SETL: The Private Network of Blockchains

It seems that private networks of different blockchains are becoming very popular these days. The permissioned blockchain platform SETL has been making headlines recently with its ability to process 1 billion transactions per day. The firm, headed by CEO Anthony Culligan, says that permissioned blockchains like his team’s project are the commercial solution to settlement and securities transactions. He believes the systems of today are costly, slow and cumbersome, costing the entire global industry over $60-$80 billion USD.

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Culligan says:

“SETL is seeking to provide a simple, unified and immediate approach to settlement of payments.” spoke with Anthony Culligan about SETL and how they achieved the 1 billion per day transaction record in the crypto-world. He explains in depth how they are building this network of distributed ledgers so users can access faster settlement in cash or assets using the SETL platform. He believes his team, with “decades of experience in financial services,” and this new service they created will save the commercial industry billions of dollars by relying on individual permissioned blockchains. (BC): How can you describe SETL in simple terms?

Anthony Culligan (AC): SETL is seeking to provide a simple, unified and immediate approach to settlement of payments and securities transactions. SETL is proposing to do this using blockchain technology which will allow participants to assert transactions in shared ledgers which will form a golden record of transactions and balances. Currently there is a plethora of expensive, cumbersome and slow systems which cost the industry between $65bn and $80bn per year.  (See Oliver Wyman – The Times they are A’Changin)

BC: What gave you the idea to start this project?

Eev6xBFPAC: The SETL team has decades of experience in financial services.  Peter Randall, the COO was the founder and first CEO of Chi-X. Chi-X was founded on the basis that revolutionary technology could transform financial markets infrastructure. Chi-X is now the largest equity trading platform in Europe. Our mantra is that we want to do to the post-trade environment what Chi-X did to trading.

BC: When did you first hear about blockchain technology?

AC: In 2011, I came across Bitcoin and found it interesting, elegant and compelling.

BC: What kind of assets and currencies are utilized as payments?

AC: Traditional central bank currencies and market securities including cash, bonds, loans, equities and funds.  Whatever the market needs to settle and keep a record of.

BC: Can you tell our readers about the 1 billion transactions per day barrier?

anthony_squareAC: Financial markets operate and volumes and speeds that are orders of magnitude greater than the current capacity of cryptocurrencies. It was part of the design of the project that we should be able to operate at real world volumes. We aimed to demonstrate a rate of transaction processing of 1 billion per day because this is approximately the volume of all electronic cash movements in the world – including VISA, Mastercard, electronic bank payments and all wholesale and retail movements. (See CapGemini, RBS World Payments Report)

BC: Will your permissioned blockchain work with the Bitcoin network?

AC: No. Bitcoin is a permissionless protocol which has very different technical and social aims. The Bitcoin protocol is absolutely elegant, but it is antithetical to the current financial services industry which requires identity to be integral. SETL is providing a commercial solution to a commercial problem.

BC: How would banks and lenders use this system to eliminate risks?

AC: When banks trade between each other, they create obligations to settle. Those obligations persist until a settlement is finalised. In most markets, this can be up to 3 working days and in some cases much longer. Regulators consider outstanding interbank obligations to be systemically risky. If one bank defaulted, that could trigger defaults in other banks.  Because of this, regulators demand that banks set aside capital to cover every eventuality. If, however, a settlement is completed immediately after a trade, using SETL technology, systemic risk is reduced, and banks do not have to set aside capital.

BC: Can you tell me about SETL’s set of nodes that are set up in Europe?

AC: It is a test network setup to demonstrate the system to potential partners. It comprises a number of intercommunicating blockchains running in parallel processing transactions and passing balances between each other. The ability to run groups of blockchains in parallel effectively removes practical volume constraints.

BC: When it comes to clearing, settling and managing costs under the current system what can SETL do to improve this arena?

Trading-Time-redAC: Currently clearing and settlement involves many intermediaries – the broker, the exchange, the general clearing member, the central counterparty, the central securities depositary, the custodian, the sub-custodian, the payment agent and the registrar – to name a few. Each intermediary runs their centralised database and charges for their services. The system is plagued with errors and omissions as data is passed along the line, and each intermediary makes a charge for their services. SETL will simplify the process down to a shared ledger into which participants can assert transactions so that ownership registers will be autonomously maintained.

BC: What are the advantages of having permissioned blockchains as opposed to permissionless?

CK5--KMWIAAsck2AC: Permissioning is a prerequisite in financial services. It would not be possible to deploy a permissionless blockchain in any meaningful manner and to be compliant with current legal requirements for financial services firms. Permissioned blockchains have recourse to real-world identity of the participants. That means that real-world incentives extrinsic to the blockchain can be brought to bear in consensus. For example, a bad actor can be referred to a court or to law enforcement. The ability to apply extrinsic forces and to incorporate trust in some aspects of design simplifies the computational overheads. The permissionless blockchains have to solve a much harder problem and do so using elegant but expensive mechanisms. The most exciting innovation is coming from the permissionless world, and we keep a very keen eye on developments there.

BC: What are SETL’s overall goal and mission?

AC: To transform payments and settlements in financial services for the benefit of all participants. will be watching as these ideas progress. We know that the technology can save the global industry a ton compared to the stale, ancient financial systems of the past. Will ideas like permissionless and permissioned blockchains coexist? Only time will tell.

What do you think of permissioned blockchains? Let us know in the comments below! 

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