Swiss Digital Exchange: Innovation the Swiss Way, powered by Corda
Today, SIX Digital Exchange (SDX) and R3 announced that Corda will power SDX’s digital securities exchange. SDX is a fully integrated trading, settlement, and custody infrastructure for digital assets. It has been a pleasure to work with such an innovative, capable team, and we at R3 are thrilled to support a digital value exchange, the Swiss way.
In this post we’ll talk about the announcement itself. What is Corda actually doing for SDX? In future posts, we’ll address the bigger trend at work here: the unbundling and reconstruction of services in the capital markets value chain.
SDX is launching a digital exchange to support the entire digital asset lifecycle. SDX is capturing the opportunity to be the first exchange to support both existing financial assets and new, digitally native assets on an institutional grade, fully regulated exchange with global reach. SDX will support the full lifecycle of an asset. With a wide range of asset classes and participants on the roadmap, SDX is the first of a new generation of exchanges leading the way to an internet of value.
Why do you need DLT to do this?
The answers: Peer to peer transactions, smart contracts, and overlapping networks of value.
DLT allows trading parties to transact on a peer-to-peer basis. With DLT, network builders provide the venue for transacting, but aren’t required to sit between every transaction, creating friction, and siphoning data. By ensuring that all participants’ can transact without counterparty risk, DLT allows transactions to occur without the need of a central counter party that takes this counterparty risk.
When we highlight smart contracts here, we’re talking about programmable securities. These are digital assets that fall under securities regulation, and which have additional characteristics defined in code that allow the asset to change based on pre-defined inputs. For example, a tokenized equity share can include predefined logic that is executed for e.g. corporate actions. This type of if-then statement has been included as legal language in contracts for decades. However, all asset updates were manually executed through different intermediaries, rather than included in the asset itself. With a blockchain system that allows logic integrated into a certain asset to be execute at predefined events at the same time for all market participants while ownership of this asset is truly distributed to the private keys of the nodes, is very powerful.
Finally, SDX will support overlapping networks for value transfer. SDX clients will tokenize and trade many types of digital assets in networks set up for those purposes. Those assets should not only be traded in their single-purpose network, but should also be made available as collateral, payment, loan principal, etc. in other bilateral networks based on SDX’s regulated framework. For example, I will be able to buy shares in an equity trading network and post them as collateral on a different asset market. Of course, the industry has been innovating in securitization for decades. That has been problematic when the securitized assets aren’t clear to the investor. Networks of value transfer are now a big opportunity because of the capabilities that come with programmable digital assets.
What does Corda provide for SDX?
- An open platform with strong identity — Anyone can build on Corda, anyone can run a node on Corda, and anyone can join a business network.* All Corda asks is that you, as a participant, declare who you are. This is a really powerful proposition! It takes advantage of the massive amount of innovation in open source software AND allows parties to create relationships and transact in confidence. This level of confidence is more than ‘what you see is what I see’ — this is knowing that I am transacting with someone whom I can check in my compliance department, and more cynically, someone I can sue if they break the rules.
2. Asset management through the lifecycle — The ability to represent assets on digital platforms is a powerful capability, but it has been around since the ’60s. The new cool innovation is the ability of that asset to automatically initiate and react to programs. Why is this interesting? It’s interesting because with smart contract technology, assets can be more active and reactive throughout their lifecycle. They can be issued onto a platform that listens for updates from the asset. They can show their status and jurisdiction or registration. They can signify the current owner and even a price band that the owner is willing to sell for. Corporate actions can be pushed out to outstanding debts and structured products can react to market events fed from an oracle. Without smart contracts (states, as we call them), assets are updated for market participants at the market level, by exchanges or custodians. This is a manual and costly process. The asset can be controlled and updated at the asset level, rather than at the market level, as most assets are managed today.
3. Flows to represent capital markets transactions — Once you have digital assets that represent securities, or are themselves the securities, you can create if-then programs to execute transactions. These can involve active input by one or more parties, like exchange, or they can be automatically executed by the asset itself, as we described above. Check out the Corda Token Toolkit for both sample flows and an asset taxonomy — much more to come here!
4. Non functional features — All of this is very interesting but inconsequential if the system can’t support the performance requirements of real business. Luckily, that’s one of the things we prioritized from the beginning with Corda. To support enterprise applications and institutional-grade markets, the platform can’t be sometimes-on. It can’t persist with bugs and shortcomings, and it needs to be deployable on hardware and hosting solutions that are widely used. Perhaps most importantly, network participants must be able to transact in full privacy. It has to do all of this and process transactions at the speed and volume the market demands (check out the DTCC test on this). These are exactly the things we focused on with Corda; robust, scalable technology that can support your very real (and very regulated) business.
We are beyond excited to support the truly pioneering team at SDX. The energy in Zurich is palpable on the ground. The team is running (not kidding) to each workshop and each milestone, assisted by a crack team consultants and SIX employees from all corners of the globe. They have put these DLT capabilities into a ground breaking innovative digital asset exchange, and we are ready to see it launch to success. SDX and indeed all of SIX Group are leading the way as we transition into the new world of fully digitized assets. And the vision is even bigger. We’ll soon see an enterprise-grade internet of value, and SDX is the first network. From a famously punctual country, this movement is right on time.
Want to learn more about digital assets, tokenization, and Corda? Reach out at [email protected]
* Business networks are just groups of users of one or more CorDapps. Business networks usually have governors and operators, who set the entry and exit criteria for their business network. Some business networks are completely open and unlimited, while others are only open to organizations or individuals that fit certain criteria. To apply for participation in the SDX network, the membership rules of SDX apply.
Swiss Digital Exchange: Innovation the Swiss Way, powered by Corda was originally published in R3 Publication on Medium, where people are continuing the conversation by highlighting and responding to this story.