A New Beginning
Celebrating the Past; Charting the Future.
We started RateX in 2016 to help consumers save on foreign exchange rates for cross-border e-commerce.
The whole process is easy for consumers. Through a simple and beautiful Chrome extension (RateX), and mobile app (RateS), consumers pay in their native currencies for overseas purchases at the lowest possible exchange rates.
However, as a business, dealing with multi-currency settlements and clearance and working with different financial institutions proves to be inefficient, time wasting and costly. For instance, existing payment processors charge merchants 3–5% fees per transaction, even more so if it is cross-border transactions. Furthermore, payment flows are opaque and merchants have no visibility, when the fiat currencies actually reach their accounts.
The First Step
We were very motivated to help businesses with cross-border settlements and clearance through using Stellar and Ethereum, given how we faced these problems ourselves.
The goal for Rate3 was simple: a blockchain-based settlement and clearance network for businesses. This lays the foundation for a decentralised financial infrastructure for other financial services — credit scoring, lending — can exist.
From the onset, the decision was to create a platform that could resolve all of businesses’ financial needs on the blockchain. We examined different blockchains and their underlying scalability issues, and decided that a cross-chain architecture would be most suitable.
On the technical side, the Rate3 Dual Protocol consisted of a Cross-Border Payment Protocol, and a Credit Scoring Protocol. Through the former, Rate3 aims to help businesses do cross-border settlements & clearance using the Stellar network. The Rate3 Credit Scoring Protocol taps on the Ethereum network to provide a gateway to further financial services: decentralised credit score, facilitation of credit loans, and creating bridges for other financial institutions.
Our initial token sale was very successful, having reached the hard cap of 25,000 ETH successfully. More than 1,000 investors participated, alongside top funds such as Fenbushi Capital’s token funds, Node Capital, Kenetic, FBG Capital, AlphaCoinFund, IOST etc. The RTE token started trading on several top exchanges too: Bibox, FCOIN, Coinrail and other decentralised exchanges.
Our first step involved several key development phases:
- Building and shipping a cross-border settlement & clearance network entirely on the blockchain
- Creating an interoperable infrastructure for decentralised credit, allowing identity attestors and existing financial institutions to join the ecosystem
- Scaling the protocols to support new verticals and wider applications, including offline payment, insurance services, stablecoins and more
This vision is ambitious, challenging, yet very exciting for us.
The Need for a Bridge
The reality is that there is still a vast gap between the current “fiat” reality and the “blockchain” world and enterprises cannot adopt blockchain technologies effectively: they cannnot use volatile cryptocurrencies for business usage, their assets are held in fiat value, they do not have an identity on different blockchains. We believe that there are 3 fundamental reasons for this gap:
- No common legal frameworks to tie ownership and control of real world assets to digital tokens
- Differing smart contract standards
- Fragmented identity ecosystem
With this new informed understanding, we are prepared to ship the broader strategy of Rate3: help businesses and enterprises move to the blockchain more effectively through both tokenization and cross-chain identity management.
Rate3 will provide a common legal framework, smart contract standard and identity ecosystem to bridge the gap between enterprises and blockchains.
This is accomplished through the Rate3 Network, that consist:
- Tokenization Protocol: A end-to-end protocol for tokenization of assets on both Ethereum and Stellar
- Identity Protocol: A protocol to create and manage a unified cross-chain identity
Rate3 Tokenization Protocol
The key to a legally-compliant tokenization is a trust system enforced by smart contracts.
What are Trusts — and why do we use them?
A trust is a legal entity and fiduciary relationship, where a trustor gives the trustee (or fiduciaries) the fiduciary rights to hold assets, on behalf of a beneficiary.
The Rate3 Protocol wants to tokenize assets through a trust system, built upon the foundation of smart contracts. Specifically, legally-enforceable smart contracts
- Guarantees legally-recognized ownership rights through trusts
- Specify how smart contracts direct trustees to manage assets
- Collaterialise underying assets through staking
Why use Trusts?
We choose to use trusts for the key purpose of transparency and accountability. Creating an independent trust under the care of a trustee, means that the assets are never in the hands of Rate3 at all.
Instead, all assets are held in an independent, legally-enforceable third-party trust, and all ownership rights are with the token holders. Auditors, financial regulators can also conduct checks on the trust and the underlying assets.
Here’s how it works
Stablecoins have been a key focus of Rate3. Here, we use Singapore Dollars (SGD-R) as an example of a tokenized asset:
- User goes to a registered SGDR issuer
- The user provides personal information and Ethereum or Stellar public address
- Trust company does internal KYC/AML checks and checks on the user’s cross-chain identity
- After approval, the user sends actual Singapore Dollars (fiat) to the trust’s custodian bank account
- Once the Singapore dollars are received, Rate3 Smart Contracts mint an equivalent amount of SGDR tokens and user receives the minted SGDR tokens in either their Stellar or Ethereum address.
Rate3 (and related entites) do NOT touch any of the users’ underlying assets at all.
Why the Need for Cross-Chain?
Tokenized assets can exist as both ERC-20 tokens, or Stellar assets. We choose to do so becasue different blockchains serve these needs differently:
Given the different use cases of digital tokens, providing for more flexibility in use cases is better.
Tokenization is only one half of the story. How else can you improve the security, accountability and overall experience in the system?
Enter Identity Management
The Need for An Identity
Legal verification, attestation and compliance checks of a user’s identity is critical here.
Currently, financial institutions spend a huge amount of time and effort on KYC/AML checks to triple-verify an entity’s identity.
However, the current KYC process is costly, laborious, duplicative, and generally ineffective.
Issue #1: A fragmented KYC/AML process
The KYC/AML process is fragmented. Institutions have their own methods of collecting personal information, verifying users’ identity, screening against sanctions and blacklists and assessing potential risks of illegal intentions for using the service. Checks are not integrated into existing systems.
What is needed:
A single identity profile which gets read and updated by institutions across industries and jurisdictions. The single identity profile should reflect duplicate KYC/AML verification performed by different institutions and also reveal flags raised by other institutions. A user should have a better risk score after multiple KYC/AML checks and another consistently flagged user should have a worse score.
Issue #2: Ensuring users’ privacy
For users, their sensitive personal data is surrendered to the institutions. Users have to trust that the institutions are compliant to strict policies to prevent intentional or unintentional data breaches, misuse of PII and identity theft. The Equifax data breach in 2017 saw millions of driver’s license numbers, phone numbers, email addresses, names, dates of birth, and Social Security numbers.
What is needed:
With a single identity protocol, there is lesser need for smaller institutions to request for data and documents repeatedly. This reduces the duplicativity of collection and verification of KYC/AML and reduce the risk exposure of users’ data.
The Rate3 Identity Protocol
Given the two challenges of a fragmented KYC/AML process and the need to maintain users’ privacy, a decentralized single identity protocol on blockchain smart contract will ideally have the following properties:
The Cross-Chain Technical Architecture
Two key elements are required:
- A shared identity registry for all registered entities
- An interoperable cross-chain identity
Part 1: Shared Identity Registry
The Rate3 Identity Protocol provides a shared standardized identity framework, for KYC/AML and other compliance checks.
For example, if an user had passed the KYC/AML checks at Trust Company ‘A’, the results are stored in his individual identity registry, which is a smart contract. If the user has to complete subsequent KYC/AML process with Trust Company ‘B’, Trust Company ‘B’ can directly tap on the user’s existing identity registry.
An entity’s individual identity can be further enhanced by tapping on other existing on-chain identity solutions. For instance, other ERC-20 identity providers like Bloom can provide a decentralised Ethereum-based credit score.
This single shared identity registry will greatly help to reduce the onboarding time and effort for other trust companies or institutions who wish to tap on these data.
Part 2: Bridging a Cross-Chain Identity
The identity registry is an Ethereum smart contract, but the Rate3 Tokenization works on a cross-chain architecture, so Stellar-issued tokens and ERC-20 tokens can be swapped interchangeably through atomic swaps:
- Ability to link different blockchain wallet addresses to a single identity
- Integration with the respective blockchains’ protocols, for seamless registry access
Linking different blockchain wallet addresses to a single identity
The Rate3 Identity Protocol provides a smart contract layer to associate a user’s Stellar address with his/her identity. First, the user will use his blockchain address to make a claim with his identity registry record. Next, the user signs off with his registered Ethereum address to verify the claim.
This way, the user’s identity can store multiple addresses, across different blockchains.
Part #2: Integration with the native blockchains’ protocol
Ethereum registry cross-chain data sharing has to be done by a bridge node. This bridge node acts as a data relayer between different blockchains for cross-chain interoperability.
In the case of Stellar, the Rate3 bridge node allows for easy integration with existing Stellar’s infrastructure, such as Federation and Compliance protocols. The Stellar Federation and Compliance protocols are meant for financial institutions to know who their customers are sending and receiving money from.
The bridge node acts as a decentralized federation and compliance service for all users in the Rate3 ecosystem. It reads the data from Ethereum smart contracts, and format a response according to the two Stellar protocols.
Various anchors and financial institutions on the Stellar Network can check whether the user’s associated Stellar address is on Rate3 ecosystem and request for the user’s KYC information.
Smart Contracts Layer
On the smart contracts’ layer, there are a few important components of the Rate3 protocol. Consisting of both Ethereum and Stellar smart contracts, these smart contracts serve different purposes:
Utility of the RTE Token
The RTE token is a utility token required for work to be completed on the ecosystem, but also incentivizes good behaviour and punish bad actors in the Rate3 ecosystem.
Given the differing regulations for payments and compliance in different countries, a RTE token and incentive mechanism helps to create a unified standard across various jurisdictions.
- Asset Staking: Collateral for tokenized assets
- Transaction fees paid for on-chain transactions (token swaps, minting/burning of tokens)
- Identity Creation & Staking: Transaction fees to create and stake an identity
- Incentives for third-party users to perform significant actions on the network, such as asset evaluation, auditing, legal verification
We envision a tokenized world that is legally compliant, interoperable, and scalable, by focusing on collaboration with financial regulators, technical development, driving ecosystem adoption:
Three key features shape our future roadmap and protocol design:
- Legal Compliance: The Rate3 Protocols are specifically designed to work with financial regulators and all legal bodies. We want to create a set of standardized smart trusts and smart contracts, to be customized to local regulations. They are also designed for a permissioned and transparent trail of transaction history.
- Interoperability: Cross-chain interoperability is another key property we specifically designed the Rate3 Protocols for. We want to allow for the most flexibility and varied use cases of the protocols, whilst encouraging innovation and diversity in the ecosystem.
- Scalability: Gaining mainstream adoption requires scalability in terms of transaction speed, costs and capacity. Rate3 Protocols will power applications that would be high in transaction volumes, without compromising on security or usability.
Our development roadmap is as follow:
The Way Forward
In the 1300’s, the real merchants of Venice started trading securities and government debt issues, laying the foundations for the first securitized economy. The rise of stock exchanges, such as those of New York Stock Exchange and London Stock Exchange, brought in the second phase of liquidity, where companies can now trade fractional equity ownership for resources.
The tokenized future is the third phase — one that Rate3 envisions and enables. We are committed to helping enterprises create and connect a tokenized world through our tokenization and identity protocols. Rate3 wants to — and is clearly poised to — be the bridge between enterprises today and the tokenized world.
This requires a tremendous effort: a fundamental paradigm shift in how society views ownership, how government regulators view the legality of smart contracts, and how legal institutions evolve to fit these demands. We are committed to collaborating with everyone to work towards this grand vision of a unified tokenized world — one that is more transparent, accessible and inclusive.
We look forward to shaping to creating and connecting the tokenized world together.
Rate3 is a decentralised dual protocol for cross-chain asset tokenization and identity management. The Rate3 Tokenization Protocol is an end-to-end protocol for tokenization on both Ethereum and Stellar, while the Rate3 Identity Protocol is a protocol to create and manage a unified cross-chain identity.