Insights from the Canton Network Pilot: Realizing connected, synchronized finance
by Canton Network - April 29, 2024
Insights from the Canton Network Pilot: Realizing connected, synchronized finance
by Canton Network - April 29, 2024
The Canton Network pilot brought together 45 leading financial institutions, asset managers and service providers for a groundbreaking blockchain pilot that demonstrated a better way to connect and synchronize capital markets activity. This blog provides an overview of some key findings from the successful pilot, with full details available in the post pilot report.
The pilot focused on real-world use cases that reflect the complexity of capital markets. Tokenized real-world assets, cash and data flowed through interlinked transactions in a connected ecosystem of sovereign blockchain applications. In two use cases, assets were bought and sold in order to meet margin calls, satisfy collateral obligations, or be used for securities financing. More than 350 transactions were completed using six different applications running on the Canton infrastructure.*
*Six applications were delivered for the pilot: Margin, Trading, Fund Registry, Cash Registry, Bond Registry and Financing. Each scenario used its own particular mix of relevant applications.
Scenario 1
Margin management using tokenized money market funds to cover margin calls.To achieve this, investors taking part could trigger a request to purchase tokenized funds from a fund issuer, via the trading application. The following trade resulted in a DvP transaction, swapping tokenized cash for tokenized funds, which could then be used to satisfy an initial margin call.
Scenario 2
Intraday repo financing: releasing tokenized cash as collateral for variation margin. Investors could use tokenized bonds held in a bond registry application as collateral when requesting intraday repo financing via the financing application. Investors could then meet variation margin calls using the cash made available by the repo. These were DvP transactions, swapping the digital bonds for tokenized cash.
Scenario 2
Intraday repo financing: releasing tokenized cash as collateral for variation margin. Investors could use tokenized bonds held in a bond registry application as collateral when requesting intraday repo financing via the financing application. Investors could then meet variation margin calls using the cash made available by the repo. These were DvP transactions, swapping the digital bonds for tokenized cash.
“The pilot was different due to the enormity of the lifecycle, with the platform able to seamlessly complete activities from issuance all the way through to financing, inclusive of custody, brokerage. Seeing transactions take place across applications and geographies on the same ecosystem was exciting.”
Product Manager - Digital Assets
Tier 1 Global Custodian
These complex chains of events mirror the operational sequences and market movements that counterparties and financial institutions experience hundreds of times in any given day. With transactional interoperability across permissioned blockchain applications, organizations demonstrated for the first time that atomic transactions across the ecosystem can unlock the asset mobility that is key to realizing the full potential of blockchain technology in capital markets.
The pilot successfully achieved its three core goals:
- To execute atomic transactions across independently operated blockchains, without sacrificing privacy or control. It demonstrated how multiple Canton instances can transactionally interoperate via the Global Synchronizer, in the public-permissioned Canton Network. This paves the way for atomic and operationally risk-free transactions, while preserving the privacy and controls needed by regulated institutions.
- To prove the viability of the Global Synchronizer for the Canton Network. The pilot trialed the decentralized synchronization service at scale with regulated financial institutions. The Global Synchronizer has now been tested with infrastructure providers and participants since early 2023 and the pilot set out to demonstrate its ability to facilitate cross-chain transactions, without needing to place trust in a central operator, shared service provider, or competing counterparties to exchange value between systems.
- To provide a unified experience for the buy side, sell side, and FMIs. The pilot provided the use cases, reference applications, user interfaces, and network services for participants to demonstrate both the individual value and mutual benefits of a shared network.
The value of connectivity
First generation blockchain pilots and PoCs explored narrow use cases, for example, how tokenizing an asset can accelerate settlement, or experiments to test a solution for a limited set of actions in trading or post-trade, among a limited group of participants. As the use of blockchain has matured, we must think beyond the confines of these siloed use cases, and address the needs (and potential value realization) of an interconnected market. While some value has been demonstrated across financial services through closed, private blockchain networks, the exponential value of the technology will be achieved when independent solutions, or subnetworks like these, can connect and interoperate, enabling assets to move smoothly across multiple actions to achieve the desired outcomes.
Asset utility and mobility will reduce risk by cutting out manual reconciliation and will optimize operational and capital efficiency by shortening or eliminating multi-day processes and settlement cycles, but that’s not all. A logically unified, virtual ledger, that enables atomicity and the potential of risk free settlement will also allow value to be exchanged without friction, unlocking new markets, new products, and new services. Those opportunities lie in the white space between traditional organizational boundaries, and can only be realized with real-time synchronization and workflow automation that effectively work across those boundaries. It’s a level of synchronization that cannot be achieved with today’s message based systems and API calls, or blockchain’s variation of this in the form of technical bridges, or other add-on services which may transfer data between organizations but still rely on reconciliation.
With the Canton Network, transactions across blockchain systems can complete atomically, and without re-introducing the risks and latencies of point-to-point integrations- the removal of which actually forms a key part of the business case for using blockchain technology in the first place.
“It’s not enough to have individual application islands. They need to connect. That’s what actually yields benefits for all the counterparties involved.”
Hany Mesha
Head of Architecture - Americas, Solutions Architect at Oliver Wyman Digital
On the edge of massive opportunity
As more traditional assets are tokenized or digital-native assets are created, the ability to connect real-world activities across an institutional blockchain ecosystem is starting to emerge. However, doing that requires the ability to connect and interoperate without sacrificing privacy or control. Designed with the industry, the Canton Network is the first public-permissioned blockchain network fit for institutional assets.
Unlike other blockchain network approaches, Canton Network enables synchronized finance by facilitating a ‘network of networks’ that regulated financial institutions can finally say ‘yes’ to.
This is demonstrated by the industry support shown for Canton Network, launched in May 2023 by an initial partner group of 30 institutions. Many of those partners already run Daml applications, using the Canton blockchain protocol. The applications run the gamut, from asset issuance to post-trade utilities to industry-driven efficiencies, paving the way for native digital assets and tokenized traditional assets to be mobilized across a network of networks.
One of the pilot’s key takeaways is that blockchain interoperability will be driven by the value of real connections. This is happening in real time with a steady increase in the applications, asset classes and institutional capital already on Canton Network. Cornerstone application networks such as Broadridge’s Distributed Ledger Repo and Goldman Sachs’ Digital Asset Platform allow market participants to see the value of connecting to live capital markets applications to improve business outcomes and create new opportunities.
With each connection, the network expands to create new capital markets highways, expand asset utility and mobility, and improve liquidity. Importantly, this is done in a secure, scalable way without sacrificing sovereignty, privacy or controls.
Canton Network preserves the stability of trusted regulated processes while creating the transformative power to connect. It offers a viable solution to the persistent problems of capital markets by improving asset utility while reducing risk, operational inefficiencies and cost - not just for one organization and its counterparties, but across a whole connected ecosystem.
“The Canton Network pilot program represents an important step in advancing interoperability across blockchain solutions in the financial services industry. Building on the capital efficiencies and cost savings Broadridge’s solution already brings participants, connectivity with the broader Canton tokenization ecosystem can play an important role in driving the liquidity that supports the continued adoption of this emerging digital infrastructure for capital markets.”
Horacio Barakat
Head of Digital Innovation Capital Markets, GM of DLT Repo Platform, Broadridge
Get a walkthrough, discover the apps, and find out how to participate in the follow-on working groups
Discover more about the Canton Network with our webinar: Canton Pilot Demo: Real-world asset tokenization with connectivity and control
About Canton Network
The Canton Network is the financial industry’s first privacy-enabled interoperable blockchain network designed for institutional assets, launched by Digital Asset with the participation of a group of leading financial institutions, infrastructure providers, technology firms, and consultants on 9 May 2023. The Canton Network’s design overcomes the shortfalls of existing smart-contract blockchain networks, and enables previously siloed systems in finance to become interoperable and synchronized in ways that had been impossible before. Offering the privacy and controls required for highly regulated organizations, the Canton Network creates a safe and sound environment in which assets, data, and cash can move freely across applications in real-time, unlocking new efficiencies and powering innovation.