Central Bank Blockchain New Trends: The Monetary Authority of Singapore Releases the White Paper "Global Layer 1 - The Foundation Layer of Financial Networks"

The entire Blockchain industry is undergoing a significant transformation driven by the public sector, which will impact the future landscape of the entire financial and monetary system for humanity.

The Monetary Authority of Singapore (MAS) has officially released the White Paper titled "Global Layer 1: Foundation Layer for Financial Networks," marking Singapore's establishment of an important "Central Bank Blockchain." At the same time, the "currency bridge blockchain mBridge," jointly developed by the Bank for International Settlements, the People's Bank of China, and the Hong Kong Monetary Authority, has also entered the MVP stage and is openly inviting international collaboration.

The Bank for International Settlements (BIS) previously published an article titled "Financial Internet (Finternet)", outlining the future blueprint and vision for tokenization and unified ledgers, indicating the attitude of the Central Bank towards this transformation.

The industry development seems to be moving towards the direction of tokenized assets operating on permissioned chains within a regulatory compliance framework. In this landscape, on-chain fiat currencies such as CBDC and tokenized bank deposits will become the primary means of currency.

Some views on the future evolution direction of the industry:

1. The RWA sector will gradually evolve into a game for the power holders and traditional financial institutions, leaving limited opportunities for pure Web3. The core is compliance and assets, while technology is not the moat.

2. Cross-border payments, international trade, supply chain finance, and other fields are expected to see real implementation in this wave of global mobilization of public and private sectors.

3. Public permissioned blockchains will experience exponential growth in the future, and clear legal regulations and accountability systems will alleviate most investors' concerns.

4. For the Central Bank, CBDC and tokenized bank deposits are the primary choices, while stablecoins are not prioritized due to structural flaws.

5. The industry will increasingly focus on "computer" culture, genuinely promoting the development of technology and creating real value.

The following is an interpretation of the White Paper text:

1. Introduction

The Global Layer 1 (GL1) initiative explores the development of a multifunctional shared ledger infrastructure based on Distributed Ledger Technology (DLT), developed by regulated financial institutions for the financial industry. The vision is to enable regulated financial institutions to deploy inherently interoperable digital asset applications across jurisdictions using this infrastructure.

The focus of GL1 is to provide a shared ledger infrastructure for financial institutions to develop, deploy, and use applications suitable for the financial industry's value chain, such as issuance, distribution, trading and settlement, custody, asset services, and payments. This can enhance cross-border payments as well as the cross-border distribution and settlement of capital market instruments.

The transformative potential of GL1's unique approach lies in the development of a shared ledger infrastructure that can be used for various use cases, capable of supporting composable transactions involving multiple financial assets and applications, while complying with regulatory requirements.

2. Background and Motivation

The traditional infrastructure supporting global financial markets was developed decades ago, leading to isolated databases, different communication protocols, and high maintenance costs. Simply upgrading the existing financial infrastructure incrementally may not be sufficient to keep pace with the complexity and speed of change.

Financial institutions are turning to the use of Distributed Ledger Technology (DLT) as it has the potential to modernize market infrastructure and provide more automated and cost-effective models. However, the surge of different infrastructures and the lack of globally recognized classifications and standards related to digital assets and DLT have increased the adoption costs.

To achieve seamless cross-border transactions and fully leverage the value of DLT, compliant infrastructure designed around openness and interoperability is needed.

Currently, there are three types of network models:

1. Public Permissionless Blockchain: Open and accessible to all parties, but not suitable for regulated activities.

2. Private Permissioned Blockchain: Includes technical features that enable it to implement rules according to applicable regulations, but may lead to liquidity fragmentation.

3. Public License Blockchain: Allows eligible entities to participate, but activities are restricted. The GL1 initiative will explore this model.

3. GL1 Overview

The GL1 initiative aims to promote the development of a shared layer infrastructure for hosting tokenized financial assets and financial applications. The main objectives include:

• Support the creation of multifunctional networks
• Enable the deployment of various applications from payment to secondary trading.
• Provide infrastructure for custody and execution of tokenized asset transactions.
• Encourage the formulation of internationally recognized universal principles, policies, and standards

The design principles of GL1 include openness, regulatory compliance, good governance, neutrality, commercial fairness, accessibility, and financial self-sufficiency.

The architecture of GL1 can be described as the foundational layer in the four-layer conceptual model of a digital asset platform, which includes the access layer, service layer, asset layer, and platform layer.

4. Potential Uses of GL1

GL1 will support a variety of use cases, including cross-border payments and the cross-border allocation and settlement of capital market instruments. Its value proposition includes:

• Improve efficiency and reduce costs
• Enhance liquidity and interoperability
• Achieve new business models
• Improve transparency and risk management
• Promote innovation and inclusivity

5. Operating Model

The GL1 platform can be used to establish multiple financial applications and networks. A financial network refers to an alliance composed of a group of financial institutions that agree to conduct transactions using a set of common business arrangements and governance rules.

The GL1 operating company will serve as a technology infrastructure provider, while financial market infrastructure (FMI) operators will still play a key role in the value chain.

Finality of settlement is a key requirement designed in GL1, and it is necessary to choose an appropriate consensus algorithm to support it.

GL1 operating companies and participating financial institutions need to consider and manage potential risk factors, including credit, liquidity, and operational risks.

Future work will include exploring the establishment of a non-profit organization to develop common principles, policies, and standards, as well as possibly establishing an independently operated company to build and deploy the GL1 infrastructure.

In summary, GL1 is a multi-year initiative aimed at establishing a foundational digital infrastructure capable of shaping the future financial network. It requires unprecedented multilateral cooperation across jurisdictions, including participation from both the private and public sectors.