Key Points

References

RLN Concepts

Citi Annual Symposium on Digital Money - 2023

https://www.citibank.com/icg/sa/digital_symposium/2023/index.html

session replays

overview

https://ffnews.com/newsarticle/citi-banks-digital-symposium-was-a-real-mind-bender/

Citi Banking Transformation Challenges Continue - 2024

AB - Regulators push Citi to move faster on risk management fixes: Report

citi-240302-AB-Regulators push Citi to move faster on risk management fixes Report.pdf. . link

citi-240302-AB-Regulators push Citi to move faster on risk management fixes Report.pdf FILE

Citi received three notices late last year from the Federal Reserve, which implemented six-month and 12-month deadlines by which the bank must make changes to the way it measures particular risks, according to the story, which cited an email and an anonymous source.

The $2.4 trillion-asset bank also recently failed exams by the Office of the Comptroller of the Currency, the report said. Those exams were meant to determine whether the company is advancing on data integrity as much as it says it is.

opp>>> Ever since, Citi has been investing heavily — both in dollars and increased staffing — in what bank executives call a "transformation" of its risk and controls systems. A large part of that process involves moving from manual processes to more automated ones in order to avoid human errors.

the bank said that its top priority is "meeting the expectations" of regulators.

The notices "instruct Citi to improve its data and governance around how it sets aside capital to account for counterparty credit risks," according to an unnamed source in the Reuters story.

Citi's restructuring plan involves selling or winding down lagging businesses and retail franchises, reducing management layers and eliminating 20,000 jobs, or about 10% of its total workforce, by the end of 2026.

Citi is aiming for an efficiency ratio of less than 60%, a common equity tier 1 capital ratio of 11.5% to 12% and a return on tangible common equity ratio of 11% to 12%. The latter metric was 4.9% last year.

RLN - a digital money FMI ( financial market infrastructure ) test platform for stable coins and CBDC

https://regulatedliabilitynetwork.org/

digital money exclusively issued by central banks, or by non-regulated issuers — and demonstrates that shared ledger technology may be applied to all regulated monies on a common platform.

At this stage, traditional players operate with proprietary databases in their own data centers. Shared ledger technology might provide a common platform, but that is not enough. The legal wrapper is as important as the technology. RLN considers the potential to create a new Financial Market Infrastructure that could achieve legal finality of settlement between the participants by leveraging many of the benefits commonly attributed to Blockchains — always on, multi-asset and programmable.

What is sovereign money?

Central bank money, commercial bank money, and e-money issued by regulated non-banks make up the family of sovereign money as defined in this paper. Sovereign money is issued by public and regulated private institutions (banks and non-banks) under authorization by the nation state.

Sovereign currencies are “regulated liabilities,” meaning they are promises made by regulated institutions to pay the customer on demand at par value in national currency units.

If allowed to develop outside of regulation, cryptocurrencies and stablecoins may substitute for sovereign money. They may diminish an important instrument of national self-determination and negatively affect financial stability.

Potential RLN benefits

• The RLN scheme may offer potential for a new global settlement infrastructure based on regulated issuers and instruments.
• Such a network might ensure that tokenized, programmable money is interoperable across different regulated issuers.
• The wider scope of RLN that includes all aspects of sovereign currency might enable it to address a broader range of use- cases than narrower proposals, while maintaining the two-tier structure of public and regulated private balance sheets.
• The RLN scheme may be extensible in potentially interesting directions:
  • (1) including stablecoins when they are within the regulatory perimeter,
  • (2) incorporating multiple currencies to solve for cross-border payment efficiency, and
  • (3) representing multiple asset types.
• Financial messaging has largely been solved through structured ISO20022 messages flowing at the speed of light.
  • The missing piece of the puzzle is a global solution for settlement.

RLN WhitePaper

Defines the concepts of Sovereign money, the goals, challenges, policy and governance implications

https://regulatedliabilitynetwork.org/wp-content/uploads/2022/11/The-Regulated-Liability-Network-Whitepaper.pdf

RLN-The-Regulated-Liability-Network-Whitepaper.pdf file

RLN-The-Regulated-Liability-Network-Whitepaper.pdf link

Policy strategies for regulation of digital currencies

Remove Regulatory Arbitrage: Bring novel forms of digital currency within the regulatory perimeter and enforce a level playing field based on “same activity, same regulation”. Many jurisdictions are aiming to modify existing rules or create new frameworks for digital assets in general and novel forms of digital money in particular. Please note that this potential policy response is not the subject of this paper.

Upgrade National Currency Infrastructure: Ensure that digital national currencies meet all valid existing and anticipated needs of users in the modern digital economy. This can be achieved through upgrades to the existing payments paradigm, e.g., through the creation of instant payment schemes and other augmentations. It may also be possible for sovereign currencies to adopt the “money encapsulated in a smart network” paradigm that is currently the sole preserve of cryptocurrencies and stablecoins.

In the digital money format race, the shared ledger technology used by cryptocurrencies and stablecoins might be a source of long-term competitive advantage

The potential to use shared ledger technology to upgrade the paradigm of regulated payments may be worthy of close study

The RLN Technical Design

https://setl.io/the-regulated-liability-network-rln-whitepaper-on-scalability-and-performance/

RLN_The Regulated Liability Network_Whitepaper on scalability and performance_SETL AWS.pdf file

RLN_The Regulated Liability Network_Whitepaper on scalability and performance_SETL AWS.pdf link

A different model for what is ordered compared to other blockchains - blocks vs transactions

The RLN process flow

The RLN process flow components

Referring to the core components of RLN numbered in (Fig. 2), the components selected for the simulated network and scalability tests were as follows:

- Generator: creating (validating) transfer requests (1)(2)

- Scheduler: converting a transfer request into a proposal of partition changes (3)(4)

- Approver: Partition owner approval of associated partition changes (5)(6)

- Assembler: assembling the proposal and approvals into a package with signatures (7)(8)(9)

- Sequencer: sequencing the package hashes into a determined order (10)(11)

- State Updater: taking approved proposals and sequenced proposal hashes and persisting to a permissioned queue (12)(13)

RLN POC phase 1 - video results report - Tony McLaughlin

Regulated Liability Network US proof of concept - phase 1 video

https://www.rlnuspoc.org/home#subpage/introduction/section/zh487 

RLN Concept

xuc1 - counter-party transactions governed and coordinated across multiple networks

< reqmts >  need virtual comm layer, authn, authz, directory services, connect mgt services, trans protocol services, trans protocol agents for each network type and related trusts

current model
- separate books kept by all parties coordinated by messages to and from a central service

smart ledger model complements existing messaging solutions
- all parties create transactions on a virtual smart ledger network ( VSLN ) - made of multiple, dynamically coordinated ledgers with smart services and messages

• Jim>> not so different - all parties still access solution through a virtual services layer based on role connected through VSL gateways
  • multiple nodes provide specializations by role and decentralized topology allows efficiencies and resiliency in operation that fully centralized solutions have challenges with
  • leveraging more trust services, the new solution has higher levels of automated digital trust than the current solution meeting requirements for Zero-Trust and PII 

Tony M >> 

What blockchain features RLN drops  ( 3:02 )

trustlessness
anonymity
tokenomics
pow
unregulated instruments
non sovereign units of account
commonidty forms of money

RLN keeps features

24x7 operation
multi-asset tokenization and settlement
shared cryptographic status
programmability

RLN POC scope included only:

interbank payments for a wholesale CBDC

other asset services easily possible in same solution

RLN POC scope limits excluded:

1. no public blockchains used
2. crypto currency
3. stablecoins
4. retail CBDC
5. digital asset regulation
6. performance
7. NFRs

RLN can have forms of money, assets, multiple parties
shared ledgers may be better than current messaging model
not so simple

Focus was on existing assets in the existing legal framework for the use cases using a new infrastructure

Jim << operating model = VSLN - 1 common view no matter the net complexity implemented

RLN POC 1 use cases

RLN POC 1 Findings

Tested successfully global cross border payments settled in USD in a 24x7 environment improving USD as a reserve currency

keys tested:

availability, reliability, efficient atomic settlement, interoperability, back office connectivity, privacy, programmability with smart contracts

not tested:  NFRS, performance

assumptions

implementation won't be a single platform, network or technology but interoperability will be required

combination of commercial bank money with central bank money is the key

RLN design is not technology or platform dependent focusing on the capabilities and services to support the use case requirements, assumptions, principles

is there existing legal framework to support RLN payments?

Existing FMI regulatory framework provides the oversight needed conceptually to legally settle USD payments

settlement finality was legal

ownership and transfer were compliant

Value of RLN poc to Citi?

RLN showed multiple organizations can operate payment system settlements effectively on shared ledgers using existing legal framework

Industry utility to provide settlement using digital cryptographic payments on a real-time basis

Why NY FED cares about RLN?

complements other FED projects on cross border payments

includes tokenized central bank money and tokenized bank deposits

How does poc contribute money?

digital money can operate 24x7 using programmability of shared ledger concepts

Legal takeaways for RLN poc?

Legal framework in Dodd-Frank Act supported this payment model

All steps in payment done in poc in single operation

Need to add AML pre-processing

Next steps for RLN >>

DvP for securities settlements 

Multi-currency settlement process similar to Fed Wire using International Payment Settlement network

Global value of real-time USD settlement should move forward

Key value adds

smart contracts, atomic settlement, interoperability

xuc1 - multi-party transactions coordinated across multiple networks

<< shared ledger is a small and not small difference. Enabling the same use case differently. 

q>> how do multiple ledgers connect? 

P2P - each ledger type needs to know how to connect to every other ledger

API - each ledger only needs to connect to an api layer.  Leverage existing standards to integrate at the API layer

VSLN - each ledger type knows how to connect to the VSLN standard interface. VSLN can operate transaction protocols

virtual smart ledger model - all parties create transactions on a virtual smart ledger network ( VSLN ) - made of multiple, dynamically coordinated ledgers

RLN on DAML, SETL networks

M10 DLT payment network for Tokenized Regulated Liabilities - another Payment Network alternative to the SETL RLN

https://m10.io/#:~:text=native%20currency%20platform,transfer%20and%20settlement%20of%20TRLs

i>>> assumes a TRL GBP issued by BOE is fungible with a TRL GBP issued by Barclays — is this true ?? see RBS bankruptcy

"A GBP coin issued by the Bank of England should be fungible with a GBP coin issued by Barclays. Just like today!"

Hierarchical Ledger levels support different types of money in current banking system

M10’s hierarchical ledger allows both the segregation of tokenized liabilities as well as interdependent liabilities. The latter is important in some CBDC models. 

There is no limit to the possible levels in the hierarchical ledger and it can be configured to meet the needs of central banks and commercial banks. However, for most use cases today, two levels are sufficient. The top-level (we call it M0) represents tokenized central bank reserves, or CBDC. The second level (M1) represents tokenized commercial bank money. If you’re a banker, this should sound familiar because it’s how the monetary system works today. And therein lies part of the M10 benefit - maintain today’s monetary system, but upgrade the underlying infrastructure.

Custom, high performance blockchain

The hierarchical ledger is immutable and operated by a proprietary, permissioned blockchain. Because of its permissioned nature and because it was purposely designed and built for bank credit and debits, the throughput of the M10 ledger is high - over one million transactions per second with sub second latency. See the performance report.

M10 blockchain performance report

https://m10.io/media/pages/resources/whitepapers/m10-performance-report/40cb891465-1646229532/m10-performance-report.pdf

Every transfer executed in our test environment is an M1 transfer, which consists of 3 debits and 3 credits. M1 transfers use M0 currency as the medium of exchange. The performance test will execute on payment transactions between two parties.

a custom pBFT ledger, capable of processing 1M+ payment transactions per sec. To achieve the high throughput, a ledger platform needs to be optimized to handle peak/spike volumes while also providing end to end security from a user’s device to the ledger core.

Every transfer executed in our test environment is an M1 transfer, which consists of 3 debits and 3 credits. M1 transfers use M0 currency as the medium of exchange. The performance test will execute on payment transactions between two parties.

M10 is a simple, purpose-built optimized DLT for payments only running 4 nodes - 1 proposer, 3 validators accessed by API as a cloud service

The M10 ledger core is tuned and optimized for payments. The M10 ledger core in the test environment consists of four nodes which represents a single currency ledger. The four nodes consist of a proposer and three voters which form a committee that finalizes endorsed blocks of transactions.

What is the Full Trust Model, given RLN operations to create, transfer and redeem digital money

CBDC is a central bank liability 

Stable coins are a liability backed by the issuer. Most stable coins 

RLN POC Phase 1 - digital money platform for settlements in the wholesale market - 221115

https://www.citigroup.com/citi/news/2022/221115a.htm

a proof of concept (PoC) project that will explore the feasibility of an interoperable digital money platform known as the regulated liability network (RLN). Using distributed ledger technology, the proposed platform would create innovation opportunities to improve financial settlements and would include participation from central banks, commercial banks of various sizes and regulated non-banks.

Other key aspects of the PoC include:

• Regulatory framework: The platform will align with the existing regulatory framework and preserve existing requirements for deposit-based payments processing, notably maintaining know your customer and anti-money laundering requirements.
• Scope: The PoC will simulate digital money issued by regulated institutions in U.S. dollars, although the concept could potentially be extended to multi-currency operations and regulated stablecoins.
• Tokens: The PoC will simulate tokens that are 100% fungible and redeemable with other forms of money.
• Industry collaboration: The PoC will include dialogue with the broader U.S. banking community, including community and regional banks.
• Results: Following the conclusion of the PoC, the banking group will publicize the results, which they hope will be an important contribution to the literature on digital money.
• Future plans: The banking group participants are not committed to any future phases of work once the PoC has been completed.

NY Fed announcement of RLN Phase 1 POC

https://www.newyorkfed.org/aboutthefed/nyic/facilitating-wholesale-digital-asset-settlement

Potential Value Opportunities

BIS speech on the futrure of money

https://www.bis.org/speeches/sp231123.htm

BIS speech | 23 November 2023
by Agustín Carstens

In AI, advances today are measured in months, even weeks. In the financial system, it is in years, even decades.

The fundamental problems we still face in financial systems, in advanced economies as well as emerging and developing ones, include the following:

• Many parts of society remain unbanked, without adequate payment, savings or credit services;
• Under-use of financial services due to slow and costly transactions;
• Low customer satisfaction; and
• Feeble connectivity, particularly for cross-border transactions.

Cross-border transactions are even worse, as systems need to be connected through international messaging networks on top of domestic ones, involving a raft of different legal and governance frameworks.

Let me highlight the most significant of these advancements:

• Massive computing power;
• Cheap, instantaneous communication systems;
• Near universal internet connectivity and smartphone access;
• Available trusted computing, indispensable for security and privacy;
• The possibility of representing assets digitally, through tokens that encompass all of the information about an asset and what can be done with it; and, in the not so distant future;
• Rapid advances in artificial intelligence and quantum computing.

individuals could experience the same level of ease, immediacy, privacy, security and reliability from the monetary and financial system that they find in other parts of their lives, such as when they make a long-distance call to anywhere practically for free, or make an e-commerce purchase from their smartphone.

Unified Ledger - ledger of ledgers - built on standards, tokenized assets, trusted DLT

A unified ledger would be a network of networks that would allow various components of the financial system to work seamlessly together. In particular, it would have the potential to combine the monetary system (that is, central bank money and commercial bank money) with other assets, making possible the instantaneous payment, clearing and settlement of any transaction.

Such a ledger would allow for the use of smart contracts and composability. A smart contract is a computer program that executes conditional "if/then" and "while" commands. Composability means that many smart contracts, covering a huge variety of transactions and situations, can be bundled together, like "money lego".

With these new functionalities, any sequence of transactions in programmable money and digital assets could be automated and seamlessly integrated. This would eliminate the need for manual interventions that delay transactions. It also would also enable simultaneous instant payments and atomic settlement across a whole range of assets.

From the above it is clear that the three main components of the unified ledger are digital and programmable money, digital assets and the digital infrastructure that supports their operation and integrity. And for all these three components to work together, the key step is tokenisation.

Tokenisation is a means of recording money and assets in a digital form on a programmable ledger.² These tokens integrate the records of an asset normally found in a traditional database with the rules and logic governing their transfer. In practical terms, this means that users could transfer assets directly through programming instructions, rather than through intermediaries such as account managers who act on behalf of the user.

Benefits of Unified Ledger?

would enhance automation and facilitate faster, cheaper and more convenient transactions, alongside more efficient settlement processes. This could help overcome the settlement risks associated with delivery-versus-payment and payment-versus-payment arrangements – which are currently imperfectly dealt with through specialised institutions or work-arounds such as escrow.

Programmability could also enable the contingent performance of multiple transactions through smart contracts and composability. This opens the door to novel types of economic arrangement that are currently not feasible due to incentive and information frictions, even though they make perfect sense from an economic point of view.

How to implement Unified, tokenized system for money and other assets?

A logical first step is to tokenise money.

Trusted Central Banks for money - tokenised form of central bank money – in other words, a wholesale CBDC for use among financial institutions – and a tokenised version of commercial bank deposits.

Our fundamental trust in money stems from monetary systems built around central banks. The central bank issues the economy's currency that serves as the key unit of account and ensures the ultimate finality of payments through settlement on its balance sheet. Building on this trust, commercial banks then issue money in the form of deposits, which serve as the primary means of payment in our current two-tier monetary system.

This two-tier system with central bank and commercial bank money ensures that a dollar, euro or won deposited in one bank equals the exact amount of the same currency in another bank, or in the form of cash at any ATM.

The CBDC would serve as the core of the system, while tokenised deposits would preserve the benefits of commercial bank money as the primary means of payment but with the added benefit of programmability and composability

For individuals, a monetary system based on wholesale CBDCs and tokenised deposits would feel similar to the current one. 

As soon as they make a transaction, the trade will settle and the change in their money and asset holdings will show up in their digital wallets. 

tokenise claims on other financial and real assets, such as government securities, equities or property registrations.

guarantee that all the digital assets networks are interconnected and interoperable

we should aim for protocols that unify or interconnect systems, to make them interoperable.

the envisaged financial market infrastructure will be a public good, public authorities need to take the lead here.

1. Central banks should move fast to develop programmable wholesale CBDCs, as they are currently doing in many jurisdictions worldwide.⁴ 
2. Some may also consider issuing retail CBDCs, to further expand society's payment options.
3. Financial authorities should facilitate the tokenisation of deposits, that is, the digitalisation of commercial bank money.
4. Governments have a role to play by promoting the tokenisation of as many asset classes as possible. In addition, we need to solve sizeable governance and legal challenges. And we must put the right institutional structures in place.

we need to get the legal framework right for CBDCs, and for tokenised systems more broadly.

different assets should reside on the same unified ledger, so that they can be embedded in smart contracts that execute complex transactions.

incremental steps to Unified Ledger 

most institutional ecosystems have grown up separately, and now need to be brought together. This will most likely require intermediate steps as we move towards the ideal of unified ledgers.

RLN - this project will feature both tokenised central bank money and commercial bank deposits from multiple jurisdictions. And, with time, tokenised securities.

Bank of Korea's CBDC project

Includes the use of satellite platforms that interact with the monetary ledger, providing functionality for a wide variety of use cases, making the platform more flexible and open to market developments

The future is Unified Ledger, tokenized assets, programmable monetary systems integrated with standard messaging 

The future monetary system needs wholesale central bank money at its core, complemented by tokenised commercial bank money and potentially other tokenised assets. And these need to be combined on a common digital infrastructure. The concept of a unified ledger is the vision, the "north star" in designing the future monetary system.

https://www.iso20022.org/

swift_iso_20022_for_dummies_6th_edition_dec_2022.pdf. link 

swift_iso_20022_for_dummies_6th_edition_dec_2022.pdf file

Potential Challenges

Candidate Solutions

Step-by-step guide for Example

sample code block

Recommended Next Steps

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