R3, Once Banking’s Blockchain Bet, Is Spinning Up a DeFi Token

As DeFi looks to compliance, “enterprise blockchain” sees an opportunity.

Sep 29, 2021 at 12:47 p.m. UTC
Updated Sep 29, 2021 at 2:25 p.m. UTC

R3, the startup that began with a consortium of banks trying to figure out how to use cryptocurrency technology in a private setting, is now looking to enter the vast expanse of decentralized finance (DeFi).

R3 announced its regulatory-friendly DeFi network and token – dubbed Obscuro – on Sept. 28 at this year’s CordaCon, R3′s annual developer summit, later stressing that it is a proof-of-concept, and a go-live date would be dictated by regulators.

“Our team is working on a proof-of-concept project for a private, permission-less DeFi network, with a corresponding token,” R3 representative Nick Murray-Leslie said via email. (“Private” and “permission-less” sounds confusing, but refers to R3′s work with Intel SGX to create a closed setting for transactions while holding onto the open nature of DeFi.) “Our goal is to design, test and have it shovel ready from a technological standpoint for next year.”

Proponents of open and truly permissionless DeFi are considering ways to make their platforms more regulation-friendly, such as introducing know-your-customer (KYC) checks and features like the whitelisting of users. R3, with its privacy-centric Corda platform, is coming at this problem from the direction of a more traditional, regulated product design, in one of the more pronounced pivots in recent memory.

R3 said Obscuro, a layer 2 network of specialist nodes using Intel’s SGX enclaves, has the potential to reduce front-running in DeFi applications by crypto miners who are privy to large, market-moving trades and insert their own trades to take advantage.

“We intend that it’s going to be possible to deploy Ethereum contracts to Obscuro almost unchanged, following a model established by other layer 2 platforms. Additionally, Obscuro will roll up encrypted transactions to a management contract on Ethereum. Again, this roll-up concept is established by other layer 2 platforms,” R3 said in response to CoinDesk’s questions, adding:

“We are considering building a prototype DEX to illustrate the capabilities of the platform and the potential to prevent front-running.”

R3 said the Obscuro token will find its way onto exchanges and is needed as a way to compensate Obscuro node operators for running infrastructure.

“A mechanism is needed to pass value from users. A utility token achieves this, and provides a role in determining the weight given to individuals in governance decisions,” Murray-Leslie added. “A token will likely follow the ERC-20 standard. This means that it should be possible for users to add trading pairs to DEXs, but whether to add to a centralized exchange is of course their decision.”

Enterprise recalculations

More broadly, the move by R3 represents a further concession that public blockchains, as opposed to shared databases within company firewalls masquerading as innovation, have proven to attract far more capital and usage.

In fact, the Obscuro announcement is not the first time members of the open-source Corda community have pushed for DeFi-like functionality and a token to run on the Corda Network.

This has been the continued focus of LAB577, a startup helmed by former NatWest banker Richard Crook, which last year announced the Cordite Society, a co-operative registered in the U.K., and its plans to release the XDC crypto token on R3′s Corda.

“LAB577 are delighted to see the launch of Obscuro, another step in the convergence of the leading blockchain technologies,” Crook said Wednesday via email, adding:

“The need for privacy, identity, finality and governance in the financial industry has remained unchanged. It is for the blockchain technologies to meet the requirements, not the other way around.”

Update (Sept. 29, 13:20 UTC): Adds further information from R3.

DISCLOSURE

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Ian Allison is a senior reporter at CoinDesk.