This is the second article exploring the Securities Passage Network. In the first article , the author discussed some of the economic and technical foundations of the securities pass network. This article wants to focus on the technical building blocks of such solutions and their relevance to securities passes.
In the first article we mentioned that the securities pass network is likely to be one of the most interesting trends in the near future of the securities pass. Conceptually, the Securities Pass is a licensed blockchain that provides the native structure for issuing, distributing, and trading securities passes. An important aspect to note is that the final form of the securities pass network should be a small number of large blockchains that bring together retail investors and institutions to achieve access control across different parts of the network. Privacy protection . In the original version, the value proposition of the securities pass network had three basic elements:
- What are the characteristics of the common identity in the securities pass and identity securities?
- Korea Exchange Bithumb enters STO field
- Information Release + Programmable Disclosure Mechanism = Information Symmetry Mechanism of Securities Pass
- Is speed really important for securities-type trading?
- Towards programmability, these five agreements should be part of the securities clearing platform
- Securities Pass 2.0 Agreement: Hybrid Securities Pass
1) Network effect : The securities pass network may be the only way to form a real network effect in encrypted securities.
2) Chain assets : The securities pass network may be the most effective mechanism to ensure the creation of the first chain of securities.
3) True de-intermediation : The securities pass network has the opportunity to lay the foundation for eliminating unnecessary intermediate institutions in the securities market.
Although the value proposition of the securities pass network seems clear, its technical realization is by no means a trivial matter. In the current market state, establishing a securities pass network is as technically challenging as establishing a financial and regulatory network. From this perspective, let us explore some of the key features that should emerge in the first iteration of the securities pass network.
Key functions of the securities pass network
The goal of the Securities Pass Network is to provide a native basis for managing the life cycle of encrypted securities. From a technical point of view, this vision requires a series of building blocks to abstract the native functions of the securities pass and the corresponding experience to achieve the creation and post-issuance management of the securities pass. Designing a securities pass network is a balancing act between achieving a rich feature set and achieving technical feasibility in the short term. From the many possible technical functions, the author believes that the following functions are indispensable.
Proof of ownership agreement
One function that the securities clearing network should ensure is the link between the transfer of the pass and the transfer of ownership. The current transfer of securities passes needs to be linked to the underlying process of establishing ownership transfers. Even though many people believe that securities transfer is a fully legal mechanism for transferring ownership, the technical base is still missing.
In the securities pass network, the Proof of Ownership (PoO) agreement will be responsible for ensuring that the legal transfer of ownership of the asset is part of the transfer of the certificate . The PoO protocol may be part of a securities pass network consensus mechanism that requires multiple nodes to vote on the ownership transfer of the encrypted securities base asset.
It can be said that compliance is the most obvious component of the securities pass network. The current version of the securities pass platform basically focuses on the compliance model. Frankly, it seems that some of these protocols can accommodate a wider portfolio of securities passes.
It is important to note that we should not expect a single compliance agreement, but rather a set of protocols that meet specific compliance needs . In the securities pass network, issuers should be able to meet different compliance requirements by combining different protocols without writing a new smart contract.
Securities Pass DSL
The securities pass network requires a method of programming securities passes. Assuming that most securities pass networks will be built on top of the tier1 blockchain, they will rely on the underlying smart contract language to create a securities pass. However, the network of encrypted securities should be accompanied by a new language to simulate these new tools.
The Domain Specific Language (DSL) for securities pass is a declarative model that abstracts the function of cryptographic securities. The results of the DSL should be translated into executable code in the underlying smart contract language. In addition to the creation process of the abstract securities pass, the DSL model can also be used as a queryable and searchable definition of securities in the network.
Access control and data privacy should be key building blocks of the securities pass network. To a certain extent, privacy can be seen as a major obstacle to the use of the public blockchain by the Securities Pass. Although we believe that the securities pass network should be open to retail investors, it should provide access control and privacy protection mechanisms for different issuers or different parts of the network.
The privacy agreement should be the first type of object in the securities pass network. Embedded technologies such as zero-knowledge proofs in the privacy agreement can ensure the privacy of the data when the securities pass is transferred without sacrificing compliance requirements. At the same time, the securities pass network should implement access control policies across different parts of the network to allow secure interaction between issuers and investors.
Without the identity, the securities pass network will not be able to operate. Functions such as consensus, compliance, or governance rely heavily on the generic identity model that represents participants in the securities pass network. As identity becomes the first category in the securities clearing network, the need for a consensus mechanism becomes less important.
The identity agreement must be the basic building block of the securities pass network. Representing the identity of issuers, investors, and other nodes in the network in a portable, executable format will drive the development of new forms of compliance and privacy agreements.
Governance agreements and incentives
Any network needs a governance model to ensure the correct behavior of its participants. The process of joining or withdrawing nodes requires some governance structure to avoid attacks. For securities passes, governance is more important given the requirements of the ecosystem for compliance.
Governance agreements should be another fundamental element of the securities pass network. The role of the governance agreement is to perform voting decisions to regulate the correct behavior of the network. Depending on the degree of decentralization, governance agreements may require a form of universalized incentives to motivate nodes to participate in network governance dynamics.
Encryption financial primitive
Ultimately, a securities pass is a programmable representation of a financial model such as debt, stocks, convertible bonds, or other bonds. Most securities passes currently require this logic to be implemented manually in the underlying smart contract. As the industry evolves, many of these dynamics will be abstracted into reusable protocols.
To simplify the issuance and lifecycle management of encrypted securities, the securities pass network should provide a first type of agreement that abstracts the behavior of key assets. These cryptographic financial protocols can be combined in any way to build more complex forms of cryptographic securities, providing a true foundation for programmable finance.
These forms of tier2 decentralized networks seem to be inevitably an important part of the securities clearing ecosystem. The right technical foundation will be the key to determining the viability of this encrypted securities network.