In this webinar, industry leaders discussed the creation, benefits, and potential of the industry’s first privacy-enabled interoperable blockchain network for institutional assets.
Speakers
Launched in May 2023 with an initial partner group of 30 institutions, the Canton Network is the first open blockchain network designed with the control and interoperability needed to power synchronized markets, making it uniquely suited for financial services. From a technology point of view, it is designed as a network of networks that allows various blockchain applications to connect together, combining scalability and interoperability with built-in privacy and security.
The Canton Network creates an ecosystem of applications developed by major institutions over the last 6+ years, expanding the reach, impact, and potential use cases for every participating organization.
What makes Canton different? From the ground up, the network was designed specifically to connect existing applications to each other. New applications can join as they are developed. Every institution maintains sovereignty over its application, users, and data: Using fine-grained permissions, they can control who has access to their application, what level of access or role they have, what actions they can take, and what data they can see.
Unlike private or public blockchains, Canton makes it easy for applications to interoperate with one another. Applications written in Daml, Digital Asset’s smart contract language, can interoperate while preserving privacy. This allows each institution to create application(s) that address specific parts of a transaction or workflow without having to create a fully vertical stack that replicates the entire workflow. The institutional use case can be built onto the network and interact with downstream or upstream applications of other providers.
In practical terms, the Canton Network can introduce the issuer, tokenization mechanism, and CSDs to make sure you have the proper custody and registry, then introduce the necessary cash flow mechanisms independent of each of those use cases. Throughout, regulators have a view into transactions while retaining the privacy that each of those use cases requires. As DRW’s Chris Zuehlke noted, “Ultimately this ma,kes the processes, workflows, and businesses much more efficient and safe.”
There are many blockchain solutions in the market, but they come with trade-offs, creating gaps that have limited the institutional adoption of blockchain and smart contract protocols—until now.
Deloitte’s Joe Cody pointed to the myriad controls and compliance with which regulated institutions must comply, along with the very real consequences they face when those responsibilities are not met. “Privacy is huge,” he said. “A L1 chain that doesn’t address that is a non-starter in the institutional space, and solving it with L2 or L3 solutions is not good enough.”
Digital Asset’s Simon Letort compared the Canton Network’s privacy protocols to receiving physical mail. With Canton, you receive only your own mail in your mailbox—whereas on a fully replicated chain, you’d also see all of your neighbors’ mail. As Letort explained, “On your own node, you see only your smart contract. So, for a syndicated loan application, only the parties concerned in the loan will be involved in the validation of that smart contract and only the banks involved will have access to all the details.” If that loan connects to another application covering a different workflow, the transactions and participants for that second application will only be involved in the smart contracts taking place on that application’s node. This assures that, for any particular node, you can see only the data you are permissioned to see and only connect to the applications you are permissioned to access.
Similar to traditional finance, there is a trusted party (e.g., the issuer or broker). To assure data integrity and security, the Canton Network uses a ‘proof-of-stakeholder’ model to reach consensus. All involved parties confirm they are in agreement with the terms of a transaction governed by a smart contract. The node of every party has a hash of that validation, and the hash must match across the board for the transaction to complete.
For regulated institutions to put use cases on a network, they must have complete control in order to meet the needs of regulators and supervisors. The Canton Network solves for this while also providing the necessary scalability to support high-volume financial transactions. The Canton Network data model is not a fully replicated blockchain; rather, it is built on a data segmentation model that creates a network of networks. Both the data and the compute power required to process a given action are segmented.
The applications remain sovereign and independent, so institutions can add servers and nodes to expand capacity and meet higher needs for throughput. Chris Zuehlke sees this as “a very intelligent and creative way to address the needs of financial institutions while also maintaining computational sovereignty.” The builders of the applications must invest in that kind of computational capability to allow more complex transactions to take place, but that can be done without impacting everyone else.
Given Canton’s ability to deliver interoperability, scalability, and privacy, Cody expects to see “more adoption and more complicated use cases that span individual organizations starting to evolve on the network.”
In combination with the technical infrastructure, smart contracts provide the necessary foundation for innovation. Whether an institution is looking to streamline processes or create a new, digitized service, smart contracts capture and codify the workflows and permissions that allow distributed ledger technology (DLT) to distribute data and validate agreements on chain. Traditional barriers to execution, such as data capture, constant reconciliation, or sequential processing, fall by the wayside.
For the institutions using the Canton Network, operational efficiency is a big (and early) win. Zuehlke pointed to DRW’s recent experience with Broadridge as an example, saying, “Our experience in terms of the workflow and data availability was what we’d expect in an off-chain repo transaction, but what was different was the time in which we were able to see, validate, and confirm that transaction to effectively get to finality.”
Applications written in the Daml smart contract language also hold the key to Canton’s interoperability. Each institution’s application is independently composed, but those individual puzzle pieces can natively connect to other applications to deliver multi-party workflows and extend capabilities up or downstream. With the Canton Network, an application that tokenizes assets can connect to an application that handles US treasury repo on chain. Be sure to watch the webinar replay for use cases covering asset tokenization/issuance, asset servicing, tokenized cash, and securities financing.
As Zuehlke noted, “The beauty in what the Canton Network has done is in understanding the building blocks needed to issue, transact, and service highly regulated assets on chain.” It may not be an attention-getting headline, but he believes that “the work being done behind the scenes to change the plumbing and wiring of financial markets is critically important. This changes how financial markets operate from a risk and capital efficiency perspective.” Canton provides the capability to create and run privacy-enabled applications on chain at scale, leaving it to application creators, users, and regulators to define what each application does, how it is used, and by whom. The institution maintains sovereignty over their application, who can connect to it, and how. That includes responsibility for KYC/AML, what types of cash solutions are used, and how data is acquired and shared.
As an open network on which permission applications can be deployed, the Canton Network offers a hybrid of private and public networks. Each application defines its own permissions: Similar to the internet, where anyone could read a story on CNN.com, but accessing an account at Chase requires permissions and validated credentials. As Cody commented, “With Canton Network, we are seeing the rewriting of the financial system. Transactions can take place on chain in a way that is faster and more efficient, with the ability to include participants from different parts of the financial ecosystem that you otherwise couldn’t efficiently access.”
According to Letort, there are a number of ways to participate. Institutions with existing applications can connect to other applications to extend their use cases by running a node and connecting that node to the desired application once permissioned. For institutions looking to build an application, a variety of tools and resources can help them learn the Daml smart contract language. Finally, since Canton is a decentralized infrastructure, there’s a need for institutions to run the infrastructure and act as a validator providing the sequencing of smart contracts. Organizations seeking to play that role should contact Digital Asset.
Sovereign, interoperable apps
Each application defines its data permissions into smart contracts and can run their own infrastructure.
Smart contract composability
All publicly exposed smart contracts can be composed into atomic transactions across applications.
Horizontal network scalability
Each application can expand the capacity of the network by deploying more supporting infrastructure. Each node only stores its own data.
Node is single point of entry
Having a node allows users to connect to any application registered in the network.