Blueprint for Future Financial Infrastructure: Interpreting the Monetary Authority of Singapore's "Global Layer 1" White Paper

Introduction

The global layer one initiative (GL1) aims to explore the development of a multifunctional shared ledger infrastructure based on Distributed Ledger Technology (DLT), which is developed for the financial industry by regulated financial institutions. The vision of GL1 is to enable regulated financial institutions to deploy inherently interoperable digital asset applications across jurisdictions using this shared ledger infrastructure, managed by common asset standards, smart contracts, and digital identity technology. Creating a shared ledger infrastructure will unlock liquidity that is dispersed across multiple locations and enable financial institutions to collaborate more effectively. Financial institutions can expand the services offered to clients while reducing the costs of building their own infrastructure.

The focus of GL1 is to provide shared ledger infrastructure for financial institutions to develop, deploy, and utilize applications suitable for the financial industry's value chain, such as issuance, distribution, trading and settlement, custody, asset servicing, and payments. This can enhance cross-border payments as well as the cross-border distribution and settlement of capital market instruments. Establishing a consortium of financial institutions that leverages DLT to address specific use cases like cross-border payments is not a new development. The transformative potential of GL1's unique approach lies in developing a shared ledger infrastructure that can be used for different use cases and is capable of supporting composable transactions involving various financial assets and applications while meeting regulatory requirements.

By leveraging the capabilities of a broader financial ecosystem, financial institutions can provide richer and more extensive services to end users and bring them to market faster. The shared ledger infrastructure of GL1 will enable financial institutions to build and deploy composite applications that leverage the capabilities of other application providers. This can manifest as institutional-level financial agreements for programmatic modeling and executing foreign exchange conversions and settlements. This, in turn, can improve the interactions of tokenized currencies and assets, enabling synchronized delivery of digital and other tokenized assets for payment (DvP) settlements, as well as payment versus payment (PvP) settlements for foreign exchange conversions. Further extending this, it can support delivery versus payment versus payment (DvPvP), meaning that the settlement chain can consist of a set of synchronized tokenized currencies and assets transfers.

Background and Motivation

The traditional infrastructure supporting global financial markets was developed decades ago, resulting in isolated databases, different communication protocols, and high costs associated with maintaining proprietary systems and custom integrations. Although global financial markets remain strong and resilient, the demands of the industry have become more complex and scaled. Incremental upgrades to existing financial infrastructure may not be sufficient to keep pace with the complexity and speed of change.

As a result, financial institutions are turning to technologies such as Distributed Ledger Technology (DLT), as it has the potential to modernize market infrastructure and provide more automated and cost-effective models. It is worth noting that industry participants have launched their own digital asset initiatives. However, they have chosen different technologies and vendors for their respective initiatives, which limits interoperability.

The limitations of interoperability between systems have led to market fragmentation, with liquidity being trapped between different locations due to incompatible infrastructure. Holding liquidity in different places may increase capital and opportunity costs. Furthermore, the surge of different infrastructures and the lack of globally recognized classifications and standards related to digital assets and DLT have increased the cost of adoption, as financial institutions need to invest in and support different types of technology.

To achieve seamless cross-border transactions and fully leverage the value of DLT, a compliant infrastructure designed around openness and interoperability is required. Infrastructure providers should also be aware of the applicable laws and regulations related to the issuance and transfer of tokenized financial assets, as well as the regulatory treatment of products created under different tokenization structures.

The recent working paper elaborates on the vision of "Financial Internet" ( Finternet ) and "Unified Ledger" ( Unified Ledger ), further supporting the role of tokenization and its applications in cross-border payments and securities settlement. If managed properly, an open and interconnected financial ecosystem can improve access to and efficiency of financial services through better financial process integration.

Although experiments and pilots in asset tokenization have made good progress, the lack of financial networks and technical infrastructure suitable for financial institutions to execute digital asset transactions limits their ability to deploy tokenized assets on a commercial scale. As a result, market participation and secondary trading opportunities for tokenized assets remain relatively low compared to traditional markets.

Design Principles of GL1

In order to achieve the goal of GL1 serving the financial industry's needs, the basic digital infrastructure of GL1 will be developed according to a series of principles as follows:

• Open and Standards-Based: Technical specifications will be public and open, allowing members to easily build and deploy applications. Where appropriate, industry standards and open-source protocols ( can be used for payment messages and tokens ). If existing standards have not yet been developed or are insufficient, appropriate efforts will be made to ensure that the design is flexible and can propose or incorporate future standards.

• Comply with applicable regulations and be open to regulators: The GL1 platform will adhere to applicable laws and regulatory requirements. Policy controls for specific jurisdictions should be developed at the application layer, rather than being built into the GL1 platform. Legal and regulatory requirements applicable to members or end users may depend on an analysis of the business applications, services, and the locations of members or end users.

• Good Governance: Proper governance, operational arrangements, member agreements, and rules will be clear and transparent to ensure clear boundaries of responsibility and accountability.

• Neutrality: The design should prevent the concentration or accumulation of control by any single entity or related entity group, as well as within geographical regions. Key operational decisions, including technology selection, will be based on the technological advantages presented alongside other factors, and will be evaluated by members.

• Fair Competition: Financial institutions should be able to compete fairly on the GL1 platform. The GL1 operating company will not make decisions aimed at unfairly benefiting one financial institution over others.

• Accessible both functionally and economically: Financial institutions that meet the eligibility criteria will be eligible to participate. The eligibility criteria, operational costs, and fees will be designed to promote the integrity, stability, and sustainability of the network.

• Financial Self-Sufficiency: The GL1 platform can operate as a public utility in the industry. Revenue, including subscription fees and transaction fees, will be used for operational costs and reinvestment ( such as enhancements and technological research and development ), to ensure the continued sustainability of GL1.

Overview of GL1 Architecture

The architecture of GL1 can be described as the foundational layer in the four-layer conceptual model of digital asset platforms. This four-layer model was first introduced in the "Project Guardian—Open and Interoperable Networks" and related working papers by the Monetary Authority of Singapore (MAS).

Although still under consideration, the expected interaction of GL1 with other component layers can be described as follows:

• Access Layer: Refers to how end users access various digital services built around the GL1 platform. Each service provider will be responsible for: a( providing wallet functionality that meets GL1 standards; b) conducting KYC checks on their respective customers; c( accessing, authorizing, and exiting their direct customers; d) servicing their own customers. It is assumed that non-designated financial institutions can access GL1's services, but they must first connect through designated financial institutions.

• Service Layer: Regulated financial institutions and trusted third parties that meet participation standards should be able to build and deploy application services on the GL1 platform, such as interbank transfers and collateral management. Participating financial institutions need to adhere to the settlement function standards defined by GL1, including: No Payment Delivery ) FoP ), Payment versus Payment ) PvP ), Delivery versus Payment ( DvP ), and Delivery versus Delivery ( DvD ). Service providers can also develop their own smart contract logic that is not included in the GL1 default software library.

• Asset Layer: It will support local issuance of cash, securities, and other assets, as well as the tokenization of existing physical or analog assets. Supported asset types may include cash and cash equivalents, stocks, fixed income, commodities, derivatives, alternative assets, fund shares, letters of credit, promissory notes, asset reference tokens, and other tokens. Assets on GL1 will be deployed in token form and should be designed for technical interoperability between multiple GL1 applications and service providers.

• The platform layer ( Global First Layer ): GL1 will provide infrastructure components for the platform layer, which includes blockchain infrastructure ( including ledgers and consensus mechanisms ), libraries and templates, data standards, and platform-wide services. The infrastructure used for record keeping will be separate from the application layer, ensuring that assets on the GL1 platform are compatible with multiple applications, even if these applications are provided by different entities. The GL1 platform will contain standardized protocols for consensus and synchronization mechanisms to facilitate asset transfer and communication across applications. The platform will also ensure privacy, permission management, and data isolation from other applications and participants.

Under GL1, entities acting as validators and ensuring the integrity of transaction records need to adhere to the technical risk management controls of the financial sector, including business continuity planning and cybersecurity protection procedures. In return for their efforts, validators can be compensated through transaction fees paid in advance or deferred recurring payments based on subscription fees.

To ensure compatibility with other layers in the stack, the GL1 platform will adhere to a defined set of data and operational standards ( assets, tokens, wallets, etc. ), and will include core functionalities, common libraries, and business logic that can be utilized as an optional "starter kit" ( access, smart contracts, workflows ).

Potential Uses of GL1

GL1 is designed to support multiple use cases and is unbiased towards asset types. It will support all regulated financial assets, tokenized central bank currencies, and commercial bank currencies on a shared ledger infrastructure. Participating central banks can also issue central bank digital currency ( CBDC ) as a common settlement asset.

For GL1, any financial institution that meets the minimum applicable standards and passes the due diligence process can participate in and use GL1 services without the approval of a central governing body. However, only licensed parties are allowed to build and deploy commercial applications on the GL1 platform, and they must comply with GL1's data and security standards. The permitted activities conducted by financial institutions will be proportional to their risk profile and their capacity to mitigate related risks.

The initially identified use cases include cross-border payments and the cross-border distribution and settlement of capital market instruments on digital asset networks.

Value Proposition of GL1

By introducing digital asset applications and regulated financial institution participants into shared ledger infrastructure, the financial industry is expected to realize the advantages of digital assets and potentially accelerate the modernization of traditional market infrastructure significantly. Some potential value propositions of GL1 include:

• Improve efficiency and reduce costs
• Enhance cross-border payments and settlements
• Improve liquidity management
• Enhance trading transparency and auditability
• Support innovation in new products and services
• Improve system resilience

Operating Model

In practice, multiple assets can be established using the GL1 platform.