ACTUS Protocol 2.0
The Digital Securities Protocol.
Recently, we have seen more DLT-friendly regulation being enacted (e.g. in Switzerland or Luxembourg). This makes it more feasible for traditional financial players to use these alternative financial rails.
At atpar, our mission is to bring the potential of Open Finance to traditional players. During the last months, we got valuable feedback from financial institutions in our projects. Based on these insights, we developed a version 2.0 of the ACTUS Protocol. This article highlights the new features and improvements.
What does the ACTUS Protocol provide?
With the ACTUS Protocol we enable players to digitize and service financial instruments on-chain. The protocol acts like a decentralized securities depository. It keeps record of the ownership of securities and provides additional service to facilitate the servicing of the life cycle.
The main goal of version 2.0 is to make the protocol more lightweight, modular and gas efficient. But first, let us summarize the main components and functionalities of this decentralized securities depository:
- Security register: manage and transfer ownership of a security
- Data provider embedded: attach the reference data to the security
- Paying and calculation agent included: calculate and distribute dividends/interest
- Servicer functionality encoded: manage the life cycle of the security and make it verifiable on-chain
- Templating approach: prefabricated and parametrizable financial product LEGOs
- Supporting DLT-friendly jurisdictions: provide the required regulatory requirements (Switzerland will be the first supported jurisdiction)
What makes the ACTUS Protocol unique?
The Blockchain Act of Lichtenstein introduced the container model, where a token serves as a container for rights of all kinds [1]. With the ACTUS Protocol, we are taking this concept a step further by encoding financial rights and obligation directly into the digital security. Thus, a token embeds the reference data of the financial products it represents. This allows players to derive events and obligations, maintain the state or retrieve the relevant reporting information directly from the token — a single source of truth for the data, logic and reporting of a digital security.
The ACTUS Protocol provides a unique and sscalable solution to embed and define such financial products: instead of coding, testing and auditing the logic of these products for every use case from scratch, the protocol provides its user a parametrizable product library for all major financial instruments. These prefabricated financial product LEGOs enable a faster go-to-market and much higher automation for mid-to-back office processes across the different product offerings.
What’s new in the ACTUS Protocol 2.0?
- A more lightweight architecture that is easier to deploy, audit and maintain
- Extendable ERC-20 tokens with modules for reference data, payments and servicing
- A more flexible way to describe the financial instrument and attach reference data
- A more advanced on-chain interest distribution mechanism with dividend date announcements and checkpointing of investors’ balances
What are the benefits?
- Lower cost for deployment and better gas efficiency
- Easier to adapt to clients’ use cases and products
- Faster-go-to-market and simplified setup
- Better upgradability and more secure architecture
How can I make my digital securities smart?
We believe that players will move more functionality to service digital securities on chain. Enabling players to automate the servicing of digital securities and save costs by leveraging the additional benefits of alternative financial rails on DLT. In the next sections, we illustrate how smart securities can be created step-by-step.
1) Everything starts with a token
The easiest way to create a digital security is to start with an ERC-20 token and add the regulatory functionality needed to represent a security in digital form. In Switzerland, this requires for example a link to further documentation that is embedded in the token and a mechanism that allows the issuer/servicer to recover or reclaim tokens in case the investor or courts request it.
2) Know Your Product (KYP)
In a next step, issuers can attach machine-readable reference data directly to the token in order to facilitate due diligence, listing, pricing, servicing etc. Thus, every user can directly retrieve such information from the token to derive future cash flows or monitor the performance of the instruments in an automated manner. Today, players need to extract this information manually for every token from legal documents, the issuer website, data providers, etc. We improved gas efficiency to record this information by an order of magnitude while still benefiting from an immutable and verifiable audit trail.
3) Distribute cash flows directly to investors
In a next step, distribution of dividends and interests can be encoded in the token itself. Thus, disintermediating some of the functionality of calculation and paying agents. Usually the issuer himself or the agent needs to figure out who will receive what and send the amounts to every investor’s wallet individually. By embedding the functionality into the token, the issuer only needs to send the entire interest amount to the token contract. The token takes care of the distribution and makes sure investors can only withdraw the amount they are entitled to.
4) Mutualized execution infrastructure
As a last step, the full financial product logic and servicing is handled on chain. The token then becomes a truly smart financial contract: all the relevant data and logic for the life cycle is encapsulated in the token. Players can directly interact with the token, which provides a single, shared and trusted execution infrastructure to all parties. The benefit of this is that players don’t need to replicate data and logic for the product life cycle in their own legacy systems: they only have to feed the relevant outcomes and updates back into their systems. This will enable players to innovate at a much faster pace because it facilitates the decoupling from the slow and expensive development cycles of the legacy systems.
How can I try it out?
Request access on our developer portal and get your API key. If you have questions: join our Discord channel.
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