The Digital Issuance papers arose from two influences: widespread industry discussions on digitisation, and practical experience in the implementation of tokenised assets and cash. The project was formed to develop a better model for assets and transactions in a digital world, and to promote debate on its optimal form.
It was clear from the discussions across the industry that the potential for further enhancement of conventional market infrastructure was limited: senior players expressed that view strongly and consistently. Digitisation was recognised as a potential game-changer, which could release an order of magnitude improvement in the economics of investment. The question was how to ensure that this potential was fulfilled. Replicating current operating models, and applying digital solutions to existing processes, seemed unlikely to maximise payback. A rethink was required.
As the Design Lead for FundAdminChain, a prominent digital infrastructure for funds, the author has direct experience of the challenges faced in implementing digital assets and cash, even where those are just token forms of existing assets and cash. Mandating the existence of current regulated entities, roles and processes in a digital world threatens the elimination of benefit, and a digital replay of current issues. Again, a rethink was required.
The Digital Issuance papers are the result of that rethink. Sponsors were engaged, primarily to support publication, launch and distribution of the papers. A wide range of reviewers was engaged to critique and validate the papers, and many senior players gave their time and attention to enhance the quality and applicability of the material. The sponsors and reviewers are identified under the ‘Contributors and Sponsors’ tab. While there has been widespread engagement and broadscale contributions, the project has been run wholly independently, with no editorial control in the hands of sponsors or reviewers.
There are three papers:
The Full Report and the White Paper are divided into two key parts:
The first part describes the problem with our current view of transactions, suggests an approach to change it, and shows how we can spread the benefit of that change broadly and cheaply through tokens and fractionalisation; it illustrates how distributed ledgers can help us to achieve this. The paper demonstrates that our existing model of assets and transactions is picturesque, but outdated and unfit for purpose in a digital context. It is an unsound allegory of the process our ancestors followed for exchanging goods for gold. Unsurprisingly, keeping such an archaic model of assets and transactions afloat requires increasingly complex patches that are expensive in terms both of risk and of cost.
In the second part, we shift from critical analysis to constructive solution, and propose a better model that applies generally across financial products and transaction types, while avoiding the unintended consequences of our current model. We show that this model is attainable with digital assets, and document its very substantial benefits.
The second part also sets out the radical potential of smart tokens to create a transformative digital operating model for financial assets, and the dramatic benefits that would follow their implementation. This section is the more significant of the two, and sets out principles of digital issuance which are both radical and powerful. It is hard to overstate the potential impact of smart tokens. The central theme of the paper is that smart tokens are a better, more workable alternative to the current model of issuer-defined assets and issuer-managed transactions.
The focus of both parts of the report is to define an optimal model for digital issuance and transactions that can serve as a target. The papers are not about the practicalities of implementation, nor about the migration steps or hurdles on the way: that comes later. It is about the target. Once a target model gains consensus, and we know where we are going, then it will make sense to look in more detail at how we get there, asset class by asset class, product by product, and move towards practical realisation.
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