Five banks have been working with the Monetary Authority of Singapore (MAS) to flesh out its vision of the Global Layer One (GL1) blockchain, a public permissioned blockchain network that could form the foundation of numerous applications. The five institutions are BNY, Citi, J.P. Morgan, MUFG and Societe Generale-FORGE. They will now be joined by HSBC and Euroclear. Some of the project’s scope has also been expanded.
There’s some crossover between the GL1 concept and the BIS’s unified ledger. Both aim to create a single infrastructure that will support multiple applications and asset classes. GL1 aims to enable trading, settlement, payments, collateral, corporate actions and more on a shared network.
When the group published the report on the first phase of work in June, we noted a willingness to embrace disruption by eliminating the need for key roles performed by central securities depositories (CSD). However, now a CSD (Euroclear) is one of the architects.
A major contribution that Euroclear brings is the digital asset securities control framework it developed with the DTCC and Clearstream.
That framework outlines six high level principles below and them maps each to risks and the specific controls to address those risks.
The six principles are:
- Legal certainty
- Regulatory compliance
- Resilience and security
- Safeguarding customer assets
- Connectivity and interoperability
- Operational scalability
Hence, MAS has created a new financial market infrastructure (FMI) working group to focus on these control principles, which will involve other FMIs.
Expanded GL1 scope
These principles will be applied to settlement arrangements for cross border transactions on FMIs and collateral management, amongst other applications.
Perhaps the most challenging new task is to develop a business model that doesn’t just work for banks but other ecosystem players as well.
The group will also develop specifications for tokenized asset lifecycles and programmable compliance.
We’d observe that as the group gets larger, it might require compromises as different participants may have worked on separate standards, which may not always be compatible. Developing common ground is a key path to interoperability.
Meanwhile, yesterday MAS outlined its vision for transitioning tokenization from experimentation to commercialization. GL1 is one of four pillars in that process.
