Influence of Bank for International Settlement on DLT Adoption | European Blockchain Convention 9

[Music] yeah thank you very much uh for giving me the warm welcome um actually it's it's I I really enjoyed the recent panel discussion to be honest um because last time that I was here I spoke about coop petition uh I was on the key we had a keynote as well and we presented well if you want to make something in the space you have to cooperate with the others but you have as well to consider that you're competitors and this Co competition framework and comp competition idea is of course lovely to see that the the panelist as well talked about it however um I'm here because we have continued to work on our Coop petition model and there's something more that I want to share with you about the influence of the bank for international settlement in the area of DLT adoption I'm Jonathan Lesman I'm the chief marketing officer and head of platform strategy at swatt a joint venture formed by Standard Charter lbbw and deca Bank hence we have a very strong focus on institutional and Banks which is why regulation is even more important for us so um I guess you all know the Gardner hype cycle and where uh the hype Technologies are on the cycle and when we go into production and when we look at it what um the Gardner hype cycle is reporting for blockchain Technologies it says well currently we are in the trow of disillusionment meaning it still needs 2 to 5 years until we get uh mainstream adoption of blockchain layer one Solutions in the broad range uh as we know it so what is missing right we all hear about all about regulation we all have to just join in the form of a coop petition but we made a very brief summary of well what is missing and what we hear always in the market and what we hear is well you know what regulation is missing but then we looked at it and said well honestly that's not correct because we have a regulation in France since 2019 in Germany since 2021 in Europe we have the DT pilot regime since 2023 and in Spain this year we had the new uh Securities Market act as well then we hear well it's payments right wholesale payments there is an issue because we don't have any form of payment without any issue or risk well actually again that's not true anymore because getting the uh dldt sandbox of the um the exploratory toolbox of the European Central Bank where financial institutions can sign up with us for example and say well let's do a digital security and settle it against European Central Bank money and then well we don't we still don't see the synergies in the market um because we are platform driven meaning we need Network effects we need counterparties to interact with Etc and ultimately what we see in the market is a lot of different Islands being created and everyone waving at each other and saying hey I'm on this island come over to me this is a really cool solution that I have right and what we see is well we that's all solvable right we have the regulation we see on the horizon already there is a solution for payment and the last part well that's on us right and we see the bank for international settlement now coming in in the lower part on the aspect of the blockchain infrastructure itself when we had a look from in our strategy department on how we want to approach the conundrum of getting into scalable and production we saw well on the blockchain application layer on International and National regulation on Services providers and D apps that's all fine but no one is actually looking at the tech that we're using beneath it and this is now Happening by the bank for international settlement which is making recommendations for how you should evaluate from a risk perspective and capital treat treatment requirements for a financial institution if you use certain technology or if you do certain trades and this is definitely a risk driven approach and I want to have a very short look right now into the risk-driven approach and of course this paper covers much more than I'm about to share but this is our very brief summary about the way how the bank for international settlement is thinking about risk in technology itself so today we are over here right we have the centralized setup where a financial institution has maximum control over its technology stack right it's all in control regardless of the application and on the infrastructure it can change everything on its own but if we now move a few years forward and have a look into the future right um what we hear as well at the convention a lot is well we will have a DT based infrastructure meaning as a financial institution I'm still in control on the application on the service that I'm providing my customers meaning Financial Services however I have to evaluate the dependencies that I'm getting in in my technology stack because now I'm depending on other actors right for example to run a validating note that the network is always up that the network is available what happens if the network has an congestion issue who is going to solve that for me right so there are a lot of questions around it that bis treated and talked about and said well you know what we do have regulation for that already and we think this should be applying as well to blockchain as we know it and that's the second part in essence if you get in more dependencies in your block uh in your setup as a bank via blockchain and dldt you should evaluate that risk and assign certain Capital requirements to it if you cannot solve that risk which is a pretty straightforward logic Al ultimately and unfortunately for a lot in the market and where we still see a lot of ideology moving around is this basically kills permissionless because the requirements set out in the Basel standard says well you have to you need a clear governance about it you have to address Outsourcing risks right you have to risk all material risks Etc and as soon as you cannot match one criteria of us here you have to apply additional the treatment of 100% And 1, 250% of risk rated assets to the asset that you buy regardless regardless if it's a bond a share or already a meit instrument and what they truly have in mind is again and I love to connect my last keynote with today's keynote um last time I spoke about why the teral Luna blockchain got stopped by its validators right you all remember teruna the stable coin well they were making losses so they decided to stop what's the legal Foundation how can I now approach them and say well that's not right well that's a setup a blockchain based ecosystem for financial institutions cannot rely upon hence a clear governance and rules are required so what does it take to truly scale um and I copied that slide from last time we need scalability interoperability and Regulatory Compliance and if you have stayed around as well from the previous ke uh from the previous panel discussion you might have heard those key wordss as well uh maybe from other people but we heard it and how we treated this is quite easy we have set up a core petition layer for a unified Ledger as well a recommendation by bis that we are again having in our minds and working towards to so we have the foundation layer where we are cooperating right where the financial institutions are running validated nodes are joining a network are signing Network terms they are have legal obligations towards each other and on top of that we have the competition right so we have multiple software developers that could develop and deploy their own software and offer it and we have Financial Services providers that are of course competing because they have the same Financial Services offering however what we achieve by this by working on a unified Ledger and working on the same set of Standards is we achieve scalability because we separate the infrastructure component from the appli ation layer and on the interoperability aspect we are using this wi framework to ensure standards and then Regulatory Compliance this entire ecosystem has been designed in such a way that all regulatory requirements have been considered right we consider that on the technology level we consider them on the daab level whenever we develop software because we have tried we have quite a strong financial background and in that all of that so what what is emerging what we see is a financial ecosystem emerging already where we do have already quite a strong support and I only have listed a few on the support that we have here we are supported by standard charted lbbw and deca of course our shareholders are running validated NOS as well they're participating in the ecosystem and they're driving it forward and they are onboarding their own clients for example in Germany we have gone into production already and Savings Banks are getting refinancing based on blockchain this has been already been made public we are working together with strategic partners and our validators adeso gft soteria and think tank and they all promised to deliver a certain performance by running validating nodes and by keeping the system up and available so again there's a clear relationship and clear requirements set out towards each other so maybe as a very brief summary of what I'm presenting to you today is you have to consider the financial ecosystem and what it needs meaning as well the technology introduces because it is decentralized and we want it to be decentralized we have to consider as well it risks and contingencies that it brings with us and with it and this is exactly what we have designed swet for so that you can deploy your own Solutions on top of it that you can use that ecosystem to be require um complied with the risk requirements that we have set out there and maybe jumping and well what can you do with it how can you join right so there have several options on how to join this W ecosystem and one is of course you can become a participant you can use the DFS that we have available for example on tokenization primary markets or as well on Securities landing and collateral management then we have as well the opportunity to onboard further strategic Partners like gft or adeso if you want to provide a certain or key element of the infrastructure component and says well I have a value add that I can add because I know the financial ecosystem I know what I can contribute to create a true holistic Financial BL blockchain ecosystem right our aim is to have a holistic financial industry ecosystem on the blockchain and of course is then when you say well maybe I want to run my own decentralized application because I want to offer my own Financial Services then of course we are open to discuss and open for questions and if we don't have the time here to answer any questions we have a SW our booth over there and we are looking forward to seeing there thank you