Hello everyone. My name is Alex. Today I will talk about atomic DVP on Ethereum. If you're not familiar, DVP If you're not familiar, DVP is an institutional finance term that stands for "delivery versus payment." Metal Labs and Zikasing have focused on institutional issues over the past two years, and this is one area where there is a lot of excitement, despite the current market situation.
DVP essentially stands for token swapping, and it is a challenging problem for institutions as current blockchain current blockchain options do not quite meet the requirements of institutional finance; they face trade- offs between several important properties that each of them actually obtains. I will briefly tell you about existing solutions and explain why they don't work. Let's start with public chains. Obviously Ethereum has a lot of fantastic features, and it's been used for institutional funding or buying institutional funding for a lot of use cases, but it's use cases, but it's obviously public by default, and everything you do, all your positions, all your transactions will be visible to everyone in the world. And it doesn't work for banks, which must adhere to strict bank secrecy rules bank secrecy rules .
This doesn't work for businesses that don't want to reveal their business models to the world. So this is simply unacceptable. You are cutting off 99% of use cases. So we'll skip that and move on to the solution they've been experimenting with for a few years now. Private chains, institutional permission chains.
They work in banks, financial market infrastructure providers that use it to manage liquidity between different subsidiaries for internal operations and all that. They have complete confidentiality because the data never leaves your control zone. But, obviously, they are not connected to each other, so the value of the systems is very limited. It is probably more limited than public chains. Um, the whole idea of blockchain is that it's a network.
This is the internet of values, and there is no internet if you can't connect. Hmm, there is an obvious tempting solution – tempting solution – to connect them using external bridges, and the problem here is that the bridge operators see everything that happens between the chains. Um, but that's, um, a smaller problem. The bigger problem is that your bridges essentially become your settlement level for everything that passes over the bridge. So all the tokens you put up for bridge access, you place on the bridge.
You have no output circuit security. You don't have the security of a target chain. You replace it with assumptions of trust on the bridge. If that suits you, fine. Um, but you have to be sure of this, and many institutions are not.
And the third type of solution that, um, is being considered or has been considered for some time is what I would call mediated networks. It has a combination of the properties of the previous two. Um, and it gets into, you know, you have different kinds of, um, these implementations. There are some systems that are fully operator-certified, where you get separate privacy domains and trust certain operators to certify the security of the zones and guarantee privacy. But these guarantees are contractual.
Another subtype of such a system is something like fully homomorphic encryption, which is cryptographic on the one hand , but on the other hand, you still have a number of operators who together have a complete picture of what's going on inside, and they can decrypt it using a certain threshold. So you're still trusting most of these operators to behave honestly, and it's not very strict, to meet the strict requirements of the institutions for complete, absolute control over the data with control over the data with , you know, strong, non- contractual guarantees. So, we saw that, and we created an architecture called Previdium, which, um, meets all the requirements that we discussed about what Pvidium is. This is a private framework for building private chains or private zones that are cryptographically secure. So you generate proof of execution for everything inside the, uh, chain.
Institutions run them on their own infrastructure. You have absolute assurances of physical data security or data privacy, as the data never leaves the devices under your control. And yet you have this private atomic connection between chains, and you choose Ethereum as the, uh, most reliable, credibly neutral, uh, settlement layer settlement layer . Uh, you know, Previdium comes with, uh, a bunch of intermediate levels, uh, that give you control over the transactions of individual accounts. The operator sees everything inside and can control everything: full permission, full data, uh, properties data, uh, properties .
Next, you know, you can connect your OIDC user directory and configure permissions there. You can configure rights for each user role, for each smart each smart contract, for each individual smart contract function. You have a lot of flexibility and you can also do it programmatically, uh. But cryptography or zero- knowledge proofs ensure that everything executed on Previdium is correct on Previdium is correct . Even if the operator is not very honest or if his data is compromised data is compromised , he will not be able to complete invalid transactions.
This allows, um, um, transactions that can span multiple zones at once at scale, um, executed together, following certain rules. We'll talk about how this works on a slightly more technical level. But it's also really interesting, hmm, that you can set rules that apply outside of your zone. So what I mean is that you can deploy a smart deploy a smart contract once, say, as an issuer of an asset. You, you build it the way you do, you're a bank that deploys a tokenized deposit, and you have a broad list of users who can use that deposit, or a specific set of KYC/KYB rules that have to be applied to each individual transaction.
And what you would have to do in modern configurations with private networks is to make a two-way agreement with each bank that you want to work with. You would have to integrate into their systems, you would have to prescribe these rules to them and get a contractual guarantee that they will follow them, and you have no way to check whether they have followed them because you don't see what is happening there. And, um, you can't guarantee that it even happened. With Previdium, you can deploy a smart contract that will be virtually displayed in all zones, and it will automatically enforce rules without your viewing the data and without your presence. Anything that is invalid will simply not be executed.
So, um, let's talk about private DVP, because that's the most complicated example, or, um, the most interesting example of cross-zonal interaction cross-zonal interaction , that raises questions every time we talk about it. This is a topic that's hard to understand, like how exactly it works on a technical level, because it all comes down to, um, the legal implications of what happens if, you know, part of the transaction goes through and the other part doesn't; Who is responsible? Should I sue someone? Is this really guaranteed by technology? And in this case, it is guaranteed by technology.
Here's how it works, um: it works, um: first, why do you need it without automatic atomicity, uh, DVP in modern banking systems is executed sequentially. So you send someone shares and they return the funds to you in various ways, and you always have this counterparty risk window where you send them money, but maybe you don't get the securities back and then you have to sue them. So it only works between a small number of counterparties that you can really trust, or you trust yourself to be able to enforce it through a legal system that limits your options. In blockchain, it's not like with atomic swaps, you don't have to trust the person you're transacting with because it either happens or it does n't. And so if we could do this just in traditional finance with tokenized assets, we would significantly reduce the cost of compliance and the cost of operating the systems because the settlement risk would be reduced .
Transactions would be much easier, simpler and, um, much more capital efficient because you don't have to wait for settlement time, which also costs you some money and sometimes takes a few days. So, um, here's how it works. Imagine you have two zones and you have assets in each zone and they want to make a transaction. Then the two parties agree on what exactly they want to do. Let's say they want to, um, you know, one party says, "I'm going to send you $100 for $100 or $100 million for $100 million ."
Um, they record the exact agreement and simulate that transaction, as if signing the intent of what will happen, with all the consequences, with the full exchange, um, all the input and output of the transaction, um, with all the consequences. Then they generated, calculated the hash of such a mutual contract, which we call a cryptographic commitment, and placed it on a neutral data availability layer, and the hash itself was placed on Ethereum as a settlement layer. This way, both parties could access the availability of data and the actual level of settlements. Data availability on Ethereum can be Ethereum's native DA or some third party trusted by both parties. Then, once the hash of the commitment is at the settlement level, both zones can see it zones can see it .
Because zones are L2 at the compute level, they can always read the underlying chain, and they see everything that's going on there, and they can access it directly. So once they see once they see that the commitment has been published and is firm, they can lock up the assets of both parties in the NASCAR contract. So they place assets there, and they can only be released under certain conditions. Once the lock occurs, both parties can review, um, at the settlement level, and check the current state of the commitments of both chains. Both chains perform fixation independently of each other.
Each of them performs blocks. If you're not like me blocks. If you're not like me , then I'm assuming , then I'm assuming you're familiar with how L2s work. For each block, there is a new state, and this state has a root hash that is placed at the calculation layer. So both parties can read the current state of the counter chain if they know what to look for.
But they know this because they exchanged this information beforehand. They had this script that explained what would happen on each side, so they knew what to look for once you had the new root hash. And then, if both parties see that the commit has occurred, they know they can release the funds according to the happy path rules, and they will be executed. And if the commit hasn't happened by a certain Ethereum block, they will look at the state of another chain. They won't see the commit happening, and they'll fall back to, um, um fall back to, um, um , the pre- agreed release path, which just sends the fonts back to each of the chains.
Um, and this works for delivery versus payment, for payment versus payment, so for exchanges of all different types, for collateral movement. And it can span multiple zones at once in one large on-chain transaction, not just between two different zones. And, um, it can, um, previuosly, form this cryptographically credibly neutral network, connecting to each other via Ethereum, um, which is already growing right now along with the Kerry network, um, which is a consortium of five regional US banks. There are several FMIs and large banks that create it, including Deutsche Bank and some others. I, um, I, I'm not going to reveal much right now, but the network is growing right now , and, um, I would like to talk more and explain if anything was unclear, um, I'm available after the conversation to answer questions.
Thank you all questions. Thank you all .
Automatic transcript — names and jargon may be misspelled.
