CAST, The framework to open capital markets to digital assets

Transcript

hi hi to everyone thank you for attending this this conference and as my as the previous speaker i really want to to thank the organizers of the htcc 5 for the invitation to participate to this great event and especially on the main stage uh for the presentation uh that i will do during the the next uh 24 37 seconds uh it will be about the cast from work so cast from work is an initiative which has been developed primarily by sustainer group the bank and various partners in order to enhance the use of glt

security tokens by various set of stakeholders when i saw the the set of the speakers i saw that very few were coming from banks and traditional market participants um that that's maybe because in the first year of the years of dlt many banks and traditional financial participants so that maybe the use of private blockchain would be more useful and uh with regard to our view through a sustainable forge which is a fully integrated subsidiary of sustainable french bank it's really that the target is permissionless technology when we see the market

we really make the shift between permission technology which is some kind of intranet which could have its use but when we look at the markets we clearly see even though we are a technology neutral in order to respond to requests of our clients we clearly see permissionless technology as the internet potentially as a registrar register for the securities for the issuance process and trades and cas is precisely an open source initiative in order to enhance the work between should i say traditional c5 participants and new actors from the dlt environment so my name is stefan blemis

i work as secretary general of sustainal forge besides i'm a postdoctoral researcher at the copenhagen university in in denmark so for the cast from work what has been really key for us is to understand uh because you know for for banks sometimes it has been hard to assess from the start projects on pure uh digital assets that tradeable on trading new dlt training venues so security tokens as they were more familiar with securities was maybe the first step to have projects on dlts and when we studied the first step towards the

issuance and trades of security tokens onto dlt permissionless technology the issue we find is that many banks many market participants are creating their own projects and there is a really issue in the middle term with regard to interoperability if each project is building its own consortium its own project there is the issue to aggregate and to make a clear market with regard to the interoperability of the project and also the standardization of the market practices in order to have that that greater market at the international level so the issue was beside inter ability to have the issue of fragmentation the the main

purpose of dlt is maybe to lessen fragmentation to have more lean digital markets and precisely to avoid potentially some of the limits that exist from country to country from markets to markets and if we have if we avoid that step to have common understanding of the market practices and maybe public goods some common uh computer codes in in in partage there is the risk of fragmentation on the secret tokens markets and as we clearly see um consortium is really insufficient solution and what is really key is influence and should i say co-petition so we clearly see that issue and there

was also an issue that we see with regard to security token is that many trade associations are working on the part of the business offer so there is the custodian working on the custody offer there is the issuers working the issue offer the investor working on the issues for the asset managers and else but there was really a lack of a holistic approach of what is a security token how could it be processed in an effective way and that's why we really worked on having an open source initiative that precisely have two main aims the first of all is to have a common understanding of the market practices for security tokens and the second layer is to have a potentially

open source connector that could be shared by tech service providers and by market participants in order to facilitate the work for issuers of security documents investors of security tokens to be onboarded on the project and to avoid unnecessary costs for every project so from the start castras really to bridge the traditional market practices on secretaries with the potential dlt capabilities so we work with several partners uh on real use case and not on hypothetical issuance of securities to precisely bridge that point given the fact that the first

layer providing the possibility to issue and trade securities on dlt is to have the common regulatory framework but when you have the the law which says you can you still can't because you should have the second layer which is the market practices that allow the traditional actors and the new actors to precisely have a common understanding of how to treat how to process the securities so we worked on a white paper that is a fully uh available online in opens access of uh 70 to 80 page pages which clearly summarizes a holistic approach of the secretary tokens from the issuance what are the main blocking

points on the right side on the tech side and on the operational side in order to respond to the whole life cycle of the assets and that's the issue that we find as i said many trade association is that very frequently there were only parts of the life cycle of the security tokens that were studied but in order to grow up the market you should have a holistic approach and to onboard these various initiatives so precisely cast was not at all designed to replace the work by many trade association but potentially to bridge and to make link between that work so that's why we have some discussion with with ikma

with isda with various digital uh asset association and should i say traditional uh financial market association in order to bridge that assessment and potentially that to have common assessments on the primary market so how to issue um in which way on uh whatever uh underlying technology so whatever it is a private or public blockchain to avoid such question and to have the market practices no matter what the underlying technology is to have also the potential to trade such security on the second the secondary markets so for the time being security tokens as securities are somehow limited because in the u.s as in

the eu it's not entirely possible today to have the training of security tokens on trade on on new dlt training venues so there is the step towards more liquidity but we we worked as uh substantially in order to to have the framework for the otc trades and also potentially to leverage because as of near next year as as you may know in the eu there will be a new regulation that provides the possibility to trade security tokens onto traditional training venues or dlt based trading venues so it could be a substantial step i think in the us it may arise also in the the few months or years to come and

clearly cast was ready to be ready for that step ready for that step of more industrialization of security tokens so how to bridge the the capabilities of these new actors and the regulatory framework that is really burdensome for traditional actors and for new actors on the secondary markets and also to have a common assessment about potentially how uh notably for back office middle office of traditional actors which have to some extent uh problems to have links and clear connectivity with high function dlt uh so not all back office and middle office know how to read etherscan so they really have to have

the good connectors the good way to use the potential of ethereum and other permissionless uh network with how they are used to work uh for traditional actors and new actors and so it was really important to have such free layers so the regulatory framework the operational framework and the tech from work and what is really key to to understand is that very frequently when service providers are coming to the market participants they're going to the central bank saying we have a new product it will revolutionize the world and take out ccp cnds and else very frequently the offer is mainly on the tech part whereas the

issue for regulated participants is mainly on the reg part and on the operational part and so sometimes there is a lack of understanding because between the two world because the the the the spectrum on which they see the perspective is not at all uh parallel so really what we have worked is for the the cast from work to work at first with our peers so to work on real use cases of issuance that trades off security tokens issued on permissionless technology with our peers so for with goldman sachs with merge axa the european investment bank marco

precisely to have that common understanding on the potential use of permissionless technology for securities thereafter it was it has been really key to work with it professionals because we spent various amount of time to onboard our peers our of future clients on the tech side but we are not a tech company we are a financial company so it's not our core work to have that operational i.t perspective it is maybe your work on iit a participant so we have worked substantially with it companies in order to certify them to uh to cast to promote uh such uh

open source uh connectors and uh project to their own clients so we work primarily with big companies in order to be uh perceived by the market so with accenture pwc kpmg one point consultant in order to have that actors that are used to on board their banking and health clients and as time goes by we are working with many more dlt ecosystem based companies in order to onboard them to uh to the cast from work and it is very especially true as all our projects so far have been done in permissionless technology and especially ethereum so we have worked with many either

dlt association or glt ecosystem such as a mecardial tezos ecosystem related to ethereum in order to to to fit with their uh with their requirements and for us to fit with the requirements we had from the the regulators so as i said really the one of the key point was to have through cast a whole perspective of the whole life cycle of the uh secretaries so no matter what the issuance the securities events the trading of the securities to be in capacity in a in a single white paper to respond to the

main questions to back office middle office actors of a bank and asset managers about what it would mean what it would entail uh as a step in order to be embodied on the on the projects so that was really uh the first step and what has been key in in into cast is not to work on some potential and and the issue of some uh trade association is to work on potential use case of proof of concept while we have really and that was one of the main requirements from the the board of the sustainable group is to work on only on real transaction and to even though it was experimental transaction to work only on real transaction

provided onto glt technology so since 2019 we have uh realized at first within a intra group transaction within sustainable group and then with external clients issuer side investor side issuances of securities within permissionless technology so as you see on on the screen every of the transaction has been made in ethereum i think it is only the the structure product issuance that have been made on the tesos texas technology so at first we really had to have the internal approval within a systemic bank such as sustainal from

the compliance the rig the the risk the legal team to have all the approval about the first issuance of securities within a public permissionless blockchain such as ethereum but the cash leg of the transaction for operational and regulatory reasons were made in a traditional way outside of the blockchain the first time when we provided the cash leg of the transaction directly within the blockchain was in the second transaction we made um we we are really glad that bank defense was really keen to work with actors precisely to assess the potential the potential to represent digitally the euro directly on to the

blockchain in order to have the the payments of the transaction the payment of the securities directly on the blockchain so in 2020 it was made onto a private blockchain but there was a substantial step in 2021 where we did an issuance of secret of digital bonds outside of the sg group so it was the the main the economical arm of the eu which is the european investment bank that really wanted to be the first supranational to issue digital bonds and to issue digital bonds onto permissionless technology dlt technologies so the issuance of the

digital bonds of the european investment bank have been realized onto the ethereum blockchain and the payments of such of such issuance has been made into a digital representation of euro that has been provided by bank de france and which make the bridge between traditional way of payment in europe in the euro system and a potential payment directly onto a public dlt such as the blockchain so we've made this various experiments experimenting on on cast and growing or understanding of this whole life cycle uh about secret tokens so at first it

was within so stationary group that we made that assessment and then with various peers various partners and as you see in 2022 and especially in 2023 there would be the the beginning of the industrialization of security tokens given the fact that it would be next year possible to trade on trading the new security tokens in a regulated way acceptable by eu regulators and such step towards more liquidity would enhance the interest of traditional investors or new investors in into security tokens so really the the aim of cast was really to be based

only on real life uh transaction and all these transactions have been made according to cast and the next step towards the end of the year and the next years would be precisely to broaden the scope of the actors uh with which we will develop such common assessment so in order to um as i said cass at first has been a white paper about the life cycle uh of the security tokens that is fully available on a dedicated website what has been really key also is to have the good connectors in order to facilitate the the possibility at zero cost that an issuer or an investor uses um permissionless technology or whatever

technology as an underlying technology so at first besides the whitepaper on the market practices we have created some tech connectors what we could call oracle connectors which plays the role of apis between traditional issuer of securities and the way dlt works what we have perceived is that we really were we really had to create such connectors also for investors in order for them to participate at zero cost to this issuance because as i said we are not a technology tech company we with peers we created the first online hackathon on cast the cast challenge

where the winners were announced just yesterday in the in the same room for the crypto finance forum and so uh for the jury of such events we gathered various actors so from bank de france from swift from visa from axa investment managers ibn ambrose banco santander and sustained general in order for the jury to be really traditional actors from the payment side from the bank side from the investor side and to have as participants only iit companies so they have been candidates from india from kenya from the u.s from the uk from various european countries on a really use case on five use cases that we clearly see a blocking point from the investor side

with regard to the connector they needed and after such uh such cast challenge uh the the five winners that have been selected where first kaiko on the use case that's really important for investors is how you feed data directly onto the blockchain as i told you many back office speed office don't want to have a direct link to the blockchain so they want to have a connector in order to facilitate the way of feeding data for example interest rates uh rating rate or else directly onto the blockchain and such connector was not entirely existing into an open source way so the the the win uh such award in

order to have the connector to feed more easily data within a smart contract uh already existing into a permissionless blockchain there was also the need on the uh issuance of the security and on the issuance of the cash uh to be multi-chain and to be in compliance with regulation and in capacity to promote interoperability between various smart constructs of security tokens so on that use cases block pulse and and with india won the the award and there was also two key elements for investors at first it is how to read more effectively the blockchain such as for example ethereum so for example a back office and middle

office of traditional financial actors as i told you doesn't want to watch either scan they want to proceed to their traditional management data management systems and so it is the question how do you feed data to these actors to read more easily what is on the blockchain if they don't want to proceed to essay scanner and else so how do you have such visual reporter providing the data more efficiently to the to the investors and also the issue of the connectivity with swift as you know many uh cash payment data is processed through the swift system and for investors it

was really a blocking point to avoid that connectivity most efficiently made between the way glt is made and uh the the swift uh the swift system is is made so uh they were the winners from finastra side and really for us cast challenge was really a way to be the first uh open source contests that's promoted a link between traditional actors and new actors or i.t participants in order precisely to create such open source building blocks so that in a way there is public goods for the security tokens markets and all of these components have been created

under the should i say the the most open source license which is a aph 2.0 in order to be accessible to anyone and precisely to by being accessible to anyone to facilitate the adoption of security tokens by a various kind of actors so so for us the next step is really to assess more effectively uh the the work of caste with many uh actors from the red side and from the the dlt side on real use cases uh into the the next few years and also to assess what could be the governance because at first it was created by sustainable and its peers the

aim is really to have a governance that is partly from the right side and partly from actors whether they are dlt association dlt trading venue various kind of actors service providers to have that gathering it was very difficult because we see that the the whole aim of many existing association is precisely easier to be a banking association or an assessment association or a pure digital asset association but there was a difficulty to have the link and what we are precisely willing to do is to have that link so to have that work together as we have a in the next the last few months with maker deo and various defy participants so to have that common

understanding of what could be uh the the future security token markets so what could be potentially the the governance body that would be acceptable by both regulating entities and by the new players in order to have that that common work on these open source components and also that work on the market practices and time after time to be even more uh disruptive in the way uh the the regulation and the projects would be made on on such markets and so as i told you the the real aim through this potential governing body is to bring together so of course regulatory entities in order to foster the project and to have more

listening from regulators but also various crypto service providers and various consulting firms in order to have gradually that common assessment and that common work between this governance body and valued various trade association in order to enhance that capacity to have work together uh so um that was it for me uh uh if if you if you want uh the slide will be uh much longer on what is kai's cast especially uh with regard to uh the the definition of the actors and the roles on the security tokens markets and on the three main framework of the the cast framework so uh if you

ask the organizer or myself on linkedin or else i would be really happy to to send you the slides and to develop some dialogue because what is really key and the whole aim of my presence today on stage is really to have that that common work between regulated actors such as us investment firm and yourself as new players in that space thank you [Applause] you