New Public Paper!

Blockchain KYC/AML Utilities for International Payments

The problem of derisking is embedded in the lack of transparency in the correspondent banking ecosystem.  DLT offers a potential solution – by embedding smart contracts into a correspondent banking utility, the process of due diligence could be faster, safer, and more transparent. The author explores how such a utility might work and its implications for both regulators and banks.

Neepa Patel

R3 Public Research

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Private Research

Click each title below to read the abstracts for the private papers.

Foundations of DLT: Asset Modelling

In order to evaluate how the asset lifecycle for different assets could be managed through smart contracts, this whitepaper considers the support of financial assets on distributed ledgers. The paper concludes that DLT can be a catalyst for a fundamental re-engineering of the post-trade space.

Nigel King, Christopher Saunders, Ian O’Connor, Anton Semonov, Clark Thompson

Foundations of DLT: Cash

This whitepaper covers how money is represented on distributed ledgers. Money-related use-cases are used to summarize business and technical considerations. The paper also explores lessons from crypto-currencies, evaluates their short-comings, and outlines considerations for central banks.

Nigel King, Mark Hornsby, Martin Walker, Ian Grigg

Foundation of DLT: Industry Business Case

How can banks evaluate the applicability of DLT? This paper uses an industry business case model to help banks to balance the challenges with the expected benefits of DLT.  It evaluates the impact on market participants and surveys the ways that banks could adopt the technology.

Matt Britton

Foundations of DLT: Ledger Constructs and Consensus

Different use cases require different ledger constructs and consensus mechanisms. After broadly categorizing existing platforms by key characteristics, this paper assesses each category against the requirements of financial services use cases. The analysis concludes that the UTXO model provides the best fit for the financial services industry across many use cases.

Carl Worrall

Foundations of DLT: Legal and Dispute Resolution Frameworks

From a data architecture standpoint, the design of smart contracts can on take various forms. This is in part because there is currently no formal guidance from regulators or industry bodies regarding the legal frameworks surrounding distributed ledger technology. This whitepaper sets out the questions on which guidance is needed.

Matt Britton, Ian Grigg

Foundations of DLT: Interoperability

Firms are concerned that parallel experiments across different DLT platforms could result in fragmentation, leading to increased costs and risk. After exploring interoperability among different distributed ledger platforms and existing systems, the authors propose an ecosystem of ledgers that can be used within and between institutions.

Nigel King, Sajindra Jayasena, Mark Lauer, Arijit Das, Jared Harwayne-Gidansky, Clark Thompson

Foundations of DLT: Smart Contracts

Smart contracts are one of the foundations of DLT for financial services. This paper defines some of the key concepts of smart contracts as well as a set of principles and goals needed for adoption. It starts by defining smart contracts, and then considers how they may evolve in financial industry use cases.

Mark Oldfield, Robin Green

Foundations of DLT: Identity

Distributed ledger technology is part of a holistic new approach to identity management, which also involves regulators and legislators. This paper explores the use of distributed ledger technology (DLT) to meet the identity information needs of interactions between banks and their customers, and also includes high-level requirements for identity as it relates to shared ledgers.

Nigel King, Nick Skinner, Ian Grigg, Stephen Lane-Smith, Atefeh Mashatan, Craig Maladra, John Vondrachek, Paul Bayer, Christopher Swanson, Henry Roxas, Abbas Ali

Foundations of DLT: Non-functional Considerations

Non-functional issues with blockchain adoption include scalability, security, availability, and privacy among others.  This paper walks through some of the major non-functional barriers to adoption and raises issues that will need to be resolved in these areas before large-scale DLT can be deployed in the financial industry.

Mark Oldfield, Stephen Lane-Smith

Foundations of DLT: Collateral, Valuations & Risk Management

Manual processing alongside increasing attention from regulators makes collateral management an ideal use case for DLT. Using a business lens, this paper proposes a model for how DLT could automate variation margin and initial margin calculations, and considers how the principles can be applied across the cleared derivatives world.

Matt Britton, Massimo Morini

Foundations of DLT: Oracles

Oracles provide authoritative ‘off-ledger’ information to distributed ledgers. This is a critical service to financial institutions. After exploring 6 key industry use cases, the authors consider the implications of oracles on existing business models and potential new business models that may emerge.

Carl Worrall, Clark Thompson

R3 Reports

Click each title below to read the abstracts for the private papers.

Networks in Trade Finance: Balancing the Options

Is a single global network or are multiple business networks the right structure for a distributed ledger ecosystem for trade finance? The answer will reduce uncertainty for market players and enable faster implementation of distributed ledger solutions. This paper considers the trade-offs between a single universal global network versus multiple business networks. For a universal global network to succeed, regulators would need to come to a consensus over legal and regulatory standards globally. In the specific context of Asia, multiple interoperable business networks more closely align with the existing diverse regulatory environment.

R3, Hogan Lovells

The Myth of Easy Interoperability

Maintaining data quality, reconciling trades, and exchanging assets between financial institutions using legacy information technology (IT) systems is expensive, slow and complex. Given the costs of integration and interoperability, this paper argues that distributed ledger technology product competition at the application level is more critical than competition at the platform level. By building an ecosystem on top of a platform, financial institutions can benefit from network effects and address historical IT complications.

Kevin Rutter

Cross-Border Settlement Systems: Blockchain Models Involving Central Bank Money

Multiple central banks have conducted experiments with blockchain for domestic settlement between commercial banks. While progress has been made on domestic interbank settlement, there is not a clear approach for cross-border settlement. Today, interbank payments between currency zones require correspondent banking relationships, Continuous Linked Settlement (CLS) accounts, or a combination of both. This paper discusses several options that involve distributed ledger technology (DLT). The first group of models would heavily involve central banks, the second group involve a trusted third party and a more passive role for central banks. The models are evaluated based on monetary supply implications, impact on liquidity management for commercial banks, settlement risk, credit risk, and complexity for central banks. This preliminary exploration intends to inform future work with international payments.

Xiaohang Zhao, Haici Zhang, Kevin Rutter, Clark Thompson, Clemens Wan

Two Sides to Every Coin: An examination of Initial Coin Offerings

Initial coin offerings (ICOs) is the practice of selling digital tokens to raise capital for cryptocurrency-related projects. This paper explains the structure of an ICO by focusing on features and risks, and also explores how ICOs may be evaluated by regulators and which laws are applicable.

George Calle

Evolution in Cash and Payments

An introduction to new payments technology. This paper covers central bank retail and whole-sale payments, international correspondent banking, and remittances. It includes a summary of incumbent systems, the emerging competition across the payments ecosystem, and the implications for banks.

JP Koning

How the ICO and OCO Ecosystem Works at a High Level

Token crowdsales are funding tools that companies use to raise capital by issuing and selling a native cryptocurrency. This paper discusses the common structure of such offerings, the risks associated, and provides specific examples of fraud.

Tim Swanson

Ethereum: Platform Review

Since the launch of Ethereum, more than 100 applications have emerged for different use cases.  The author first provides context for the design trade-offs of Ethereum, and then discusses the potential interaction between public and private blockchains. Finally, he evaluates the suitability of applications for Ethereum across a range of themes, and provides key recommendations for each theme.

Vitalik Buterin

Give Commercial Banks Some Credit

An introduction to the credit creation system and commercial bank money. This evaluates the impact of both cryptocurrencies and central bank-issued digital currency regimes on monetary policy.  Initial design of central bank-issued digital currencies is likely to be designed for limited impact on domestic money supply.

Kevin Rutter

Application and Impact of the European General Data Protection Regulation on Ethereum-Based Blockchains

The European General Data Protection Regulation (GDPR) comes into effect on 25th May 2018. This paper assesses if the GDPR applies to private or consortium Ethereum-based blockchains, and also details the requirements under the GDPR that companies which uses Ethereum must abide by.

Jana Moser

Insurance: How DLT Can Help the Industry Evolve

Personalization of financial services is one areas where the insurance industry is likely to see blockchain disruption. Quantumization of insurance products is one way that this can happen. This paper compares the underlying structure of the insurance process with the state management focus of Corda to explore how to achieve the world of connected insurance.

Todd Bault

The Shared Operating Model: The Joint Back Office

Financial institutions can mutualize the costs of non-competitive business capabilities by using distributed ledger technology. This paper explores the benefits of building an authoritative systems-of-records at the market level across different asset classes through a shared service utility.

Clark Thompson

The Cryptic Currencies: Cryptocurrency Markets in Context

Comparing foreign exchange (currency) markets with the cryptocurrency markets provides useful context in the behaviour of cryptocurrencies. This paper evaluates the two markets across multiple topics, and also discusses the directional risks on market participants.

Kevin Rutter

Reusing Legacy Code Assets as an Accelerator for Smart Contract Development

Reusing legacy code assets will be a faster, cheaper and less risky path to develop smart contracts, instead of attempting to develop smart contracts “from scratch.”  This approach would leverage code bases built under existing regulation and, as a result, be less subject to regulatory scrutiny than entirely new code development.

Clark Thompson, Chris Verhoef

Comments on the Coin ETF

The COIN ETF could negatively impact certain regulatory frameworks and the financial industry. This paper evaluates the COIN ETF, and discusses the potential risks surrounding it. It also includes answers to the questions posed by the SEC regarding the COIN ETF.

Tim Swanson

Defining the Identity Management Landscape

This introduction to identity management for financial entities on a distributed ledgercovers key terms and definitions, and the challenges facing future identity systems. It also includes a summary of relevant identity-related companies in the start-up and utility landscape.

Emily Rutland, George Samman, Todd McDonald, Tim Swanson

Vision Series: Cash and Payments

The next 3-5 years are likely to see DLT used for improvements in existing economic and regulatory regimes. This paper describes the different types of money available on DLT, reviews the benefits of a Central Bank-issued Digital Currency, and details some limitations and obstacles to full implementation.

Kevin Rutter

Vision Series: Trade Lifecycle

Can DLT modernize the post-trade architecture? Capital markets transactions account for the bulk of the costs and risks in financial services today. This can be reduced by mutualizing noncompetitive processes in the trade lifecycle.

Kevin Rutter

Blockchains and Laws. Are They Compatible?

Data protection regulations are likely to impact the application of distributed ledger technology. After providing an introduction to global data protection laws, the authors consider privacy concerns related to public blockchains with a specific focus on Europe, the UK, Singapore, Australia, and the US.

R3, Baker McKenzie

Leveraging Cooperative Development: Learnings From R3 Applied to Insurance

Insurers should cooperate to leverage learnings and derisk efforts in DLT development. This paper evaluates the consortium model, and the value of cooperative development. It also talks about the background of R3, and dives specifically into two R3 projects on identity management and reference data.

Kevin Rutter, Michael Fitzgerald

Digitizing the Insurance Value Chain

The insurance industry has historically been cautious in balancing its investment in new technologies with the high costs of replacing legacy systems. This paper examines how digitizing the insurance value chain through DLT has the potential to revolutionize the industry. It also explores example use-cases, a likely timeline for adoption, key legal and regulatory issues, and other obstacles to widespread adoption.

R3, Norton Rose Fulbright

Can Smart Contracts be Legally Binding Contracts?

The terminology around smart contracts is not well-defined. The lack of clarity can lead to potential enforcement problems and difficulties in dispute resolution. Using a legal framework, this paper walks through the spectrum of smart contracts and considers legal issues around contract formation.

R3, Norton Rose Fulbright