Focus Area:
Exploring a Wholesale CBDC for Syndicated Lending
Overview:
Project Atom was a collaborative research project undertaken in 2020–21 between the Reserve Bank of Australia (RBA), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Perpetual and ConsenSys, with additional input from King & Wood Mallesons (KWM).
The project involved the development of a proof-of-concept (POC) for the issuance of a tokenised form of CBDC that could be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform.
Motivations:
The project was aimed to examine the potential use and implications of a wholesale form of CBDC to answer the following questions:
- How access to a tokenised CBDC could be extended to a wider range of wholesale market participants, including those that would not ordinarily have access to ESAs at the RBA?
- What could be the potential benefits of integrating tokenised CBDC with a digital asset in the form of a tokenised syndicated loan on interoperable DLT platforms?
- Whether an enterprise-grade version of the Ethereum blockchain platform could address some of the technical limitations of the public version in implementing a CBDC?
- Can there be a possibility of using non-DLT payment systems to settle transactions on a DLT platform?
- Explore the implications of atomic DvP settlement on syndicated loans.
- How the digitisation of back-office functions related to the origination and servicing of those facilities affect the efficiency and risk?
Financial institutions involved:
- Reserve Bank of Australia (RBA)
- Commonwealth Bank of Australia (CBA)
- National Australia Bank (NAB)
Technology, Law and Design partners:
- King & Wood Mallesons (KWM)
- Perpetual
- ConsenSys
Design considerations:
Design included two interlinked components:
- A CBDC Utility, which manages the issuance, transfer and redemption of a wholesale CBDC.
- A Tokenised Syndicated Loan Platform (TSL Platform), which manages the issuance, drawdown, novation and repayment of a tokenised syndicated loan.
Both components resided on a private and permissioned blockchain network built on Hyperledger Besu, an enterprise-grade Ethereum client.
A two-tier model was considered for issuing CBDC, in which CBDC is issued by the RBA to ESA holders, which in turn can facilitate the acquisition of CBDC by their sponsored wholesale market participants.
The RBA, CBA, NAB and Perpetual were each assigned a node on the network that holds a copy of the ledger.
Despite every node containing a record of all ledger transactions, specific privacy measures were implemented to limit the visibility and accessibility of transactions for individual participants. For example, each ESA holder can only view transactions it is a party to in the TSL Platform.
The CBDC Utility and the TSL Platform are designed to be interoperable. This enables atomic DvP settlement of transactions in the tokenised syndicated loan, with the change in ownership/status of the loan (delivery) occurring simultaneously with the transfer of the CBDC (payment).
Scalabality and performance aspects were out of scope for the POC.
Technical Solution:
The figure below provides a summary of the features of the two types of tokens and the corresponding components.
The CBDC Utility and the TSL Platform share a private and permissioned blockchain network built on Hyperledger Besu, an open source enterprise-grade Ethereum client. The two components are interoperable through smart contracts and API integrations.
Loan token is configured as an ERC 1400 token, which is an Ethereum token standard commonly used to represent financial instruments.
Conclusion:
The project successfully examined the potential use and implications of a wholesale form of tokenised CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform.
The POC demonstrated significant efficiency gains and risk reduction from replacing the highly manual and paper-based processes still used in the back office operations. Tokenisation includes the possibility of fractionalising these loans to make them available to a broader investor base, thereby enhancing liquidity in the market.
The 2 tier-model mitigates the intermediation risk of commercial banks in the financial system. The presence of a tokenized version of currency on a distributed ledger technology (DLT) platform can also stimulate the advancement of DLT in transforming additional assets and business processes into digital form.
Source:
Reserve Bank of Australia[2021] – https://www.rba.gov