Interpretation of the Monetary Authority of Singapore's 'Layer 1 - The Foundation of Global Financial Networks' White Paper

Organizing: spinach spinach

Preface: Perhaps many people have not noticed that the entire blockchain industry is undergoing an unprecedented transformation driven by the public sector, which will affect the future landscape of the entire human financial and monetary system.

In June 2024, the Monetary Authority of Singapore (MAS) officially released the White Paper “Global Layer 1: Foundation Layer for Financial Networks”, marking Singapore’s establishment of an important ‘central bank blockchain’. At the same time, the ‘mBridge’ currency bridge blockchain 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 openly invited international cooperation.

Prior to this, the Bank for International Settlements (BIS) published an article in April 2024, after which it elaborated on the future blueprint and vision of tokenization and unified ledger, demonstrating the central bank’s attitude towards this transformation.

In October 2023, I published a 30,000-word research report titled ‘RWA Asset Tokenization Future Blueprint: Comprehensive Analysis of Underlying Logic and Implementation Path of Large-scale Applications.’ It comprehensively discussed the underlying logic of tokenization and the path to large-scale application. Friends who have read it carefully should know that it is not a research report on RWA track projects in the encryption market, but an in-depth exploration of future development from the perspective of actual implementation.

In this article, it is believed that the vast majority of real-world assets in the future will be tokenized on permissioned chains with regulatory compliance frameworks, forming a multi-chain interoperable pattern across different regulatory jurisdictions. In this pattern, legal tender currencies on-chain, such as CBDC and tokenized deposits, will become the primary currencies used.

From the White Paper of the Monetary Authority of Singapore, it can be observed that the industry development seems to be moving in the direction predicted by the author. Based on this, the author also shares some of his own views on the future direction of the industry:

1. Although the scale of RWA is in the trillions, the RWA track will gradually evolve into a game for the authorities and traditional financial institutions, leaving little room for pure Web3 opportunities. The key is compliance + assets, compliance is determined by the authorities, and assets are held by capitalists and financial institutions. Technology is not the moat of this track, so it seems that entrepreneurs in the RWA track have only two options: ‘fully compliant’ or ‘completely non-compliant’.

2. Cross-border payments, international trade, supply chain finance and other fields have been considered as the areas with the most potential for improvement and application of blockchain in the past. There will be great opportunities to truly implement these in the wave of global public and private sector mobilization. These areas are also markets of billions or even trillions, but they are also a race that relies on compliance and resources.

3. In the White Paper, MAS clearly states that public chains are not suitable for regulated activities, nor are they suitable for regulated financial institutions. Currently, there is a lack of infrastructure suitable for financial institutions in the market. Therefore, the kind of future trillion-dollar assets being put on the chain may not necessarily be on a public chain. According to the author’s understanding, some RWA investors’ concerns come from some unknown risks, such as security risks, which are almost unavoidable in public chains and do not have accountability. If your money is stolen by hackers, there is nothing you can do. Therefore, the author boldly predicts that public permissioned chains will experience an exponential outbreak in the future, and clear legal regulation and accountability will dispel most investors’ concerns.

4. In the white paper, the Native Token of Global Layer 1 is the central bank’s digital currency CBDC, and stablecoins are not mentioned. According to the author’s observation, for central banks, CBDC and tokenized bank deposits are the primary choices, while stablecoins are not given priority consideration due to their structural deficiencies, such as the inability to achieve the ‘singleness’ of currency and the risk of de-pegging. However, does this mean that CBDC will replace stablecoins in the future? Not necessarily, but there may be a ‘render unto Caesar the things that are Caesar’s, and unto God the things that are God’s’ situation, which is an interesting topic that the author may discuss specifically in the future.

Chris Dixon, a partner at a16z, once said in his book “Read Write Own Building the Next Era of the Internet” that there are two different cultures in the industry: “computer” and “casino”, representing different development paths in the industry. “Computer culture” represents developers, entrepreneurs, and many visionary people who can place encryption in the broader history of the Internet and understand the long-term technological significance of blockchain. On the other hand, the “casino” culture focuses more on short-term gains and profiting from price fluctuations. In my personal opinion, as the industry develops, the wild growth dividend will gradually disappear. The “casino” culture will continue to exist, but there will not be as many opportunities for ordinary people, and people will increasingly focus on the “computer” culture to truly drive technological development and create real value.

Many people may have noticed that the author’s update frequency is decreasing, and the content is less market-related, but rather focuses on the trend of the central bank’s development. This is because the author is currently following a series of pilot projects in cooperation with the central bank as part of the entrepreneurial team, and most of the energy is focused on entrepreneurial-related matters. Therefore, in the future, the author will continue to update similar content, which may not directly make money for you, but can help you understand the latest industry development trends from another perspective, and also believe that these contents will attract many like-minded friends. Respect! The following is the main content of the White Paper:

1. Introduction

The Global Layer One (GL1) initiative explores the development of a multi-functional shared ledger infrastructure based on distributed ledger technology (DLT), developed by regulated financial institutions for the financial industry. Our vision is to enable regulated financial institutions to deploy interoperable digital asset applications across jurisdictions using this shared ledger infrastructure, managed by common asset standards, smart contracts and digital identity technologies. Creating shared ledger infrastructure will unleash liquidity dispersed across multiple locations and enable financial institutions to collaborate more effectively. Financial institutions can expand the services they offer to customers while reducing the cost of building their own infrastructure.

GL1 focuses on providing a shared ledger infrastructure for financial institutions to develop, deploy, and use applications relevant to the financial industry value chain, such as issuance, distribution, trading and settlement, custody, asset servicing, and payments. This can enhance cross-border payments as well as cross-border distribution and settlement of capital market instruments. The establishment of a financial institution alliance using DLT to address specific use cases such as cross-border payments is not a new development. The transformative potential of GL1’s unique approach lies in developing a shared ledger infrastructure that can be used for different use cases and can support composite transactions involving a variety of financial assets and applications, while complying with regulatory requirements.

By leveraging the capabilities of a broader financial ecosystem, financial institutions can provide end users with richer and more extensive services, and bring them to market faster. GL1’s shared ledger infrastructure will enable financial institutions to build and deploy composite applications, leveraging the capabilities of other application providers. This can take the form of institution-level financial protocols for programmatic modeling and execution of forex exchange and settlement. This, in turn, can improve the interaction of tokenized currencies and assets, enabling synchronized delivery-versus-payment (DvP) settlement for digital and other tokenized assets, as well as payment-versus-payment (PvP) settlement for forex exchanges. Furthermore, this can support delivery-versus-payment-versus-payment (DvPvP), where a settlement chain can consist of a set of synchronized tokenized currencies and asset transfers.

This article introduces the GL1 initiative and discusses the role of the shared ledger infrastructure, which will comply with applicable regulations and be managed by general technical standards, principles, and practices. Regulated financial institutions can deploy tokenized assets across jurisdictions. The participation of stakeholders from the public and private sectors is crucial to ensure that the shared ledger infrastructure is established in accordance with relevant regulatory requirements and international standards, and meets market demand.

2. Background and Motivation

The traditional infrastructure that supports the global financial market was developed decades ago, resulting in isolated databases, different communication protocols, and high costs associated with maintaining proprietary systems and custom integrations. While the global financial market remains robust and resilient, industry demands have become more complex and scalable. Incremental upgrades to existing financial infrastructure alone may not be sufficient to keep pace with the complexity and rate of change.

Therefore, financial institutions are turning to technologies such as Distributed Ledger Technology (DLT) because it offers the potential for modern market infrastructure and more automated and cost-effective models. It is worth noting that industry participants have launched their own digital asset plans. However, they have chosen different technologies and vendors for their respective plans, which limits interoperability.

The interoperability constraints between systems have led to market fragmentation, with liquidity being trapped between different venues due to incompatible infrastructure. Holding liquidity in different venues may increase capital and opportunity costs. In addition, the proliferation of different infrastructures and the lack of globally recognized classifications and standards for digital assets and DLT increase adoption costs, as financial institutions need to invest in and support different types of technologies.

To achieve seamless cross-border transactions and fully leverage the value of DLT, it is necessary to design a compliance infrastructure around openness and interoperability. Infrastructure providers should also understand the applicable laws and regulations related to the issuance and transfer of tokenized financial assets, as well as the regulatory treatment of products created under different tokenization structures.

The recent working paper of BIS elaborates on the visions of ‘Financial Internet’ (Finternet) and ‘Unified Ledger’, further supporting tokenization and its role in applications such as cross-border payments and securities settlement. If managed properly, an open and interconnected financial ecosystem can improve the access and efficiency of financial services through better integration of financial processes.

Although the experiments and pilot projects of asset tokenization have made good progress, the lack of financial networks and technological infrastructure suitable for financial institutions to execute digital asset transactions has limited the ability of financial institutions to deploy tokenized assets on a commercial scale. Therefore, the market participation and secondary trading opportunities for tokenized assets are still relatively low compared to traditional markets.

The following paragraph will discuss two network models commonly used by financial institutions today, as well as a third model that combines the openness of model 1 and the protective measures of model 2.

Model 1: Public permissionless blockchain

Currently, public permissionless blockchains have attracted a large number of applications and users because they are designed to be open and accessible to all parties. Essentially, they are similar to the internet, where the public network can grow exponentially without the need for approval before participating. As a result, public permissionless blockchains have significant potential network effects. By building on shared and open infrastructure, developers can leverage existing capabilities without having to rebuild similar infrastructure themselves.

Public permissionless networks were not originally designed for unregulated activities. They are inherently autonomous and decentralized. There is no legal entity responsible for these networks, and there are no executable service level agreements (SLAs) regarding performance and resilience (including network risk mitigation), and there is a lack of certainty and guarantees in transaction processing.

Due to the lack of clear accountability, anonymity of service providers, and the absence of service level protocols, these networks are not suitable for regulated financial institutions without additional protection measures and controls. In addition, the legal considerations and general guidelines for such blockchain uses are also not yet clear. These factors make it difficult for regulated financial institutions to use them.

Model 2: Private Permissioned Blockchain

Some Financial Institutions have determined that the current public permissionless blockchain cannot meet their needs. Therefore, many Financial Institutions choose to establish independent private permissioned networks and their ecosystems.

These private permissioned networks contain technical features that enable them to implement rules, procedures, and smart contracts according to applicable laws and regulatory frameworks. They are also designed to ensure the resilience of the network in the face of malicious behavior.

However, the increasing number of private and permissioned networks, if they cannot interoperate with each other, may lead to greater fragmentation of wholesale funding market liquidity in the long term. If not addressed, fragmentation will reduce network effects in financial markets and may create friction for market participants, such as inaccessibility, increased liquidity requirements due to the separation of liquidity pools, and price arbitrage across networks.

Model 3: Public Permissioned Blockchain

Public permissioned networks allow any entity that meets the participation criteria to participate, but the types of activities that participants can engage in on the network are restricted. Public permissioned networks operated by financial institutions for the financial services industry can achieve the advantages of an open and accessible network while minimizing risks and concerns.

Such networks will be built on principles of openness and accessibility similar to the public internet, but with built-in safeguards as a value exchange network. For example, the network’s governance rules may be limited to regulated financial institutions becoming members. Transactions can be supplemented with privacy-enhancing technologies such as zero-knowledge proofs and homomorphic encryption. While the concepts of public and permissioned networks are not new, there is no precedent for such networks being offered at scale by regulated financial institutions.

The GL1 initiative will explore and consider various network models, including the concept of public permissioned infrastructure in the context of regulatory requirements. For example, regulated financial institutions can operate nodes of GL1, and participants on the GL1 platform will undergo Know Your Customer (KYC) checks. The following section will describe how GL1 operates in practice.

The GL1 initiative aims to promote the development of a shared infrastructure for hosting tokenized financial assets and financial applications along the financial value chain.

GL1’s infrastructure will be agnostic to asset types; it will support tokenized assets and tokenized currencies issued by network users (such as regulated financial institutions) in different jurisdictions and currency denominations. This can simplify processing, support automatic real-time cross-border fund transfers, and facilitate concurrent FX swaps and securities settlements based on predefined conditions.

The infrastructure will be developed by financial institutions for the financial service industry and will serve as a platform to provide the following functions:

• Cross-application synchronization
• Composability
• Privacy Protection
• Compatibility with assets that have already been tokenized and/or issued on the infrastructure

GL1 operating company will serve as a technology provider and a public infrastructure provider across markets and jurisdictions. To foster the development of the solution ecosystem, GL1 will also support regulated financial institutions in building, operating, and deploying applications on a general digital infrastructure that covers the following:

• Trading lifecycle (primary issuance, trading, settlement, payment, collateral management, corporate actions, etc.)
• Issuance and trading of different types of assets (e.g., cash, securities, alternative assets)

3.1 Key Objectives

In order to realize the vision of creating more efficient clearing and settlement solutions and unlocking new business models through programming and composability features, the GL1 initiative will focus on the following aspects: a) supporting the creation of multi-functional networks. b) enabling various applications ranging from payment, capital raising to secondary trading to be deployed. c) providing an infrastructure for hosting and executing transactions involving tokenized assets, which are digital representations of value or rights that can be electronically transferred and stored. Tokenized assets can be assets across asset classes (such as stocks, fixed income, fund shares, etc.) or currencies (such as commercial bank currency, central bank currency). d) encouraging the formulation and establishment of internationally recognized general principles, policies and standards to ensure interoperability of tokenized assets and applications developed on GL1 internationally and across networks.

3.2 Design Principles

To achieve the goals of serving the financial industry’s demand, GL1’s underlying digital infrastructure will be developed based on the following principles:

• Open and Standard-based: Technical specifications will be published and open, and members will be able to easily build and deploy applications. Industry standards and open-source protocols can be used where appropriate (for payment messages and tokens). If existing standards have not been developed or are insufficient, appropriate efforts will be made to ensure that the design is flexible and can be proposed or incorporated into future standards.
• Compliant with applicable regulations and open to regulatory authorities: The GL1 platform will comply with applicable laws and regulatory requirements. Policy controls for specific jurisdictions should be developed at the application layer and not embedded in the GL1 platform. Legal and regulatory requirements applicable to members or end users may depend on an analysis of the commercial applications, services, and the location of members or end users.
• Good governance: Proper governance, operational arrangements, member protocols, and rules will be clear and transparent to ensure clear boundaries of responsibility and accountability.
• Neutrality: The design should prevent any single entity or related group of entities, as well as concentration or aggregation of control within a geographic area. Key operational decisions, including technology selection, will be based on the technical merits (among other factors) and evaluated by members.
• Business Fairness: Financial institutions should be able to compete fairly on the GL1 platform. The GL1 operating company will not make decisions that unfairly benefit one financial institution over another.
• Accessible in functionality and economics: Financial institutions that meet the membership eligibility criteria will be eligible to participate. Membership eligibility criteria, operating costs, and fees will be designed to promote the integrity, stability, and sustainability of the network.
• Financial self-sufficiency: The GL1 platform can operate as a public utility in the industry. Revenues, including subscription fees and transaction fees, will be used for operating costs and reinvestment (such as enhancement and technical research and development) to ensure the sustainability of GL1.

3.3 Architecture Overview

The architecture of GL1 can be described as the base layer in the four-layer conceptual model of the digital asset platform. This four-layer model was first introduced in the “Guardian Project (Project Guardian) - Open and Interoperable Network” of the Monetary Authority of Singapore (MAS) and the “ASAP: Conceptual Model of Digital Asset Platform” working paper of the International Monetary Fund (IMF).

Although still under consideration, the expected interaction of GL1 with other component layers can be described as follows:

• The access layer refers to how end users access various digital services built around the GL1 platform. Each service provider will be responsible for: a) providing wallet functionality that complies with the GL1 standard; b) conducting KYC checks on their respective customers; c) onboarding, authorizing, and offboarding their direct customers; d) servicing their own customers. It is assumed that non-designated financial institutions can access GL1 services, but they must first go through designated financial institutions.
• Financial institutions that meet the participation standards and trusted third parties should be able to build and deploy application services on the GL1 platform, such as interbank transfers and collateral management. Participating financial institutions need to comply with the settlement function standards defined by GL1, including: Free of Payment (FoP), Payment versus Payment (PvP), Delivery versus Payment (DvP), and Delivery versus Delivery (DvD). Service providers can also develop their own smart contract logic not included in the default software library of GL1.
• The asset layer will support the local issuance of cash, securities, and other assets, as well as the tokenization of existing physical or simulated assets. Supported asset types may include cash and cash equivalents, stocks, fixed income, commodities, derivatives, alternative assets, fund shares, letters of credit, promissory notes, asset reference tokens, and other tokens. Assets on GL1 will be deployed in token form and should be designed for technical interoperability between multiple GL1 applications and service providers.
• The Platform Layer (GL1), the first global layer, will provide infrastructure components for the platform layer, including blockchain infrastructure (including ledger and consensus mechanism), libraries and templates, data standards, and platform-wide services. The infrastructure for recording and storage will be separated from the application layer to ensure that assets on the GL1 platform are compatible with multiple applications, even if these applications are provided by different institutions. The GL1 platform will include standardized protocols for consensus and synchronization mechanisms to achieve asset transfer and cross-application communication. The platform will also ensure privacy, permission management, and data isolation from other applications and participants.

In GL1, entities acting as validators and ensuring the integrity of transaction records are required to follow the financial sector’s technical risk management controls, including business continuity plans and network security protection procedures. As a reward for their efforts, validators can receive compensation through pre-paid transaction fees or subscription-based deferred periodic payments.

To ensure compatibility with other layers in the stack, the GL1 platform will adhere to a set of defined data and operation standards (assets, tokens, wallets, etc.), including core functionalities, common libraries, and business logic that can be optionally used as an ‘entry-level kit’ to leverage access, smart contracts, and workflows.

4. Potential Uses of GL1

GL1 will be designed to support multiple use cases and be asset-agnostic. It will support all regulated financial assets, tokenized central bank currencies, and commercial bank currencies on a shared ledger infrastructure. Participating central banks may also issue central bank digital currencies (CBDCs) as a common settlement asset.

For GL1, any financial institution that meets the minimum applicable standards and passes the due diligence process can participate in and use GL1 services without the approval of a central management institution. However, only licensed parties can build and deploy commercial applications on the GL1 platform, and must comply with GL1’s data and security standards. The permitted activities of financial institutions will be proportional to their risk profile and their ability to mitigate related risks.

Preliminary identified use cases include cross-border payments as well as cross-border distribution and settlement of capital market tools on the digital asset network. Table 3 provides examples of potential use cases for GL1.

The examples contained in this article are for illustration purposes only and should not be considered formal opinions applicable to all uses of the GL1 platform.

Value Proposition of GL1

By introducing digital asset applications and regulated financial institution participants into shared ledger infrastructure, the financial industry is expected to realize the advantages of digital assets and potentially accelerate the modernization of traditional market infrastructure. Table 4 describes some potential value propositions of GL1.

5. Operation Mode

In practice, multiple financial applications and networks can be established using the GL1 platform. The financial network defined here refers to an alliance composed of a group of financial institutions that agree to use a set of common business arrangements and governance rules for transactions, which specify the responsibilities and obligations of each party.

Financial networks can be organized around specific use cases. For example, a financial network may consist of applications focusing on cross-border payments. At the same time, other financial networks may focus on use cases such as cash and securities settlement.

Financial networks can also include different types of tokenized assets. Some financial networks may focus on the use of wholesale central bank digital currencies (CBDCs), while others are exploring the use of central bank currencies and commercial bank currencies on shared ledgers. Financial networks can also span multiple use cases and jurisdictions. For example, the Monetary Authority of Singapore (MAS)'s Project Ubin wholesale network will include applications supporting forex exchange, fixed income, asset and wealth management tokenized products.

Although each financial network is or will be governed independently and has different characteristics, the potential to expand the coverage of a single financial network may be a key motivation for them to choose common infrastructure. By using the same shared ledger infrastructure, tokenized assets can be transferred between different financial networks and new applications can be composed by building applications originating from multiple financial networks.

In some cases, financial institutions may not be able to transact on a network based on shared ledger infrastructure, but can instead interconnect financial networks based on different ledger technologies. The benefits and drawbacks of interconnected networks are detailed in the Monetary Authority of Singapore (MAS) ‘Guardian Project - Interlinking Networks’ technical White Paper. For further considerations on expanding networks, refer to the ‘Open and Interoperable Networks of the Guardian Project’ paper.

As a regulated financial services platform, some activities on the GL1 platform may be restricted and only allowed to be carried out by designated service providers. The operators are expected to define a rulebook and specify the types of activities allowed. For example, all participants can initiate transactions, but only designated financial institutions can deploy smart contracts. Additional control measures may be defined at various network and application layers, and access to specific functionalities may be limited to selected parties who have gone through necessary screening or authentication processes.

Settlement arrangements GL1 platform can support financial market infrastructure (FMI) operators to provide clearing and settlement functions for payment, securities, and other financial transactions. When establishing the GL1 platform, the GL1 operating company can serve as a technology infrastructure provider for FMI operators. FMIs can still play a critical role in the value chain, but the functions traditionally performed by specific types of FMIs or Central Securities Depositories (CSDs) may be reorganized.

Under the current arrangement, transaction execution, clearing, and settlement functions are performed by different systems operated by different parties. When payment is made through an independent system, the ownership of securities is transferred and the records of the Central Securities Depository (CSD) are updated.

Using GL1, this coordination can be automated through smart contracts. Under the new arrangement, cash and securities transactions will be hosted and executed on the same shared ledger infrastructure. This means that cash and securities can be exchanged simultaneously, and both the cash and securities transaction parts will either succeed or both fail. This arrangement aims to minimize the impact on the system in the event of counterparty default.

Settlement finality is a key requirement for the design of GL1, which means the platform can support the finality of settlement, that is, it can clearly define when the settlement becomes irreversible and unconditional. In a distributed network, this is not simple because there are multiple validating nodes simultaneously verifying transactions and updating records. To ensure consistency between the ledger operation phase and the transfer being considered as having settlement finality, choosing the appropriate algorithm to achieve consensus on the ledger state will be an important design decision.

In the case of GL1, it is assumed that a deterministic consensus algorithm is needed to support settlement finality. For example, it can be defined by the FMI operator that once a predetermined number of validating nodes operated by designated financial institutions reach consensus on the ledger state, the settlement is considered final and irreversible. For completeness, FMI operators using the GL1 platform should be aware of the relevant regulatory framework applicable to settlement finality.

According to the design, the GL1 operating company may operate in the markets and jurisdictions of the participating financial institutions. Depending on the specific arrangements between the GL1 operating company and the participating financial institutions, and the need for commercial and legal analysis, the infrastructure of GL1 and its operating company may be considered as FMIs and/or key service providers in certain jurisdictions where they operate.

Operating companies and participating financial institutions need to consider and manage potential risk factors. These risks include credit risk, liquidity risk, and operational risk, as well as the impact of loss or delay in accessing the GL1 platform, and take appropriate measures to mitigate the impact of systemic downtime. Environmental, social, and governance risks also need to be considered.

Depending on the organizational form and settlement arrangement, financial institutions using the GL1 platform may also be subject to different applicable licenses and regulatory requirements. Further business, legal, and governance analysis is needed to determine the responsibility and accountability of the GL1 operating company when making settlement arrangements with participating FMI operators within the jurisdiction.

In this regard, GL1 Operation Company will cooperate with relevant stakeholders (including regulatory authorities) to ensure the maintenance of the rule of law in GL1 infrastructure.

Since its establishment in November 2023, the Monetary Authority of Singapore (MAS) and the participating financial institutions have been discussing and generating insights and ideas on the GL1 shared ledger infrastructure. In the discussions, the participating financial institutions have considered the following:

Potential business use cases deployed on the GL1 platform include primary issuance of domestic and cross-border payments, securities and other financial instruments, collateral management, and securities settlement.

GL1’s governance model alignment requires the independent legal entity of GL1 to operate in the form of an operating company, as well as a non-profit organization dedicated to governance principles, standards, and best practices.

Preliminary assessment of service policies, risks, and legal considerations.

Based on the consideration of potential business requirements, a preliminary evaluation and recommendation of the applicability of existing Distributed Ledger Technology (DLT) is conducted to develop GL1.

In the next phase, GL1 will take a two-pronged approach to promote its development. GL1 will explore establishing a non-profit organization to develop common principles, policies, and standards for operating GL1. This will complement the potential establishment of independent operating companies in the future, which will build and deploy GL1 infrastructure.

The development of governance and operational models may include considerations of member types and distribution, target operational models, expected operating costs, proposed fee structures, the cost neutrality of estimated revenue and entity reaching the break-even point. It may also expand the preliminary evaluation of potential solution options and technical design considerations for achieving GL1.

It is expected to use the existing Distributed Ledger technology and further potential enhancements to support the specific requirements of GL1.

The GL1 initiative is expected to be a multi-year effort to establish the foundational digital infrastructure capable of shaping the future financial networks. When this vision is realized, it may fundamentally change the asset lifecycle and the operation of the capital market. Achieving this potential requires unprecedented cross-jurisdictional multilateral cooperation, including participation from both the private and public sectors, which has not been seen since the advent of the Internet.

The power of connecting the networks of global banks, public sector authorities, and international organizations is evident: the initiative welcomes contributions from the international community to promote the development of GL1 as a foundational digital infrastructure, supporting the transformation of the financial industry.

Original Text:

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Glossary

Counterparty (CCP): refers to a legal person that inserts itself between counterparties trading in one or more financial markets, becoming the buyer to every seller and the seller to every buyer.

Central Securities Depository (CSD): refers to the legal entity that operates the securities settlement system (settlement services), provides initial records of securities in the book-entry system (notary services) and/or maintains securities accounts at the top level (central maintenance services).

Custody: refers to the custody and management services of financial instruments for client accounts, including custodians and related services, such as cash / collateral management.

Delivery versus Delivery (DvD): A securities settlement mechanism that links the transfer of two securities to ensure the delivery of one security only occurs when the corresponding delivery of the other security takes place.

Delivery versus Payment (DvP): A securities settlement mechanism that links the transfer of securities with the transfer of cash to ensure that the delivery of securities only occurs when the corresponding cash transfer occurs, and vice versa.

Digital assets: refers to any digital representation of value or rights that can be registered, issued, transferred, and electronically stored using DLT.

Distributed Ledger Technology (DLT): refers to the protocol and supporting infrastructure that allows computers in different locations to propose and verify transactions and synchronize updates to records on the network.

Financial Market Infrastructure (FMI): Refers to multilateral systems among participating institutions, including system operators, used for clearing, settlement, or recording of payments, securities, derivatives, or other financial transactions. Typical examples include: Central Securities Depository (CSD), Central Counterparty (CCP), Securities Settlement System (SSS), Trade Repository (TR).

Financial network: refers to a business network composed of a group of financial institutions that agree to transact based on a set of common commercial arrangements and governance rules.

Free of Payment (FoP): Refers to the transfer of securities without corresponding funds transfer.

Global Layer One(GL1): Refers to the initiative of establishing digital infrastructure for tokenized assets.

GL1 Platform: Refers to the shared ledger infrastructure provided by the GL1 operating company for hosting and executing tokenized financial assets and transactions.

GL1 Operating Company: refers to an industry utility company operated by a group of financial institutions for the financial industry.

Securities settlement system: refers to the formal arrangement between multiple participants, whose activities include the execution of transfer instructions.

Security Token: Refers to securities issued, recorded, transferred, and stored using DLT.

Settlement: Refers to the process of completing a securities transaction by transferring cash or securities or both to fulfill the obligations of both parties.

Smart Contract: refers to computer programs deployed on a distributed ledger, where some or all contractual obligations are automatically recorded, replicated, or executed.

Payment versus payment (PvP): refers to a settlement mechanism that ensures the final payment transfer of one currency only occurs when the final payment transfer of another currency occurs.

Validators: refers to the nodes responsible for verifying network transactions on a distributed ledger or blockchain network.