The rational for a shared ledger - a conversation with Ivica Aračić, SWIAT [EN]

00:00:00: DLT is about bringing as much as possible of the market into a shared ledger.

00:00:06: I mean, it's kind of illusionary to think that one big ledger will be on but like let us say consolidated in top operable set of ledgers.

00:00:17: so this should be their goal.

00:00:19: and if you now consider central bank money has some sort of an asset then you need like a common crystallization point where this asset provided with Central Bank can meet all the other assets provided by market.

00:00:36: And so, big question will be especially in the Apia context is what is this crystallization?

00:00:43: Welcome to Inside Digital Assets!

00:00:46: The podcast about future of capital markets tokenisation digital assets and technologies that power them.

00:00:56: Welcome to a new episode of our podcast Insights Digital Assets.

00:01:00: It's an amazing honor to have here today Iwita Ratchic, the CTO of SWIET.

00:01:05: We are going talk about SWIOT we're gonna talk about regulated layer one and many more topics of interest around the DLT space.

00:01:12: So great honour to have you here Iwitza.

00:01:15: Thank You for the invitation!

00:01:17: so you have background in that intersection of financial markets or technology predestined to be in that space of DLT, where we have a lot of traction in the financial services space.

00:01:30: Can you elaborate a bit on how you ended up here?

00:01:34: Like what is your journey until you got here to that role?

00:01:38: Yeah so I think i need to go and couple years back into my past.

00:01:42: yeah started working at Deckerbank and then the financial industry And I was in the area of enterprise application integration, so basically how all different applications that exist in a bank.

00:01:58: How they talk to each other and exchange data?

00:02:02: Here is the parallel to blockchain already starts yeah!

00:02:05: How different systems it hacked?

00:02:08: In around two thousand sixteen let's say with the rise of Ethereum and also for interest in DLT in financial industry we start thinking about how we can leverage this for an asset manager like Deca Bank.

00:02:22: How, how can you use blockchain technology?

00:02:24: And it was very interesting area I always liked to be in innovation and we kind of started different initiatives within the bank.

00:02:33: Then finally one of these initiatives ended in Foundings Fire in two thousand twenty-two and switched from DecaBank with four another colleagues as a part.

00:02:48: So that's how I ended up in SWAT.

00:02:51: Before we do time for more into what SWAT is doing and how you're shaping the digital asset world, can you let us know like was there a moment where you realized what DLT could actually change to this financial infrastructure?

00:03:05: And made you decide to also shift your career in that area?

00:03:11: Yeah so...I mean i have computer science background.

00:03:17: As Bitcoin came out, I have to honestly admit that i did not understand the benefit of it.

00:03:23: So everyone's thinking this is some crazy internet money.

00:03:26: so who is going actually to use this and still never reward something?

00:03:32: But with the upcoming Ethereum then I start realizing how cool this is.

00:03:37: you know... You have a machine that is not operated by one single entity and it is operated in a decentralized way.

00:03:44: And still the integrity of this machine, so basically the programs that are executed on it... ...is maintained.

00:03:52: Let's say these small technical properties open building platforms which can bring end-to-end different stakeholders also eventually competing entities together with same network ending up in sitting basically the same shared system, which is not operated centrally.

00:04:13: And then I started thinking and realizing wow!

00:04:17: So this some sort of socio-technical catalyst that could reshape how people collaborate especially financially.

00:04:28: Now looking at Swyatt trying to achieve with Swyat is really bringing a regulated infrastructure framework for issuing digital assets into the regulated financial market.

00:04:41: Can you let us know what your idea behind SWYAT is?

00:04:46: So as we started with SWYAR in to collect the puzzle pieces, so be it by creating them ourselves or by finding in-the market and putting that together.

00:05:00: To bring everything together is needed for regulated entities to scale digital asset use cases.

00:05:06: And then now as you can imagine if you have this IMF asset model in front of your like with a platform assets services indexes Then these puzzle pieces are kind are spread across these different layers.

00:05:22: And it is also reflected in our portfolio, so we're infrastructure provider with SWIAT network permission deterioration blockchain optimized for regulated industry which is now transitioning to a regulated layer one some more on that later I guess and We have digital asset solutions for tokenization and for settlement.

00:05:44: So in financial industry everything revolves around assets.

00:05:48: the first thing that you need to solve, be able create assets and transfer them.

00:05:54: To be able to settle them in a more complex way than just having simple transfers from A-B.

00:06:00: so I'm talking about delivery versus delivery or payment.

00:06:06: And then of course we will provide financial services for these assets in regulated environments like being registrar German Electronic Security Act.

00:06:20: And so bringing these puzzle pieces together, this is our mission and combining them with other puzzle pieces in the market.

00:06:27: So that's what's behind us.

00:06:30: When we look back a bit you have been involved in a couple of transactions not only pilot transactions but also really live transactions.

00:06:38: can you show a bit?

00:06:40: What do you have done so far?

00:06:42: So

00:06:47: maybe in first thing generally, if we look back and I mean since around the decade of this area.

00:06:56: If i think like ten years ago that no regulation was existing so paying with central bank money it's just a dream or having the possibility to natively issue financial instruments such as bonds directly on blockchain.

00:07:17: So this was simply kind of not existent, yeah?

00:07:22: And we moved like... We did a lot of progress here.

00:07:26: so regulation changed infrastructure made sure technology made sure that were able to issue instruments directly natively be also able to honor them traditional instruments and give them similar properties to digital assets, so making them faster and cheaper in settlement.

00:07:48: But still we have some things to do especially for this year I would say enabling MTF also where Sitturion is also a very let's see... In Germany you could say Fleißig to provide us right?

00:08:04: So secondary market is important.

00:08:07: having different payment means, stable coins are I would say ready to be used.

00:08:14: Then central bank money will be ready.

00:08:16: so if i look at Pontus by the end of this year and it'll also go beyond that with Apia And tokenized deposits is on a good way.

00:08:29: still some interpretations need to kind of clarify but technically they could be introduced.

00:08:34: So payments secondary markets on the way.

00:08:37: and then last final thing, I think it will take some time is that these assets now are created directly natively on DLT.

00:08:47: That they become first-class citizens compared to their traditional counterparts because its same financial industry being in a different technology but currently treated as second class citizen especially regarding eligibility criteria.

00:09:00: also most prominent example you cannot bring into ECB and get liquidity for your collateral.

00:09:08: And once we bring this together, I think that's in a good way.

00:09:11: so everything is being worked on.

00:09:15: when you bring it all together then the puzzle has been completed.

00:09:19: finally!

00:09:19: The whole thing takes off after... Ten to twelve years, yeah.

00:09:22: So it's some...

00:09:24: Yeah I really like that analogy or saying of being a first-class citizen as we're always talking about technology neutrality.

00:09:32: so where in real life you see whether that is actually being implemented or not?

00:09:38: We still have massive differentiation on one technology and the other which definitely needs something to be looked at.

00:09:46: Looking back Another time just quickly, because I think it's very important to highlight also the transactions you already did which involve large finance institutions.

00:09:58: Can you tell the listeners a bit what in the transactions that they did and maybe learnings from those?

00:10:06: Yeah thank you for repeating this one more time.

00:10:09: i missed my previous explanation.

00:10:11: yeah so we are in production since two actually and really starting in twenty three.

00:10:20: And so currently, there is a seven hundred million in notional in euro issued on the platform in real value.

00:10:29: So let's say play money but what?

00:10:32: In real value?

00:10:34: The most notable transaction that we did was the Siemens bond issuance.

00:10:40: It was three hundred million And it has been settled in a DVP manner, so with central bank money during the Euro system exploratory work.

00:10:52: In two thousand twenty-four and I mean for me i never was in doubt that we can do it.

00:11:00: yeah So basically four.

00:11:02: for me It is kind of since let's say inception or blockchain technology clear but We can profit from this technology and then they can implement it.

00:11:12: But still technology is not the only part, so a lot of additional parts need to come together.

00:11:20: And this progress that has been made... So people are understanding and we have legal and business components also being involved in both at the same level.

00:11:33: like technology We've now tried different things.

00:11:37: I think everybody's know clear from perspective can be scaled now.

00:11:42: And I think this is the next trophy so far, The last ten years was about showing it goes from zero to one and Now i think everyone is realizing This works.

00:11:52: It has been tried in different aspects And now the next Trophy To get Is to go From One.

00:11:58: Too many To make a business as usual And often at panels.

00:12:05: So people are asked like What Are we going to talk About In five Years?

00:12:09: Then Like to answer something like I hope in five years We have no panels like this anymore because it is so business as usual that nobody's talking about the same way.

00:12:19: So then and we are realizing you're successful with what he did.

00:12:22: Yeah,

00:12:23: yeah totally agree there.

00:12:26: What do you think?

00:12:26: In terms of and going deep dive on regulated layer one in a second but more on a general Perspective.

00:12:32: so on one side you have offerings such as an issuance service where Institutions can use their offering to tokenize assets.

00:12:41: On the other side, there might be a need for shared single ledger.

00:12:48: so really a DLT infrastructure.

00:12:51: How do you assess the requirement of having such a shared infrastructure?

00:12:55: Maybe also for listeners to give background.

00:12:58: On one side, we have existing shared infrastructures like public blockchains and polygons.

00:13:05: We also have existing private networks often canton-based or hyperletcher based.

00:13:14: In general terms how important it is to assess the requirements.

00:13:20: What is the need of implementing a new one?

00:13:26: Having shared ledger where let's say stakeholders can meet and participate in a shared process data model, so as technical guy would describe it here.

00:13:37: It kind of essential to promise blockchain technology.

00:13:41: And now that you have mentioned public permission setting I'd say this is like best demonstration of what you can do if, let's say on large scale to such platforms in general.

00:13:56: So there are specific use cases which work.

00:14:00: okay because the target audience is used for a risk profile existing area but I'm talking about generally moving like large portions of business there and what holds them back homework that every regulated entity has.

00:14:18: And this is namely risk management and the risk assessment, you know?

00:14:24: If we look now at public permission setting then... You have openness, neutrality.

00:14:31: it's designed as utility.

00:14:34: so if assume let us say a fair price for paying for infrastructure but lacking compliance optimization in sense of clearly stated, who's responsible for what?

00:14:47: So there are responsibilities.

00:14:49: There is governance but everything has kind of increasingly grown bottom up and it is very difficult not tangible or regulated institutions in the general case I'm always talking about a general case here.

00:15:04: And from this perspective having permission network Is away to solve compliance optimization problems, so to say.

00:15:14: To make it more tangible for regulated entities.

00:15:17: but so far its suffered from being too restrictive like not considering also openness and neutrality And sometimes also the utility But rather designing everything as some sort of revenue extraction models.

00:15:36: So what we think is there are different things here.

00:15:39: The first thing All these different constellations that we talk about, they are not dominant in all aspects.

00:15:47: It's always like a trade-off constellation and you need to see which model fits best for you.

00:15:52: And I think both of this models will have place now.

00:15:57: So it is the first thing.

00:15:58: The second thing We also need with permissioned networks to strike balance between completely wild environment and completely constrained environments where it cannot grow.

00:16:12: That's exactly why we decided to build Swyat network in the first place, which is permissioned Ethereum but only permission as much that a regulated entity can do the risk management framework that everyone has.

00:16:28: But on the other side also open neutral and very much inspired by public permissions setting so not to constrain innovation, and let's say different actors providing the services and applications of that network.

00:16:43: So it is this balance we strike between traditional consortial permission-private networks which had so far in the last ten years did.

00:16:50: they didn't grow or scale?

00:16:53: And public permissions setting open a neutral but no compliance optimisation.

00:16:59: We are trying to strike these balances kind of balance out all these four properties.

00:17:04: Neutrality, openness, utility and compliance optimization?

00:17:09: I very much see your points And that's also why at Ceturion where we are open for public as well as private blockchain So really connecting to both As long they have traction so it really We.

00:17:21: additionally also a very much CD argument Potentially on the scalability side depending On how much volume you actually want to pull through.

00:17:29: That is something which might be easier, not to say easy but maybe easier on privately controlled environments as long as they still also have certain governance functionalities in place.

00:17:42: So yeah I think that's the discussion said we will have over the next few years and i also strongly believe there is no right or wrong but there really a right infrastructure for the right use case so it might be dependent on whatever use-case might.

00:17:58: So if you're coming from, let's say technical background like I do and If you think IT architect then always thinking trade-off constellations.

00:18:07: There is no dominant or super silver bullet which kills every problem of every monster.

00:18:13: You need to think in trade offs Like these design goals are the requirements And this trade off constellation matches these.

00:18:23: From this perspective there isn't a solution.

00:18:27: all problems at once.

00:18:29: So we have teaser now around it, let's deep dive a bit into that shared network.

00:18:34: you've mentioned its wide-network.

00:18:35: It is being transferred to Regulated Layer One.

00:18:40: Can you give us an introduction on what Regulated layer one is and how the core of regulated layer one actually opens up also other than the ecosystem?

00:18:51: I already mentioned these four properties.

00:18:55: let's say a shared network that wants to kind of attract larger number participants needs to have.

00:19:02: So it needs to be neutral, It needs to open and designed as utility And people not being in fear getting locked-in effects and then suddenly prices increasing to extract revenues out from this platform operated as utility, like for the benefit of all participants and competition then happens on the layers above running one this utility.

00:19:26: Like the duplications or services or financial service.

00:19:32: And that's exactly how we started with Sviad.

00:19:34: We said should be built yet another permission network?

00:19:39: I mean if there would be a choice i wouldn't have build it.

00:19:46: but when thinking There is still a lot of reluctance for regulated entities to go through permissionless settings.

00:19:54: And then the question was, why?

00:19:56: Was it just like misconception in the interpretation or there's some real reason for this?

00:20:03: and we came finally explaining that universal homework infrastructure risk management you cannot say because ten years have worked well It will continue.

00:20:18: So you always need to think about who is responsible for what and if it fails, yeah?

00:20:23: Who will be doing what there.

00:20:25: And this sometimes very difficult in a permission setting.

00:20:30: For these reasons we said okay let's start to build that.

00:20:34: The governance of fit... If you introduce permission then you'll have to clearly be clear on the governance.

00:20:39: so the governance was embedded in GameBihar which is limited Germany right.

00:20:43: And then we were aware of the fact like a limited is not a credibly neutral governance body, because the shareholders tomorrow they decide to change the terms and conditions.

00:20:54: Then suddenly different rules apply right?

00:20:56: But he said okay you have enough work to build or set up one legal entity.

00:21:01: so let's start with that first than them at the time transition to something which is more credibly new trial and move the governance there.

00:21:09: And that's exactly what happened.

00:21:11: So we have created this network, We have created the regulatory framework around this network which was much more complex than the technology.

00:21:18: to be honest I would say by ten times more complex?

00:21:21: Uh...we have demonstrated it works By all.

00:21:25: let us say real value transactions That we did on that network and we had taken innovation risks Yeah..and now finally came up with a point where you said Now we go to the market and say, look this works.

00:21:39: So let's now carve it out of Swyat Gamebihar And move into a legal entity that is more credibly neutral.

00:21:49: We have selected for European cooperative as the legal entity formula Actually a very good legal entity for managing shared goods, you know?

00:22:00: For the benefits of its members.

00:22:01: And that's exactly what here needs to happen.

00:22:04: and it is like... ...the main part of this transition happening right now Carving out something that works Technology in the governance framework Moving under incredibly neutral European umbrella with European financial industry as members and participants in the governance of this network.

00:22:28: So that's, to core idea.

00:22:30: behind Regulate Clear One.

00:22:33: And now behind these corporates there is a range of financial institutions such also Cetulion which is part or going to be a member of it... ...is the idea of having an open infrastructure for let's say a couple of participants open for the ecosystem and doing something together instead in another silo is something that resonates very much with us.

00:23:00: That's why we have stated early on, also involved looking at it can you tell me which types of institutions are participating?

00:23:12: Is it enclosed or still open to others?

00:23:15: how does this look like?

00:23:17: so let's say initiating members who came together to kind of incorporate this legal entity and set it up.

00:23:30: And the gates are open at any time, so you can join now or later when a legal entity has been set-up.

00:23:42: The goal is really to be non discriminatory.

00:23:46: if your part in financial industry a larger bankbeat, an asset manager beat the fintech then you are free to join.

00:23:57: You're free to joined and you were free to participate in governance.

00:24:02: So this is openness and neutrality part And one another.

00:24:08: important thing Is To be credibly neutral.

00:24:12: you need to kind of clearly separate what your responsibility is With Regulated Layer One.

00:24:17: we said it's responsible for the pure naked infrastructure, so it does not go into the area of assets or application.

00:24:30: This is a competition where people can compete with each other and the goal to provide neutral ground not contributing to competitive differentiation.

00:24:48: So if you cooperate there, it brings benefit to all and then there is still enough room going into competition on top of it at the level or a layer of assets around these assets.

00:25:03: And as financial institutions.

00:25:05: do I have to join actually use that?

00:25:07: Or life could just also be used only?

00:25:13: So basically, you can use it without becoming a member and participating in the governance.

00:25:19: This is possible And if you become the member then of course You are also eligible to use It.

00:25:27: The big benefit or great benefits that you Can participate in the Governance Especially the earlier you join the more you can influence.

00:25:41: Going back to one topic you mentioned briefly in the beginning is the cash leg.

00:25:46: You have mentioned central bank money, so initiatives like Appian Pontes.

00:25:52: how important are those projects in terms of bringing the ecosystem further and also bring a cash

00:26:02: lake?

00:26:02: I mean, we talked about all the different puzzle pieces that need to come together.

00:26:07: So different players in a market are kind of bringing this together to the table.

00:26:11: so Swipe is providing part-of-it, Saturin is providing parts for it and then lots other participants also bring additional puzzle pieces on the table.

00:26:22: And central bank money is one important part because currently We have trades that are settled in Central Bank Money And if this is not available in the new ecosystem, then it's kind of... Not at a same level like StataScore.

00:26:39: It's very difficult to compete with StatoScore If you're not able to provide all these features.

00:26:44: from this perspective Let say the same capabilities need also be available on DLT.

00:26:53: For that reason APIA and PONTES are important.

00:26:58: Second or payment legs generally.

00:27:01: And second thing is, DLT is about bringing as much as possible of the market into shared ledger.

00:27:08: I mean it's kind of illusionary to think one big ledger that everyone will be on but like let say consolidated interoperable set of ledgers.

00:27:20: so there should a goal.

00:27:22: and if you now consider central bank money has some sort an asset then you need like a common crystallization point where this asset provided at Central Bank can meet with all the other assets provided by the market.

00:27:38: And so, big question will be especially in AAPIA context is what is this crystallization points?

00:27:45: If we are able to create something which is credibly neutral from the perspective of European financial industry and eventually also the broader industry general then that would be a very fruitful ground for these assets to meet.

00:28:00: And it's also like what regulated layer one is also targeting of war, To beat this neutral Ground under European governance where these different assets can crystallize and meet together?

00:28:15: Then finally leverage all the benefits Of blockchain technology as you can observe in the wild In public permission settings but now in a setting that is compatible with regulated entities, in general.

00:28:30: Now when we look ahead and what's lacking... We talked about Sviad as an issuing infrastructure, we talked about the Regulated Layer One as potential shared ledger, we also talked about Saturion being part of Regulated layer one thereby integrating it into other blockchains allowing trading venues such as Amtiafs or OTC also connecting to those settlement infrastructures.

00:28:55: We talked about the cash leg which is very crucial for settlement.

00:28:58: obviously, what is still missing?

00:29:01: that we can actually scale at full speed?

00:29:05: I said in a beginning when these two parts it's being worked on this year and i think we will make good progress on it.

00:29:14: And last missing piece eligibility criteria.

00:29:20: update them to the point where digital assets, living on DLT become also first class citizen.

00:29:27: And having the same rights like their counterparts in a traditional environment.

00:29:33: because from the financial instrument perspective they are saying that big difference is which ledger type existing.

00:29:41: and of course if it exists on BLT then you benefit bringing different stakeholders and to end onto the same ledger.

00:29:50: But from a financial instrument perspective, a bond on paper or at a central security depository or a bond in DLT it is the same financial instrument that should have also the same rights right?

00:30:05: And something will take some time because lots of frameworks need to be adapted.

00:30:10: so... In APIA context, ECB is working on this already.

00:30:15: So they have introduced... It sounds a little bit like a paradox because you need to kind of switch digital asset back to traditional assets in order get it eligible for liquidity and collateral management at ECB.

00:30:32: but that's just the first step.

00:30:34: And next step I'd say if we had an asset running under some, let's say national or European license then could also get eligible and step by step I think will reach the state.

00:30:49: but i'm except expecting this to take two to three years still yeah.

00:30:54: Yeah

00:30:55: it totally is likely gonna take a full of year.

00:30:58: still we are there.

00:31:00: So I think it's best to tackle that when working together, as you said.

00:31:04: As an industry we manage to go there much quicker than otherwise.

00:31:09: Maybe this is the last question.

00:31:11: If someone was listening Working at a large finance institution What would you recommend?

00:31:17: That first step for an institution To take in case they are not yet fully into the DLT space

00:31:26: The energy level?

00:31:30: how much energy is invested into DLT space and digital assets.

00:31:33: So it has increased enormously across the last ten years, yeah?

00:31:38: And there's a lot of education that took place already.

00:31:42: There are lots of solutions to work all ready not just in terms of packaging a little bit technology then throwing over the fence saying okay this will change the world but in sense off It gets more integrated.

00:31:55: so integration level is increasing.

00:31:58: And basically, if somebody did not touch this area yet there are a lot of opportunities to go over the verge and simply try it out or participate in real value transactions.

00:32:16: So that the verge has been really low up.

00:32:22: Also, typical mainstream profiles can also go over the verge and start participating in this ecosystem.

00:32:31: Thank you very much!

00:32:32: Ibiza was a great talking about all those topics... ...and I'm excited to see what's ahead of us.

00:32:38: so thank-you for being part of our podcast.

00:32:42: This was Inside Digital Assets A joint project by Biggs Digital Anceturion.

00:32:48: If you enjoyed this episode, subscribe to our podcast and feel free share with others.