Executives of Russia's National Settlement Depository (NSD) have revealed new details about a plan to build a blockchain-based depository platform for safeguarding crypto assets.
The platform, separate from the NSD itself, is designed to turn traditional financial market infrastructures into compliant custodians of digital currencies and tokens.
Related exclusively to CoinDesk, the newly dubbed Decentralized Digital Depository (D3) is being designed to provide institutional investors with a compliant way to own such assets. It incorporates a wallet developed under a partnership disclosed earlier this year with tech provider Waves. Back then, the biggest question was whether or not the central securities depository would be legally allowed to deal with crypto assets.
However, that hurdle appears to be dissipating, with President Vladimir Putin recently mandating that Russia's legislative body modify existing laws to clarify the status of blockchain and cryptocurrencies. This stands to potentially unlock a slew of projects in the country, such as D3, that are in development and are open to enabling currently dormant business opportunities.
"The main target audience is for investors who do want to invest a big amount of money, but into crypto assets – and we're talking about cryptocurrencies and tokens which are generated during ICOs," said Artem Duvanov, director of the NSD and an adviser to D3, adding:
"But they cannot do that now, because big money normally requires a certain level of transparency – that's the first barrier, which we can remove."
Because part of the bridge D3 is expected to provide between traditional centralized assets and these new decentralized counterparts is an anti-money laundering (AML) program, the platform is constructed to make it easier for regulators to gain insight into who owns which assets.
In short, Duvanov said, the depository will help collect and maintain all the personal information necessary to comply with know-your-customer (KYC) and AML requirements.
But that's not the only way the NSD plans to build D3 with existing financial systems in mind.
The securities depository will look to integrate both cryptocurrency exchanges and traditional custodians into the D3 platform. In this way, the NSD's head of decentralized solutions, Alexander Yakovlev, explained, the platform could eventually result in something similar to a bank, but for crypto assets.
At D3, "we are trying to solve this by [creating] an environment where each legal entity can be identified and have an account in crypto, like they have normal accounts in banks at the moment, and to have it with safekeeping featured in a distributed manner," said Yakovlev, who is also a co-founder of D3.
He and Waves founder Sasha Ivanov are personally funding the project, Yakovlev said.
D3 is also part of a larger effort within the NSD to work with international central securities depositories (CSDs) to ensure blockchain transactions comply with Swift's messaging standard ISO 20022.
Originally designed to let Swift's 11,000 institutional members more seamlessly conduct transactions between one another, ISO 20022 has become the lingua franca of sorts for any large exchange. By encoding this format into D3's blockchain-based smart contracts, Duvanov hopes to prepare the crypto industry for what he expects will be increasing demand for these assets over the next 20 years.
"We are keen to support these current standards ... to have easy integration with the existing CSD system."
By using a system familiar to existing financial institutions, the builders of D3 are trying to make integration of the platform as easy as possible.
Easier integration is also key to the project's success as a place for all different kinds of ICO tokens.
While part of D3 has been built on decentralized trading solution Waves (and the NSD continues to use it), NSD is currently in talks with several other blockchain teams, including Hyperledger Fabric, so that its platform can custody and manage any kind of token, no matter what blockchain it is built on.
That desire is, in part, a component of the NSD's belief that the D3 platform could be a place where ICO issuers hold their annual general meetings (AGMs). Commonplace in more traditional companies, these gatherings are held to discuss the health and future of the company, and are where shareholders vote on topics relative to the shares they own.
Because D3 will provide the NSD insight into who owns how many shares of which tokens, Yakovlev believes the platform will be integral for ICO issuers when they decide to hold annual general meetings of their own.
Last year, the NSD announced it had tested a voting system using the NXT blockchain, in an effort to create a prototype enabling shareholders to more easily vote as part of AGMs or corporate actions.
Pointing to how these two ideas might eventually connect, Yakovlev concluded:
"We want to provide an infrastructure to have something like general meetings, but with tokens."
Combination lock image via Shutterstock
Correction: This article has been updated to correct the descriptions of D3 and of Waves' role in the project, and to clarify that D3 is a separate entity from the NSD.