Last month Societe Generale – FORGE published the CAST Framework and whitepaper, a model for how a blockchain security token could operate within a fully regulated environment . There are plans to create a governance body for the framework and a community of banks, financial institutions and fintechs.
The Societe Generale team took the innovative step of using public blockchains for all its token issuances, although the CAST Framework is DLT agnostic. Despite its cutting edge stance, at first glance, the CAST Framework appears somewhat similar to the current market setup.
For example, it defines the role of the Registrar that would keep an off-chain Settlement Transaction Repository (STR). That STR records the sort of information you’d expect them to keep, such as the stockholders’ names (which are not on-chain), a copy of the transaction history, and the Registrar performs anti money laundering (AML) checks on buyers.
If this sounds familiar, that’s the point. The framework is proposing a standard to enable a transition from the current status quo, and to do so it needs to be sufficiently close to legacy structures. The website clearly states that this “initial version has not been designed to optimize the end-state of a blockchain-based financial industry.”
The project’s tagline is “the framework to open capital markets to digital assets.”
Continuing on the Registrar’s role, the aim is to address two issues encountered with peer-to-peer cryptocurrency transactions. The first is the lack of AML checks and the other is the immutability of blockchain transactions. If the Registrar runs the AML checks in advance, that addresses the first. And the Registrar also has the ability to freeze an investor’s security token.
Another purpose is to prevent a single point of failure, as in the blockchain itself. While blockchains such as Ethereum may have copies of data, something can go wrong. Although the paper doesn’t mention a blockchain fork, that’s just one scenario. Hence, one of the responsibilities of a Registrar is to ensure continuity and potentially even switch to another DLT.
Communication between a blockchain and legacy systems is another key area to enable a security token transition. This requires Oracles or software which communicates between the blockchain and external systems via APIs and can produce “pseudo SWIFT messages”. That allows each institution to transition to blockchain infrastructure at its own pace.
CAST has created a ‘certification program,’ and several consulting companies have already been certified, including Accenture, Grant Thornton International Ltd, KPMG, Lunalogic Group, onepoint, and PwC.
The CAST Framework is open source, and it hopes Oracles will also be shared on an open source basis.
Meanwhile, next year Societe Generale – FORGE is planning to launch a digital asset offering that will include structuring, issuing, exchange and custody services.