Shalini Nagarajan

Goldman Sachs, Microsoft, Deloitte and Cboe Global Markets are collectively embracing a blockchain system aimed at interconnecting various institutional applications.



The Canton Network endeavors to be a system that brings together different applications used by banks and other financial companies, connecting them in a way that allows them to work together more easily and securely, according to a <a href="https://www.businesswire.com/news/home/20230509005497/en/New-Global-Blockchain-Network-of-Networks-for-Financial-Market-Participants-and-Institutional-Assets">statement</a> from May 9.



The network says it links independent applications developed with DAML (Digital Asset Modelling Language), Digital Asset’s purpose-built smart-contract programming language that was <a href="https://blog.digitalasset.com/blog/introducing-the-digital-asset-modeling-language-a-powerful-alternative-to-smart-contracts-for-financial-institutions">introduced</a> back in 2016.



Starting in July, network participants plan to initiate comprehensive testing of interoperability capabilities across a diverse set of applications and use cases.



Financial giants have been finding ways to turn regular securities like stocks and bonds to digital tokens using blockchain. They have also been looking for ways to make operations less expensive and enable faster transactions between financial institutions in real time.



Canton is looking to solve challenges in current systems that lack the ability to seamlessly integrate with one another while still maintaining the necessary controls required in financial markets.



This <a href="https://blockworks.co/tag/permissioned-blockchain">permissioned</a> approach is presented as necessary and in contrast to the open permissionless philosophy at the base layer of public blockchains.



Billing itself as a “network of networks,” Canton claims to overcome the challenges faced by previous <a href="https://blockworks.co/tag/enterprise-blockchain">enterprise blockchain</a> efforts that <a href="https://blockworks.co/news/ibm-maersk-snuff-blockchain-tradelens-lack-interest">fizzled</a>, by helping different applications work together without making the organizations that use them relinquish control.



Other firms participating in the blockchain network alongside Goldman Sachs include Capgemini, Broadridge, Deutsche Borse, Digital Asset, Moody’s and Paxos.



These financial industry giants lend some weight to Canton claims that it will change how things work in financial markets. The group gave the example of how, currently, asset registers (where information about assets is stored) and cash payment systems (used for making payments) are separate and isolated.



Canton says it can combine a digital bond and a digital payment into one transaction, ensuring that they happen at the same time without any hiccups. Additionally, a digital asset can be used in other financial transactions, like collateralizing a loan, by connecting it to different applications, it said.



This is also possible using other <a href="https://blockworks.co/news/jpmorgan-trade-on-public-blockchain-monumental-step-for-defi">open-source blockchain-based smart contract platforms</a> where application composability is <a href="https://blockworks.co/news/tokenized-vault-standard-ethereum">a primary design objective</a>.



At present, Canton claims to facilitate connections between other permissioned blockchain solutions like Deutsche Horse Group’s D7 post-trade platform and Goldman Sachs’ GS DAP. However, as more applications built using Daml become operational, the network is expected to expand its connections.



Canton Network’s competitive advantages compared to public permissionless systems include enhanced privacy, control, regulatory compliance and interoperability. However, it may have limitations in terms of decentralization, network effects, restricted access and potential trust requirements. The choice between public permissionless and private permission systems would depend on specific needs and considerations.



<h2>Industry voices react to Canton and its impact</h2>



Sacha Ghebali, director of strategy at The Tie, highlighted the significance of large institutions teaming up to create a decentralized ledger that fits their needs. He expressed curiosity about how institutional blockchains will integrate with public blockchains.



Konstantin Horejsi, chief product officer at gamified crypto trading platform Blocktrade, likes how the Canton Network balances security and transparency for business-to-business applications. But he emphasized the need for a central control organ and user acceptance for widespread adoption.



“Canton Network is taking an interesting approach for B2B applications, where a high level of security is paired with adaptable transparency,” he said.&nbsp;



“As an example: if I put a transaction on the Ethereum blockchain, its full content is visible to everyone. On Canton, I could choose that only a summary or high-level information is publicly visible, whereas my bank could look into more detail.”



The same level of privacy is promised by <a href="https://blockworks.co/news/zk-rollups-future-of-smart-contract-blockchains">layer-2 rollups based on zero-knowledge proofs</a>, but these have yet to reach production scale for practical use.



Ken Timsit, head of Cronos, explained that private consortium blockchains offer legal clarity and customized governance for companies operating within specific regulatory frameworks. But he acknowledged that big-shot companies have favored public blockchains for high-value cases.



“The primary reason why some companies use private consortium blockchains is when the



use case relies on a legal framework that must assign liabilities to clearly identified actors if anything goes wrong,” he explained.



Ian Weisberger, co-founder of CoinRoutes, discussed the advantages of consortium networks in terms of fee revenue and regulatory compliance. But he said these networks are not as open and secure as big public networks.



Costanza Gallo, ecosystem and partnership manager at Swarm Foundation, sees the Canton Network as a step towards change. She said it’s helping big companies embrace decentralization and do things differently. 



Tim Dierckxsens, CEO of blockchain wallet provider Venly, applauded the collaboration for recognizing the potential of blockchain technology to transform financial markets. He emphasized the benefits of collaboration, transparency and efficiency that blockchain can offer.



Zaki Manian, co-founder of DeFi protocol Sommelier Finance, is not swayed that the permissioned consortium route is viable over the long term, and believes that regulators will eventually come to grips with that.



“The biggest thing that regulators are fundamentally aware of — they just don’t like to talk about — is that if you want to have a global system, it must be neutral and permissionless,” Manian told Blockworks prior to the Canton announcement. “A global digital marketplace at its base layer must be permissionless because no jurisdiction agrees on what is <a href="https://blockworks.co/tag/know-your-customer">KYC</a> [is, or] what a security is.”



Overall, these industry representatives acknowledged the Canton Network’s importance in tackling challenges, promoting collaboration and fuelling innovation within the financial industry.



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What Crypto Builders Have to Say About Goldman Sachs’ New Blockchain Bid

Goldman Sachs laid off over 3,000 employees last month, but the investment giant is open to boosting the size of its digital assets team this year.



The bank is still “hugely supportive” of exploring blockchain-related applications, Goldman’s head of digital assets Mathew McDermott reportedly said last week.&nbsp;



Dermott, who was appointed to lead the digital assets team in 2020, only had a team of four when he started out. Less than three years later, its strength now stands at 70.&nbsp;



And he intends to add more.



The team will take more members “as appropriate” this year, Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-02-28/goldman-s-digital-asset-team-open-to-hiring-as-it-rolls-out-blockchain-platform" target="_blank" rel="noreferrer noopener">reported</a> him as saying, without elaborating further on details. Goldman didn’t return a request for comment by press time.



Dermott’s comments were reportedly made in Hong Kong, which <a href="https://www.scmp.com/business/banking-finance/article/3210473/hong-kong-issues-worlds-first-government-tokenised-green-bonds-worth-us102-million-offer-attracting" target="_blank" rel="noreferrer noopener">issued</a> its first tokenized green bond worth $100 million using Goldman’s protocol called GS DAP (Digital Assets Platform). 



The DAP is built on a private permissioned blockchain, not a public blockchain. McDermott doesn’t expect public blockchains to be used to port major financial transactions just yet, owing to safety and regulatory concerns.&nbsp;



He anticipates the Goldman platform could support more services, including derivatives and private equity, as it enables investors to “see more data, have more transparency, more accurate pricing on an asset.”&nbsp;



Asset tokenization is increasingly <a href="https://blockworks.co/news/2023-year-of-asset-tokenization">becoming a popular theme</a> for the industry, with other corporates like Siemens and Hamilton Lane also lining up with their own projects.



Aside from wanting to build out its digital assets team, Goldman recently showed interest in snapping up distressed crypto companies.&nbsp;



The aftermath of FTX’s implosion dented the valuations of several crypto companies due to the interconnected nature of the industry. McDermott told Reuters at the time that banks saw an opportunity to gain from the collapse, and that Goldman would be conducting due diligence to evaluate the potential of various companies. According to him, they would be “priced much more sensibly.”&nbsp;



It isn’t clear yet whether Goldman has executed that plan.



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Goldman Sachs Still ‘Hugely Supportive’ of Exploring Blockchain Applications

Sebastian Sinclair

<div id="highlights-block_634fa8b0f6de7" class="highlights">
 <ul>
 <li>The concept will include the digitization of a series of government debt to be issued to select participants</li>
 <li>The private permissioned blockchain is compatible with the Ethereum virtual machine</li>
 </ul>
 
</div>



The Israeli government is planning to test blockchain-based digital bonds as it seeks to modernize financial market processes and reduce associated costs.



In a joint effort, the Office of the Accountant General in the Ministry of Finance and the Tel Aviv Stock Exchange (TASE) — the country’s only public equities bourse — will issue bonds via a permissioned private distributed ledger technology platform being readied for live testing.



The proof-of-concept will include the digitalization of a “new series” of government debt to be issued to select local and foreign primary dealers, marking the first time Israel has embarked on such a venture.



Digital assets infrastructure and custody solutions provider Fireblocks and US-based cloud computing tech firm VMWare will assist in the technical execution of the platform, while TASE has been tasked with leading the project.



Tokenized bonds will be sent to participants&#8217; digital wallets while the issuance consideration, in digital currency, will be transferred from the participants to the state of Israel’s own wallet, according to a statement.



The pilot project will begin within the next few days and is expected to be completed by the end of the first quarter of 2023.



“Israel is almost the only market in the world where government bonds are traded on the main exchange, so it’s an opportunity to generate a pilot, with the involvement of the State of Israel and leading international banks,” TASE’s head of clearing Orly Grinfeld told Blockworks in an email.



Unlike some experiments to tokenized bonds, such as <a href="https://cms.blockworks.co/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds/" target="_blank" rel="noreferrer noopener">Société Générale’s partnership with MakerDAO</a> in October 2021, which used the Ethereum public blockchain, this one will remain entirely centralized for now. However, a Fireblocks spokesperson told Blockworks that the permissioned blockchain is compatible with the Ethereum virtual machine (EVM), and therefore, “if the Ministry of Finance wanted to issue digital assets on a public chain in the future, there would be little difference.”



The platform, which will also be based on smart contracts and tokenization, will be designed for the clearing and trading of non-crypto digital assets, TASE said.



<h3>Blockchain bond issuance</h3>



Typically, government debt raising through the issuance of bonds often requires large-scale coordination between various systems. Blockchain tech is often praised for its ability to expedite financial transactions while cutting out intermediaries.&nbsp;



In this instance, TASE is hoping its test will demonstrate the tech’s use in reducing bond issuance costs, speeding up settlement times, improving transparency and streamlining processes.



Following the first <a href="https://www.icmagroup.org/market-practice-and-regulatory-policy/fintech-and-market-electronification/distributed-ledger-technology-dlt/frequently-asked-questions-on-dlt-and-blockchain-in-bond-markets/5-what-are-dlt-bonds/" target="_blank" rel="noreferrer noopener">DLT bond</a> issued in 2018 by the <a href="https://www.worldbank.org/en/news/press-release/2018/08/23/world-bank-prices-first-global-blockchain-bond-raising-a110-million" target="_blank" rel="noreferrer noopener">World Bank</a>, TASE and the ministry said they had been following developments in the financial markets, including tokenizing various assets. 



Both said they were eyeing central bank digital currency test runs of financial institutions, which have begun to pick up in speed.



Several countries have begun leveraging DLT-based bonds to raise money for infrastructure from the debt instrument, including the Philippines, which earlier this year raised 11 billion Philippine pesos ($186 million) after investors rallied behind its debut.



TASE and the government also said they could read the writing on the wall when it came to a shift in the digitization of financial instruments.



“The financial markets are undergoing drastic transformations in recent years,” TASE CEO Ittai Ben-Zeev said in the statement. “We hope to see Israel spearhead financial technology while being the first to implement cutting-edge technologies and upgrade the capital market.”



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Israel To Test Blockchain-based Bonds

Casey Wagner

<div id="highlights-block_6303d23ea211f" class="highlights">
 <ul>
 <li>DTCC launches distributed ledger technology platform for settlements</li>
 <li>Tokenization is on the rise, the Bank of International Settlements said in 2020</li>
 </ul>
 
</div>



Clearing and settlement house Depository Trust and Clearing Corporation (DTCC) has launched a private and permissioned blockchain network as an alternative settlement platform.&nbsp;



Project Ion, which leverages distributed ledger technology (DLT), is now processing an average of 100,000 bilateral equity transactions per day, DTCC <a href="https://www.dtcc.com/news/2022/august/22/project-ion" target="_blank" rel="noreferrer noopener">announced</a> Monday. 



“The goal of Project Ion is to ultimately provide a resilient, secure and scalable alternative settlement service to clients, with the option to leverage DLT for those firms who wish to take advantage of the emerging technology,” DTCC said in a statement.&nbsp;



DLT provides a safer, cheaper, and more efficient alternative to traditional settlement methods, Murray Pozmanter, said in the statement. Pozmanter is the managing director and president of DTCC clearing agency services and head of global business operations. 



<h3>Other blockchain settlement efforts</h3>



A distributed ledger is a record of transactions held between a network of computers, or nodes. The use of DLT generally relies on cryptography to allow nodes to securely propose, validate and record changes and updates to the synchronized ledger without necessarily needing a central authority, as a 2020 <a href="https://www.bis.org/publ/qtrpdf/r_qt2003i.htm" target="_blank" rel="noreferrer noopener">report</a> from the Bank of International Settlements (BIS) explained. 



Researchers from the BIS said that DLT and tokenization of securities could transform post-trade clearing and settlement operations, but the inherent challenges of credit risk and liquidity associated with traditional methods remain.&nbsp;



“To succeed, tokens will need to interoperate with account-based systems, at least in the interim,” researchers wrote in the report.&nbsp;



Financial institutions have become increasingly interested in leveraging DLT in recent years for trading and settlements. Also in 2020, <a href="https://www.credit-suisse.com/about-us-news/en/articles/media-releases/financial-institutions-team-up-to-develop-fundsdlt--a-groundbrea-202003.html">Credit Suisse</a> announced a DLT-based platform for investment funds.



More recently, a consortium of French banks experimented with using a private blockchain<a href="https://cms.blockworks.co/french-central-bank-trades-oats-on-private-blockchain/" target="_blank" rel="noreferrer noopener"> to settle debt securities</a> in Oct. 2021. That followed <a href="https://cms.blockworks.co/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds/" target="_blank" rel="noreferrer noopener">a trial by French bank Société Générale</a> to use public Ethereum and mint MakerDAO’s DAI stablecoin through the issuance of euro-denominated bonds.



Signature Bank customers have been able to initiate real-time Fedwire transactions using Signet, the firm’s DLT payments platform, since April 2022.



BNY Mellon and Goldman Sachs <a href="https://www.prnewswire.com/news-releases/bny-mellon-and-goldman-sachs-settle-first-hqlax-agency-securities-lending-transactions-301589545.html" target="_blank" rel="noreferrer noopener">partnered</a> on HQLAx, a DLT-based securities lending platform. Its first transaction was completed in July 2022.



Project Ion is being designed to adhere to rigorous regulatory standards and deliver the resiliency, volume capacity, security, scalability and risk controls that DTCC is known for, the firm said in the statement.



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