London-based blockchain reconciliation and payment provider SETL, a subsidiary of Turkey’s fastest-growing embedded fintech service platform Colendi, has done significant work for more efficient and faster financial settlements between banks and other financial institutions.
The study is a milestone in establishing the necessary infrastructure of the ‘digital dollar’. Colendi, one of Turkey’s largest financial technology companies, has become one of the world’s leading providers of blockchain-based payment and settlement systems for banks, finance companies and regulated platforms, known for its high-profile work with custodial and payment institutions in 2022. He bought it all.
The research, conducted by the New York Innovation Center, affiliated with the Federal Reserve Bank of New York, found that the largest US financial institutions, including Citi, Bank of America, US Bank, HSBC, Bank of New York, Wells Fargo Bank, TD Bank, Mastercard and SWIFT. Some institutions were also involved.
Supported by SETL as the main technology supplier, the applicability of the Regulated Liability Network© (RLN) concept was investigated. In the study using distributed ledger technology (DLT), it was discussed whether a network where central bank digital and commercial bank digital currencies can coexist. In this work, SETL acted as one of the core technology providers hosting the Ledger (Reconciliation System) and smart contract portfolios for all participants.
RECONCILIATION PROBLEM IS RESOLVED IN INTERBANK DIGITAL TRANSACTIONS
The New York Innovation Center’s digital dollar project aims to solve a consensus problem caused by the incompatibility between them due to differences in designs, even though each is based on blockchain, i.e. distributed ledger technology, when it is desired is to make interbank transactions with digital currencies issued by various private banks. .
While there are several alternatives to get around this consensus problem, each results in a different amount of loss of time, energy, and/or value.
As a result of the study, where shared ledger technology addressed speed, cost, 24/7 availability, including after business hours, and settlement process challenges, the technology has the potential to facilitate financial settlements between central banks, commercial banks and regulated non-bank institutions proved to be the solution. Only simulated data was used in the testing environment study, with all commitments in US dollars.
TESTED SUCCESSFULLY IN DOMESTIC INTERBANK AND CROSS-BORDER PAYMENTS
The study, which is based on RLN technology, discussed scenarios targeting both domestic interbank payments and cross-border payments in US dollars.
The domestic interbank payments scenario aimed to demonstrate the basic functionality of the proposed payment system by simulating large-scale payments in US dollars between commercial banks. Transactions were settled with tokens from commercial bank deposits, using a notional central bank digital currency (CBDC), a tokenized record of the central bank’s deposit liabilities.
In the U.S. dollar cross-border payments scenario, it focused on wholesale payments outside the U.S. dollar and explored the concept’s potential to improve global users’ experience of the U.S. dollar as an international trading and settlement currency.
The proof-of-concept study successfully simulated both scenarios and identified shared ledger technology as a potential solution to support payment innovation.
All test cases were successfully run using many technology configurations demonstrating interoperability. Transactions were conducted using standard ISO20022 messages. The virtual environment created for the study successfully captured, transferred and closed commitments in near real time, maintaining strict confidentiality of data between participants.
EXCITING TEST OF A NEW KIND OF RECONCILIATION
Anthony Culligan, CEO of SETL, commented: “This study presented an exciting test of a new type of consensus environment. The results showed that it is possible for banks to synchronize their DLT ledgers to facilitate complex transfers of value between their customers in real life. It also demonstrated a viable approach to programmability and smart contracts that can run on both traditional and DLT ledgers. The RLN network design provides a favorable environment for future innovation. We welcome future technical research in this area.”
NEW RLN SOFTWARE FROM SETL
SETL launched its RLN software under the LedgerSwarm brand last week. The first version, called ‘Kitty Hawk’, can be tested on the ledgerswarm.io website.
The Regulated Liability Network© (RLN) is an interoperable liability network platform that is being tested by the world’s largest regulated financial institutions. The network aims to be fully transferable between network members regardless of the ledger technology they use, enabling banks to create their own 24/7 real-time payment instruments. The network will provide an ecosystem where regulated entities can seamlessly use central bank digital currencies (CBDC) with their own tokenized assets.