LayerZero Labs and IntellectEU Collaborate to Solve Cross-Chain DvP Transactions

LayerZero Labs and IntellectEU announce their collaboration, designed to integrate on-chain settlement with off-chain payment rails for financial institutions.

IntellectEU is a leader in providing financial technology solutions with over 17 of years experience in core banking systems. LayerZero Labs is the leading blockchain infrastructure provider for cross-chain interoperability, allowing for data and digital assets to move seamlessly and securely across blockchains.

This collaboration unlocks the ability for financial institutions to seamlessly execute cross-chain transactions between blockchain environments directly from their back office. It is an industry first in integrating core banking and blockchain technology via the LayerZero protocol and IntellectEU’s Catalyst Integration Manager.

IntellectEU’s Catalyst Integration Manager allows for seamless blockchain integration with any payment format, enabling financial institutions to benefit from blockchain technology without disrupting existing payment processes.

We have built a proof of concept for cross-chain Delivery vs. Payment (DvP) transactions, demonstrating how to orchestrate a complete DvP transaction flow directly from the back office of a financial institution utilizing Swift MT messages. Settlement is orchestrated across two distinct systems via the LayerZero protocol — a private blockchain environment powered by Hyperledger Besu and a public blockchain environment powered by Polygon.

Key Components

• Hyperledger Besu: serving as the private blockchain environment where the securities token resides.
• Polygon: serving as the public blockchain. Polygon hosts the USDC stablecoin, facilitating the exchange of assets in a decentralised manner.
• LayerZero Protocol: the LayerZero protocol orchestrates the cross-chain transaction flow, and ensures seamless interoperability between Hyperledger Besu and Polygon.
• Blockdaemon, Republic Crypto, LayerZero Labs and IntellectEU: providing message security via their respective Decentralised Verifier Networks (DVNs).
• Escrow: smart contracts on each blockchain that lock and release the assets involved in the transaction to represent 3rd party custody and minimise counterparty risk.
• Swift MT Messages: representing real-world banking operations, the transaction is initiated through a Swift MT message (MT543), and a Swift MT message (MT547) to signify the completion of the transaction, ensuring compatibility with existing banking back-office systems.

How the Solution Works

LayerZero Labs, IntellectEU, Blockdaemon, and Republic Crypto successfully executed a cross-chain DvP transaction between a private blockchain and a public blockchain — an innovation that had yet to be accomplished to our knowledge. This milestone underscores the potential of blockchain interoperability innovation in financial services operations.

By initiating the DvP transaction through Swift messages, we’ve demonstrated a novel approach to leveraging blockchain technology within existing banking infrastructure. This integration opens up new possibilities for efficiency and transparency in financial transactions.

Here’s a simplified overview of the DvP cross-chain transaction flow:

1. Initiation: the transaction is initiated via a Swift MT543 message from the back office of a financial institution.
2. Integration Solution: IntellectEU’s Catalyst Integration Manager interprets the Swift message and invokes a composition of (OApp) smart contracts on Hyperledger Besu.
3. Orchestration: the LayerZero protocol is invoked by the OApp Escrow smart contract to programmatically orchestrate the sale of the security token for USDC via a receiver-side OApp Escrow smart contract on Polygon.
4. Peer-to-Peer Transaction: the ownership change of the security token and USDC on each chain is then executed, released from the Escrow contracts into each the respective counterparty Accounts.
5. Completion Confirmation: IntellectEU’s Catalyst integration solution generates an MT547 message to signify the completion of the transaction, ensuring compatibility with existing banking back-office systems.

In conclusion, LayeZero Labs’ collaboration with IntellectEU highlights how LayerZero can facilitate secure and efficient transactions between private and public blockchains, providing a practical solution for financial institutions aiming to modernize transaction processes.

By bridging the gap between blockchain technology and traditional banking systems, we’re paving the way for a more connected and efficient financial ecosystem.

FAQ

What is Delivery vs Payment (DvP)?

A DvP transaction is one where the cash payment for a purchased security occurs prior to, or upon, its delivery, much akin to two counterparties (traders) meeting at an agreed time to exchange the agreed assets. With the transfer of one asset conditioned to the transfer of the other, counterparties are protected from principal risk, that is, the risk of the seller of a security failing to receive payment despite fulfilling delivery, or the risk of the buyer of a security failing to receive delivery despite fulfilling payment.

What is a Swift Message Type?

Swift message types are the format or schema used to send messages to financial institutions on the Swift network. The original message types were developed by Swift and a subset was retrospectively made into an ISO standard, ISO 15022. In many instances, Swift message types between custodians follow the ISO standard. This was recently supplemented by a XML based version under ISO 20022.

What is a LayerZero Endpoint?

A LayerZero Endpoint is a set of immutable smart contracts that are deployed on each blockchain that facilitate sending and receiving cross-chain transaction information. Because they are immutable, e.g. non-upgradeable smart contracts, LayerZero Endpoints will exist on each chain in perpetuity without the ability to be upgraded or have code modified by any party, including LayerZero Labs.

What is a Decentralised Verifier Network (DVN)?

A DVN serves to verify, or attest to, cross-chain messages passed via the LayerZero protocol. In LayerZero, this is a permissionless role that enables any entity capable of verifying cross-chain data packets to participate as a DVN. Application owners independently select their DVN or grouping of DVNs and can interchange at any time, preventing vendor lock-in at the security level that attests to messages being passed from a source chain to a destination chain.

What is an Omnichain Application (OApp)?

LayerZero Labs offers developers out-of-the-box contract standards for interacting with the LayerZero protocol. Omnichain Application (OApp) and Omnichain Fungible Token (OFT) Standards are interfaces that facilitate message handling and configurations. OApp and OFT contracts are extensions of existing contract standards; for example, OFT extends ERC-20s and cuts down developer time for building applications. In the case of OApps and OFTs, both contract standards allow developers to create universal applications and tokens that work the same across all LayeZero–supported chains.

Consensus 2024 Showcase

Are you interested in witnessing this POC in action? Join us at Consensus 2024 in Austin, TX, where we’ll showcase the demo at the Hyperledger Foundation booth @10:00AM from Thursday, 30th — Friday, 31st of May. Experience firsthand how LayerZero is reshaping the future of financial transactions via blockchain interoperability.

Contact: bd@layerzerolabs.org

Thank you to Josh and Luke for co-writing this article.

About LayerZero

To learn more about LayerZero:

• Check out the website
• Add on LinkedIn
• Follow on Twitter
• Read the Whitepaper