Demo of Cross-chain digital securities settlement with Stablecoin using IBC and LCP

April 27, 2023

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Datachain has been working towards the commercialization of cross-chain settlement using digital securities and stablecoins since the partnership with Mitsubishi UFJ Trust Bank was announced in September 2022. We are thrilled to announce that we have successfully completed the first step towards commercialization, which was the technical verification phase!

In this article, we’ll discuss the background and details of our technical verification, the scenario in our demo video, and our future prospects. Stay tuned to learn more!

Background

Mitsubishi UFJ Trust and Banking Corporation has developed a digital securities platform called “Progmat” and plans to transfer it to an independent company called “Progmat Inc. (tentative)” in September 2023. As of 2022, the platform has already exceeded 40 billion yen in assets under management (AuM) related to digital securities in Japan.

Additionally, various stablecoins using the “Progmat Coin” stablecoin issuance and management platform will be able to be issued and circulated once licensed operators complete their registration after the revised Payment Services Act is enforced in 2023.

Amid the hype surrounding digital securities and stablecoins, cross-chain settlement (DVP settlement) of digital securities and stablecoins on different blockchains is currently being focused on.

As far as we know, cross-chain settlement of digital securities using a stablecoin that complies with regulations would be the world’s first if achieved!

To make this happen, Progmat is using IBC as the communication protocol between blockchains. This is a huge step for the IBC ecosystem as well because it means stablecoins and RWA (Real World Assets) in Japan will come to the Interchain via IBC.

In addition, in this technical verification, R3’s leading distributed application platform Corda is adopted as one of the blockchain infrastructures, and we are also collaborating with R3, the global enterprise distributed technology and services firm. R3 has realized the importance of interoperability between Corda and Ethereum/EVM-compatible blockchains and is backing it as a critical feature to come.

As interoperability is expected to become increasingly important in R3’s projects with major financial institutions around the world, Datachain’s initiative also plays a key role as a litmus test to the possibilities of interoperability.

Why IBC? Why Datachain?

So why did Progmat choose IBC as the communication protocol between blockchains?

In 2022, Progmat was looking for a solution that met the following criteria for their project:

Trust-minimized (without a TTP)
Able to handle various use cases including securities settlement and NFT settlement
Does not require building a new network (minimizes construction and management costs and privacy issues)

After careful consideration, they determined that IBC was a viable interoperability method for enterprise use cases that met the above requirements. This is a crucial step in connecting Progmat with the world of public blockchains.

Datachain is one of the top contributors to IBC and has high expertise in this area, having been awarded two grants from the Interchain Foundation. This is why they partnered with Datachain.

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https://medium.com/@datachain/icf-grant-to-enhance-ibc-solidity-for-production-use-6c93ab797177

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In addition, Progmat needed the open-source software (OSS) developed by Datachain, such as Cross Framework, which enables atomic swaps between different blockchains, and LCP, which brings scalability to IBC while fulfuliing their criterias, to achieve their goal of cross-chain settlement.

Overall, the decision to choose IBC was based on careful consideration of various factors, and the partnership with Datachain brings the necessary expertise to make this initiative a success.

Technical Details

In this technical verification, we have successfully achieved the simultaneous transfer of tokens on both Corda, a blockchain layer of the stablecoin management platform “Progmat Coin,” and GoQuorum, a blockchain platform that handles digital securities other than Progmat, by interconnecting the two blockchain platforms.

As a cross-chain initiative using Progmat Coin, there are both DVP settlements of stablecoins and digital securities, as well as PVP settlements between stablecoins or between stablecoins and regional digital currencies. However, this case concerns the former DVP settlement effort.

We have mainly verified the following two points:

High scalability and trust-minimized cross-blockchain verification.
Simultaneous transfer of tokens on different blockchain platforms.

For the first point, we used the IBC protocol (e.g., IBC-Solidity and Corda-IBC), and LCP, which enables efficient and scalable cross-chain interoperability without losing the degree of security.

(You can learn more about LCP from here.)

For the second point, we used the Cross Framework, a framework that allows for cross-chain transactions, to execute simultaneous transfers of digital assets and stablecoins on different blockchain platforms.

https://github.com/datachainlab/cross

Testing Scenario and Demo Video

The normal scenario involves a DvP (Delivery versus Payment) where Alice, the digital security buyer, transfers a stablecoin to Bob, the digital security seller, for payment. In turn, Bob transfers the digital security to Alice. The stablecoin amount is set at 1000 USD and the number of digital securities is set at 10.

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The various screens in the demo video show the following:

Upper screen: the scenario script
Lower left screen: logs of packet detection by the relayer
Lower right screen: logs of verification by the LCP node

In addition, the text in the demo video is color-coded as follows:

Gray: commands
White: logs of the script
Blue: highlighted logs of the script
Green: results of executing commands.

The actors involved in this scenario are listed in the following table. ST represents Security Token while SC represents Stablecoin.

The demo video showcases a series of actions as follows:

Grant tokens on Corda to Alice from SCAdmin.
Grant tokens on GoQuorum to Bob from STAdmin.
Bob approves the token to Cross.
Display the balance before executing the scenario.
Alice creates a ContractTx on Corda.
Bob creates a ContractTx on GoQuorum.
Alice creates and submits an InitiateTx to start the transaction.
Bob signs and submits the transaction (ExtSignTx).
The STAdmin signs and submits the transaction (ExtSignTx).
Validator executes the Cross-tx.
Relayer detects and relays the packet.
Display the balance after executing the scenario.

If interested, we can consider making the demo code available upon request. For those who would like it, please contact us at the following email address:

Email: progmat_post@tr.mufg.jp

Comment from Mitsubishi UFJ Trust and Banking

Tatsuya Saito, the Vice President of Product at Mitsubishi UFJ Trust and Banking Corporation and Incoming Founder CEO of Progmat

“At Progmat, we believe that IBC and LCP are essential technologies to satisfy the messaging layer requirements for blockchain interoperability when handling Real World Assets (RWA) such as security tokens, stablecoins, and utility tokens (NFT) across multiple chains. We aim to lead the trend of tokenizing RWA globally and collaborate with Datachain to create initiatives that represent this movement, including the commercialization of cross-chain settlements for digital securities using stablecoins, which is planned for 2024.”

Comment from R3

Todd McDonald, Chief Strategy Officer & Co-Founder at R3

“Building a critical infrastructure that will enable users to connect Corda-based apps with Enterprise Ethereum apps and bridging these networks in a regulatory-compliant way is top of mind at R3. We are excited to see what the future holds with Datachain’s work on efficient and scalable cross-chain interoperability, as it can act as an additional guide in our mission of enabling an open, trusted, and enduring digital economy.”

Final Thought

We are beyond excited to announce that the technical verification has shown that Corda and GoQuorum can enable the simultaneous transfer of stablecoins and digital assets on each blockchain with high scalability and trustless structure.

As mentioned earlier, stablecoins using Progmat Coin will be issued through a trust-based scheme once licensed intermediaries complete their registration after the revised Payment Services Act is enforced in 2023. Cross-chain settlements using stablecoins that comply with regulations will be a cutting-edge global initiative for digital securities on the blockchain!

Thanks to the collaboration of Progmat, R3, securities companies, and others, we were able to create this pioneering use case. As Datachain, we are over the moon to have been a part of this initiative and we can’t wait to spread the word to the blockchain community worldwide.

Make sure to stay tuned for future developments toward commercialization in 2024. It’s going to be epic.