and build!
Below are descriptions of the defined verticals to give you an idea of the sort of applications that has driven SETL’s design.
Market Infrastructure Vertical¶Markets
SETL Markets is a framework for real time trading and settlement of financial instruments. Existing settlement periods introduce complexity, risk and cost as firms have to account for unsettled trades and devote capital to the possibility of settlement failure. SETL addresses these issues by shortening the settlement period to a matter of seconds with the delivery vs payment (DvP) engine.CSD
A Central Securities Depositary is where records of securities ownership are maintained and where transfers between investors take place through book entry. Ownership is often legally defined by what is on the records of the CSD. SETL’s solution enables recording of clear ownership with a cryptographically auditable train of every change requests made to a CSD. Along with the DvP and payments engine the CSD is empowered to make highly liquid markets happen.
Asset Management Vertical¶Fund Distribution
At the heart of any fund distribution system is a transfer agent. The role of the transfer agent is to record the owners of fund shares and to manage the subscription, redemption and transfer of those shares. SETL maintains this core ledger in its blockchain environment.
Surrounding this core is a range of functionality that facilitates a rich relationship between the investor, an advisor and the fund manager including client onboarding, KYC and investment reporting. SETL’s fund distribution platform mutualises the mechanics of distribution whilst allowing fund managers to compete on product and performance.Client Onboarding and KYC
SETL’s Onboarding suite of tools help to get clients onto a financial platform. Clients and institutions tire of repeating the same routine each time they want to commission a new service or product.
Often clients will have to provide the same document multiple times and commit to keep a plethora of service providers up to date when circumstances change. There is a real possibility of information becoming stale and compliance obligations being missed. SETL’s solution allows for documents and credentials to be loaded once and used many times.
Central Bank Digital Currency is online electronic money issued directly by a central bank. Electronic payments using banking apps or credit card systems, typically result in multiple movements eventually ending in an entry across a central bank.
Complex systems have to work out which bank the buyer’s payment must come from and which bank the seller needs the money paid to. Clearing systems aggregate and net off payments between banks and then, periodically, settlement transactions are sent to systems known as Real Time Gross Settlement (RTGS) at the appropriate central bank.
CBDC makes the whole process of payment simpler by allowing changes to be made on the central bank ledger directly at the time of a transaction. The challenge in this model, and solved by SETL in its CBDC framework, is for each bank to have access to a part of the central bank ledger to provision their clients to use CBDC. Once a client has CBDC, it can be transferred to anyone else who has been provisioned.
SETL has defined and implemented a framework for the issue and use of CBDC which evolves directly from the existing financial infrastructure. SETL’s framework recognises the role of commercial banks and their importance in monetary policy and stability.Wholesale Payments
SETL’s core technology works with existing payment infrastructures such as SWIFT and offers the opportunity to create pure distributed ledger models. Wholesale payments typically settle in central bank money after clearing and netting. The process of getting to settlement between one wholesale financial services company to another can be complicated and expensive. SETL’s approach simplifies the operation by allowing participants to update a distributed ledger of balances with certainty and security.