An Exploration Into Distributed Ledger Technology (DLT) - Satoshi Capital Advisors

FSS 2020 DLT Committee
Use Cases & Proof of Concept Sub-Committee
Working Document
Table of Contents
Introduction 2
Section 1 - Use Case Information 2
Section 1.1 - Central Bank Digital Currency 2
Section 1.1.1 - History 2
Section 1.1.2 - Design 3
Section 1.1.3 - Globality 4
Section 1.1.4 - Applicability 4
Section 1.2 - Digital Trade Finance 5
Section 1.3 - Securities Digitization 6
Section 1.4 - Real Estate Tokenization 8
Section 2 - Proof of Concept Framework 9
Page 1 Use Cases & Proof of Concept Sub-Committee Working Document // August 2020

Working Document
Introduction
The Nigerian economy’s rapid digitization has made evident the many issues and opportunities
that exist with financial system modernization. A key driving technology for this modernization at
the global level has been distributed ledger technology (DLT).
This document will outline how the Central Bank of Nigeria can implement minimum viable
products with regards to value adding initiatives built for wide reaching financial sector utilization
with distributed ledger technology. The first section of the document will be introductory in
nature and provide information on the different use cases available and compelling with regards
to the FSS 2020 DLT Committee’s focus on the financial sector. The second section of the
document will provide a framework for implementation of a proof of concept for the most
scalable and relevant use case. Subject to Committee approval, the Use Cases & Proof of
Concept Sub-Committee will then build and launch the proof of concept for presentation during
the FSS 2020 DLT Conference.
Section 1 - Use Case Information
Section 1 will introduce the primary high level use cases in scope of the FSS 2020 DLT
Committee’s focus on distributed ledger technology applications within the financial services
sector. These use cases include central bank digital currency, digital trade finance, securities
digitization, and real estate tokenization.
Section 1.1 - Central Bank Digital Currency
This section will focus on central bank digital currency (CBDC) and its history, design, globality,
and applicability in the context of DLT and the Nigerian market.
Section 1.1.1 - History
CBDC has technically existed since the initial digital transformation of central banks began in
the 1980s and 1990s, and central banks began to move from paper ledgers to digital ledgers.

Working Document
The popularization of DLT due to bitcoin’s surge to prominence in the 2010s has brought about
a resurgence and prioritization of the concept for central banks across the globe. At its core,
CBDC entails a native digital issuance and payment mechanism for central bank money supply
(i.e. base money supply). Through a traditional economics lens, this can be extended to M1
money supply and beyond through private sector collaboration intended to reach retail market
participants or a direct to retail market participant offering from a central bank, which would
effectively extend base money supply to encompass M1 money supply. The first central bank to
propose utilizing a DLT solution for this possibility was the Bank of England in 2015, and was
followed up by the Bank of Canada in 2016 introducing the concept of a CBDC backed by a
bitcoin standard comparable to the gold standard of the 19th and 20th centuries.
Section 1.1.2 - Design
Structural designs for CBDC vary widely according to market focus, with the two primary focus
types including wholesale utilization and retail utilization. A wholesale utilization focus design
only includes institutions that maintain accounts at the respective central bank, albeit extending
the pool of qualified institutions significantly due to the lowered overhead costs of account
opening and management by the respective central bank that corresponds with well executed
system digitization. These designs usually keep money issuance power exclusive to the
respective central bank and enable institutions with CBDC accounts at the respective central
bank to instantly settle transactions between each other at no cost with 24/7/365 business
hours. They also enable the automation of many central bank functions, including lending
facilities and relief funds distribution. A retail utilization focus design includes all consumers in
the economy that the respective central bank is responsible for that can be expected to utilize a
central bank backed digital payment solution, and enables them to instantly settle transactions
between each other at no cost with 24/7/365 business hours. This can include over a billion
people in markets like China and India.
Digital currency issued by a private sector entity with reserves custodied at a central bank is
known as synthetic central bank digital currency. This enables the solvency risk-free benefit of
CBDC while introducing corporate agility and retail market operating expertise that the private
sector far outpaces the public sector on.

Working Document
Section 1.1.3 - Globality
CBDC has become a forefront focus for most major central banks around the globe. The core
goal for these central banks tends to be development of a reliable and modernized payment
system that enables instant transaction finality, to which CBDC is often seen as a catalyst.
Central Banks currently exploring CBDC through pilot programs, working groups, and research
work include the European Central Bank, People’s Bank of China, Hong Kong Monetary
Authority, Federal Reserve, Bank of Ghana, South African Reserve Bank, Bank of Canada,
Bank of England, and many others. Please note that the Use Cases & Proof of Concept
Sub-Committee team lead, Josiah Hernandez (CEO of Satoshi Capital Advisors), has formal
communication channels open with most major central bank teams operating in the CBDC
space and can endeavor to coordinate global multilateral efforts accordingly. Satoshi Capital
Advisors is also building an initiative to pilot a global multi-currency CBDC system and
welcomes participation from the Central Bank of Nigeria.
Section 1.1.4 - Applicability
The primary applications of CBDC that bring most utility to the Nigerian financial sector are
solutions that well service underbanked populations, digital natives, and cross-border
businesses. Wholesale or retail CBDC that indirectly or directly significantly lowers overhead
costs to open and manage accounts for low and variable income populations and subsequently
enables them access to low cost financial services addresses the challenge in banking the
underbanked that corresponds with traditional financial system infrastructure. Servicing this
segment of the population could be a requirement for institutional participation in a CBDC,
furthering progress towards comprehensive financial inclusion. Digital natives, which largely
encompass younger generations, are naturally gravitated to digital payment systems due to
relative convenience and comfortability. Cross border businesses benefit greatly from a CBDC
in the context of a multi-national union like ECOWAS or the broader African Union where there
is widespread distribution of a single currency (e.g. ECO) and ample cross border trade.
Utilization of a CBDC by these businesses significantly lowers costs and payment process
friction that corresponds with traditional financial system infrastructure.

Working Document
Section 1.2 - Digital Trade Finance
This section will focus on digital trade finance (DTF) and its history, design, globality, and
applicability in the context of DLT and the Nigerian market.
Since the ancient empires of Mali and Rome ruled the world there have been institutions
focused on enabling inter- and intra-national trade through lending, trust, and process
optimization solutions. Due to the complexity and multilateralism inherent in the trade industry,
this has proved to be a consistently difficult and significant overhead business. The turn of the
21st century saw much work to digitize these solutions, although most lacked globality,
interoperability, and standardization. With the proliferation of distributed ledger technology due
to bitcoin’s rise to prominence in the 2010s there grew a movement among major trade finance
institutions to create global, standardized, and interoperable solutions utilizing DLT.
Structural designs for digital trade finance solutions built with distributed ledger technology often
replicate the same core concepts and only significantly differ in technological approaches. Trade
finance solutions built utilizing distributed ledger technology incorporate consortiums to bring
together multiple public sector and private sector institutions that frequently interact with each
other principally and on behalf of clients to create widely distributed digital systems that
comprehensively service market demand. The core concepts these solutions focus on include
multilateral communication, cargo provenance, payment facilitation, and paperwork automation,
all of which DLT services well with regards to streamlining.
The consortium design most often utilized in digital trade finance solutions focus on large
importers and exporters and their respective servicing institutions, which typically account for
numerous countries and localities therein. From Rotterdam in Amsterdam, the largest shipping
port in the Western hemisphere, to Shanghai in China, the largest shipping port in the world,
global infrastructure providers and market participants alike are piloting distributed ledger

Working Document
technology solutions, taking aim at archaic traditional trade finance infrastructure and
corresponding arduous processes with the goal of achieving effective digital transformation. In
addition, these consortiums often include large financial institutions that individually cover large
swaths of geographic markets in the trade finance industry.
The primary applications in the Nigerian market for DLT based digital trade finance are solutions
that well service the agriculture, mining, and travel segments of the trade industry. With these
segments comprising material market share with regards to Nigerian economic output, there are
significant economic boosts to be applied through effective digital transformation therein,
utilizing DLT powered digital trade finance. A focus on importers and exporters would also
enable more effective and active Nigerian participation in global trade. In addition, further
unionization across ECOWAS and the African continent with regards to removing trade barriers
opens the door for digital trade finance solutions with ample product-market fit to gain strong
multinational traction.
Section 1.3 - Securities Digitization
This section will focus on securities digitization (SD) and its history, design, globality, and
The bond market dates back to the 12th century and equities to the 17th century, yet outside
financial engineering and the invention of derivatives there has not been much fundamental
innovation since. One such innovation was the electronification of securities trading, which
began in the 1960s and 1970s and brought pre-trade and trade execution processes into the
digital realm, and led to decades of improvements to bring transaction speeds down to well
under 1 second. However, post-trade settlement and broader financial firm back office
processes have largely remained in limbo, beholden to outdated and largely analog industry
standards and workflows. Bitcoin’s rise to prominence in the 2010s generated strong interest
from financial firms, from the world’s largest custody banks to the world’s most active hedge

Working Document
funds, to utilize distributed ledger technology to improve the industry’s standards and workflows
through DLT powered digital transformation, and ultimately bring about global interconnectivity
in a way that was previously not possible.
Securities digitization systems built with distributed ledger technology focus on digitizing the
entirety of securities’ lifecycle by carrying out each step on a shared distributed ledger, from
issuance to secondary market post-trade settlement to final maturity. Comprehensive systems
have yet to be launched for public utilization although some piece meal solutions have been
launched to meet demand for security token offerings, which are a DLT powered reinvention of
the initial public offering. Lack of globality and comprehensiveness with regards to digitization of
the securities’ lifecycle have prevented these systems from reaching significance relative to
traditional securities and materially competing for market share globally. While regulatory
complexity can also be challenging when building these systems, their digital and
programmable nature enable solutions to be built that can automate and abstract away most
regulatory functionality. The ultimate goal of these systems is to build globally interoperable
financial market infrastructures that benefit from lower transaction costs, improved settlement
times, greater liquidity, and overall more market activity.
Global market activity in the DLT powered securities digitization space has thus far been fairly
limited to closed systems built for interbank market activity among the world’s largest financial
institutions. Piecemeal solutions in the USA, EU, and Japan have begun gaining a bit of traction,
although lack the retail and institutional demand required to materially compete with traditional
securities markets. With the private sector looking to optimize the securities’ lifecycle, and
particularly the public listing process, through DLT powered digitization and the public sector
looking to reduce systemic risks through DLT powered digitization there will no doubt be
significant progress made at the global level over the next few years with regards to maturation
and adoption of these systems.

Working Document
Nigeria and the broader African Union have historically suffered from ineffective and inefficient
capital markets, stymying corporate growth and public sector budget financing through foreign
and national investment. Comprehensive DLT powered securities digitization with wide
distribution across the continent would bolster capital raising efforts from the startup level up to
the national and multinational government levels by addressing these problems in addition to
aggregating liquidity and market demand, thus also creating greater incentive for financial
institutions across the globe to participate in the Nigerian and African capital markets.
Section 1.4 - Real Estate Tokenization
This section will focus on real estate tokenization (RET) and its history, design, globality, and
Real estate tokenization is a fairly novel concept without much established history before the
invention of distributed ledger technology and bitcoin’s popularization of DLT in the 2010s. The
only major digital assets representing physical real estate that existed previously are special
purpose funds, like real estate investment trusts (REITS), built to gain mass market liquidity on
often large and relatively illiquid real estate portfolios. Digital is also a loosely utilized term in this
context when considering the only components of these offerings that are natively digital are
pre-trade market data and trade execution. REITs were first launched in the 1970s and have
since grown to hold a combined global market capitalization exceeding ₦500 trillion.
Tokenized real estate offerings represent holistic or fractional ownership of a single property or
real estate portfolio through a DLT powered digital asset. It is worth noting that tokenization
enables divisibility of real estate ownership in ways that were previously not possible due to
logistical and administrative challenges that become addressable with DLT powered digital
transformation. Structural designs for tokenized real estate largely overlap with those for
securities digitization.

Working Document
Due to regulatory authorities largely applying securities regulations to tokenized real estate
offerings, there has been limited cross-border activity in this segment of the DLT space. Most
tokenized real estate offerings thus far have targeted investors in the USA, EU, and Japan and
often only list their digital real estate tokens in marketplaces operating in the country where the
real estate is located. However, there are growing efforts to globalize these marketplaces which
would enable a more international approach to investor targeting in addition to real estate
portfolio construction.
Nigeria is rich with fertile farmland and growing cities, leading the African continent and much of
the developing world in both arenas. Despite this, the country has limited global investor interest
with regards to real estate. Effectively constructed DLT powered tokenized real estate offerings
that streamline the assignment process and corresponding regulatory filings significantly
increase the investability of Nigerian real estate and ultimately open the door for trillions of naira
to enter the market through foreign direct investment.
Section 2 - Proof of Concept Framework
Please see below for the implementation and operating framework with regards to a wholesale
CBDC proof of concept.

SATOSHI CAPITAL ADVISORS 1
Wholesale CBDC
Implementation and Operating
Framework
Satoshi Capital Advisors

Network Roles
Central Reserve Institution is an entity organized within the Central Bank of Nigeria mandated
with managing CBDC issuance and redemption. This entity also operates a liquidity facility
enabling its clients/members to issue and redeem CBDC against traditional currency in a primary
market. The CRI performs AML/CFT checks before onboarding PSPs onto the network.
Payment Service Provider (PSP) is an entity regulated by the Central Bank of Nigeria that
maintains an account at the Bank enabling them to deposit funds. Payment service providers
are consumer facing, while the Central Reserve Institution only works with regulated Payment
Service Providers. These are the only institutions with write access to the core CBDC Ledger.
Node Operator (NO) is a trusted entity (e.g. large PSP) that runs a node on the network and
provides direct Ledger access to PSPs not running their own nodes.

Transaction Flow:
Issuance & Redemption
Payment Service Providers can easily initiate CBDC issuance and redemption transactions once
their account at the Central Reserve Institution has been created.
Issuance transactions are initiated by wiring fiat into a default account kept by the PSP at the
Central Bank. The Central Reserve Institution detects the incoming deposit and initiates a
AML/CTF process that if successful, credits the PSPs on-Ledger account. (Alternatively, the PSP
could initiate the request via API and be given wiring instructions).
Redemption transactions are initiated through an API call into the network via their node. The
request is subject to AML/CTF checks and if approved, the CBDC is redeemed from the PSP’s
on-Ledger account and its Central Bank fiat account is credited for the amount.

Workflow – CBDC Issuance
PSP Initiates Deposit Central Bank of Nigeria
Acknowledges Fiat
Receipt
Software Performs
AML/CFT Analysis
CRI Credits PSPs On-
Ledger Account
INITIATE ACKNOWLEDGE AML / CTF CREDIT
Options:
• PSP deposits fiat into a
central bank account that
automatically triggers the
on-Ledger deposit
• PSP requests deposit and is
given wire information to
send fiat
If AML /CTF checks fail,
deposited fiat funds are
frozen until transaction is
further reviewed

Workflow – CBDC Redemption
PSP Initiates
Redemption on-Ledger
Central Reserve
Institution Receives
CDBC On-Ledger
Software Performs
AML/CFT Analysis
Central Bank of Nigeria
Credits PSPs Off-Ledger
Bank Account
INITIATE ACKNOWLEDGE AML / CTF CREDIT
If AML /CTF checks fail,
deposited CDBC funds are
frozen until transaction is
further reviewed

Transaction Flow:
CBDC Transfers between PSPs
Payment Service Providers can send and receive CBDC payments by accessing the core Ledger
directly through their node using their network identity cryptographic keys. The requests are
sent via API calls within a common interface or the PSPs own user interface.
Network Operators provide Ledger access to PSPs not running their own node on the network
(e.g. other financial institutions not running nodes) and may be a PSP themselves. The Node
Operator custodies the on-Ledger identities (i.e. cryptographic keys) of the PSPs on its node
and uses the keys to sign transactions on their behalf, therefore it must be a trusted entity.
At the retail level, PSPs would receive fiat from the general public, which can then be
aggregated to initiate a larger CBDC issuance into the PSPs on-Ledger account.

Workflow – CBDC Transfer between PSPs
Source PSP Initiates
Transfer On-Ledger
Target PSP Receives
CBDC On-Ledger
Market Surveillance
Software Continuously
Reviews Activity for
Suspicious Behavior
INITIATE RECEIPT SURVEILL
As an alternative, the target
PSP is required to confirm
before receiving the CBDC

Funds Flow:
CBDC Interest Payments
CBDC holders receive interest payments proportional to their average holding time of CBDC, i.e.
their average percentage ownership of issued CBDC for a given period.
Interest payments are distributed by increasing CBDC account balances proportionally to their
holdings (i.e. crediting all digital wallets balances) on a fixed schedule (e.g. hourly, daily).
The Central Reserve Institution invests deposited fiat reserves into local investment grade
bonds, generating a return on capital that is passed along to holders of CBDC in the form of
real-time account balance increases.
A meaningful percentage of reserve funds are held in fixed income investments, with the
remaining held as cash to fund CBDC redemptions. Capital allocation is rebalanced according to
net changes on a monthly basis.

Funds Flow:
CBDC Interest Payments
The Central Reserve Institution may want to pay an interest on the CBDC holdings of the
Payment Service Providers on a desired frequency (e.g. hourly, daily, weekly). There are a few
options, all of which are supported by the architecture proposed:
◦ Pay an interest (potentially equal to the overnight lending rate) by issuing additional CBDC in
the system. These payments would be funded by fiat deposits from Central Bank of Nigeria
in the CRI to issue the necessary CBD.*
◦ Pay an interest based on a basket of safe investments held in escrow by the CRI or Central
Bank of Nigeria. The investments (e.g. government bonds, gold) would be funded by the fiat
reserves of the CRI backing the CBDC.
* Central Bank of Nigeria may fund using its reserves or may issue new central bank fiat. Alternatively, it could issue new money supply directly onto the CRI’s
account, however, we would recommend leaving this option for a later stage since it would change the synthetic nature of the CBDC proposed.

Workflow – CBDC Interest Payments
PSP’s average CBDC
holdings are calculated
based on transaction
history
CRI receives funding from
Central Bank of Nigeria *
CRI issues CBDC onto its
own Ledger account
CRI Distributes New CBDC
To Ledger Accounts With
A Balance
CALCULATE FUND ISSUE DISBURSE
This self-issuance process
follows a similar workflow as
when issuing CBDC to a PSP
* Central Bank of Nigeria may fund using its reserves or may issue new central bank fiat. Alternatively, it could issue new money supply directly onto the CRI’s
account, however, we would recommend leaving this option for a later stage since it would change the synthetic nature of the CBDC proposed.
Funding is based either on a
pre-established rate or on
basket of investments held
by Central Bank of Nigeria
funded by the CRI reserves

Fees
The Central Reserve Institution will initially charge a fixed fee (e.g. 1.0%) for issuance and
redemption transactions.
There will be no protocol-level transaction fees to send and receive CBDC payments to promote
adoption of the system.

Working Document Addendum
Introduction 2
Section 1 – Consideration points 2
Section 1.1 – Smart Contracts 2
Section 1.2 – Trade Digitization 2
Section 2 – High Level Use Cases, Case Studies 3
Section 2.1 – Digital Trade 3
Section 2.2 – Securities Digitization 4
Section 2.3 – Real Estate Tokenization 4
Section 2.4 – Central Bank Digital Currency 5
Section 3 - Specific Use Cases, Per Sub-Sector 7
Section 3.2 - Agriculture 7
Section 3.1 - Real Estate 7
Section 3.3 - Banking and Financial Services 8
Page 1

Introduction
This addendum to the Use Cases & Proof of Concept Sub-Committee working document will
outline additional consideration points with regards to the aforementioned material and provide
case studies for the high level use cases explored in the working document.
Section 1 – Consideration points
Because distributed ledger technologies are tamper-resistant by design, they tend to improve
processes around provenance, trading, and transfer of assets. Each transfer of ownership (as
well as liens and other events) can go into the respective distributed ledger, resulting in a
trustworthy source of information about the lineage of assets.
Section 1.1 – Smart Contracts
A distinct advantage of distributed ledger technology, and digital transformation in general, is
the ability to automate activities that previously added cost, complexity, and delays to
transactions. This is accomplished through smart contracts, which are autonomous software
programs that can perform complex actions to trigger or respond to events on a distributed
ledger.
Section 1.2 – Trade Digitization
Trade digitization through distributed ledger technology has particular relevance with regards to
the African Continental Free Trade Agreement (AfCFTA). DLT may facilitate and enhance
implementation of the following:
• National foreign currency settlement system
• Cross border foreign currency settlement system
• Interbank integrated clearing system for international bank branches
• National local currency RTGS (for other African countries that need to upgrade to RTGS)
• Nigeria being a leading global digital currency infrastructure provider
Page 2

Note that much of this can be accomplished through or subsequent to issuance and wide
distribution of a central bank digital currency system.
Section 2 – High Level Use Cases, Case
Studies
This section explores significant efforts that have been made to pilot the use cases explored in
the Use Cases and Proof of Concept Sub-Committee working document. It outlines these efforts
to provide the Committee with a working understanding of how the aforementioned use cases
can be applied in practice.
Section 2.1 – Digital Trade
Bay Area Trade Finance Blockchain Platform
The Chinese Central Bank recently piloted a program to operate a digital trade finance platform
that services the Guangdong, Hong Kong, and Macau regions. Headline participants include
numerous financial institutions with a heavy presence in the trade finance arena and the
country’s largest automobile brand.
The initiative’s ultimate goal is to bring low cost open trade finance solutions, financed by
network participating financial institutions, to SMEs. This target market accounts for tens of
thousands of SMEs that service more than one hundred million people across these regions. In
addition, there is a coordinated effort to stomp out money laundering that has occurred through
invoice schemes whereby multiple shell corporations throughout these regions send copy
invoices to other shell companies to facilitate illicit money transfers unnoticed.
The pilot program has processed over ₦1.7 trillion in transactions to-date.
Further reading on the program:
https://www.ledgerinsights.com/chinas-central-bank-blockchain-trade-finance/
Page 3

Page 4

Section 2.2 – Securities Digitization
Asset Backed Securities Digital Transformation
One of the world’s largest asset managers recently completed the initial phase of their pilot
program focused on digitizing the lifecycle of asset-backed securities utilizing DLT. With more
than ₦2.1 quadrillion in assets under management, the firm is exploring how DLT driven digital
transformation of the securities lifecycle can be a catalyst for lower costs and transaction
processing times.
The pilot program successfully digitized all transactions in the respective asset-backed
securities lifecycle, from issuance to final maturity. The program featured major asset-backed
securities market participants including custody banks collectively responsible for more than ₦91
quadrillion in assets and a large asset-backed securities issuer.
https://www.prnewswire.com/news-releases/vanguard-advances-blockchain-technology-pilot-to-
streamline-asset-backed-securities-markets-301074465.html
Section 2.3 – Real Estate Tokenization
Luxury Resort Tokenization
A 170-room luxury resort in the mountains of Colorado, USA recently completed an initial public
offering through a DLT powered token sale that gave investors rights to revenues generated
from the property in perpetuity. The sale generated ₦7 billion in capital in exchange for 18.9%
ownership in the luxury property.
The pilot program proved the viability of this novel market, validating the strength of market
demand and establishing precedence for comparable revenue generating real estate around the
world to follow suit.
Page 5

https://www.aspentimes.com/trending/in-18-million-deal-nearly-one-fifth-of-st-regis-aspen-sells-t
hrough-digital-tokens/
Section 2.4 – Central Bank Digital Currency
Argentina Wholesale CBDC
The Central Bank of Argentina launched a pilot program in early 2020 for instant interbank
settlement utilizing digital currency issued by the Central Bank. This addresses inefficiencies in
local payment systems and introduces a blockchain-based digital standard for interbank
transfers between the nation’s financial institutions. Considering the lack of interoperability,
resilience, and reliability among local payment systems, the initiative has been well received.
The Central Bank chose a strategic private sector startup company to partner with in building its
digital currency solution. The company provides FinTech know-how, software expertise, and
experience-learned industry best practices. The Central Bank provides strategic support,
regulatory guidance, and access to its research and relationships.
The program is operating in a limited capacity with select banks in the country, with expansion
planned subsequent to further study on the risks and benefits present in a live CBDC
ecosystem.
https://www.coindesk.com/argentinas-central-bank-trials-blockchain-for-new-interbank-settleme
nt-layer
Additional reading on the subject can be found below.
1. Head of IMF Highlights Digital Currencies To Be Top Priority in 2020 for Its 189 Member
Countries.
Page 6

https://dailyhodl.com/2020/01/16/head-of-imf-highlights-digital-currencies-as-top-prior
ity-in-2020-for-its-189-member-countries/amp/
2. One in five people could have access to central bank digital currencies within three
years.
https://www.finextra.com/newsarticle/35156/one-in-five-people-could-have-access-to
-central-bank-digital-currencies-within-three-years?utm_medium=newsflash&utm_so
urce=2020-1-24&member=111873
3. Central banks collectively representing a fifth of the world's population say they are likely
to issue a general purpose digital currency in the next three years, according to a survey
from the Bank for International Settlements.
https://www.finextra.com/newsarticle/35118/central-banks-form-group-to-explore-digi
tal-currency-creation?utm_medium=newsflash&utm_source=2020-1-21&member=11
1873
4. Ghana Central Bank and CBDC
https://cointelegraph.com/news/ghanas-central-bank-confirms-its-still-looking-to-pilot-
a-digital-currency
5. Rwanda Central Bank and CBDC
https://blockchain.news/news/rwanda%E2%80%99s-central-bank-is-planning-to-issu
e-its-own-digital-currency
Page 7

Section 3 – Specific Use Cases, Per
Sub-Sector
This section explores use cases that are applicable to specific sub-sectors and industries within
the Nigerian financial sector. These sub-sectors include real estate, agriculture, banking, trade,
and capital markets.
Section 3.1 – Agriculture
Supply network digitization in the agriculture sub-sector that leverages DLT immutability offers a
significant improvement to the government’s ability to tax transactions in addition to creating a
more reliable and scalable supply network economy. In an ideal scenario, there would be a
widely distributed digital platform for facilitating trade among agriculture supply network
companies that enables them to buy and sell commodities through the productization process.
These transactions would be recorded on a secure, immutable DLT for verification and regular
auditing by taxation authorities and industry regulators.
Section 3.2 – Real Estate
The property ownership verification challenge is one that exists within the Nigerian real estate
market and prevalent throughout the developing world. The challenge also provides an
opportunity to implement a DLT framework for real estate tokenization. Tokenization enables
instant, digital verification of assignment deed ownership and subsequent trading among real
estate market participants. Proper real estate tokenization requires government support with
regards to the agency responsible for deed assignment in each respective market. In an ideal
scenario, there would exist a standardized DLT based national digital deed issuance framework
and each respective government agency would create a digital deed for every property in their
records. The digital deeds would then be transferred to a digital account owned by each
property owner for holding or subsequent resale in a fractional or in holistic manner. Banks with
modernized and reliable technology infrastructures could support automated payouts to
tokenized real estate holders from real estate with cash flow from business operations or tenant
revenues.
Page 8

Section 3.3 – Banking and Financial Services
Widely distributed DLT based central bank digital currency (CBDC) would be a significant boon
to the banking sub-sector with regards to key high level goals like financial inclusion and real
time transaction settlement. In a wholesale CBDC model, financial institutions and financial
technology companies have little to no transaction costs and settlement times between each
other, enabling them to create scalable and profitable financial services solutions to bring
Nigeria’s underbanked populations into the banking system. Ensuring financial inclusion through
a DLT based CBDC ultimately supports a more healthy and active financial system that works
for most people, not just the upper echelons of the socio-economic ladder.
Page 9

Working Document Addendum 2
Table of Contents
Introduction 2
Section 1 - Use Case Implementation Details 2
Section 1.1 - Trade & Agriculture 2
Section 1.1.1 - Structure 2
Section 1.1.2 - Process 3
Section 1.2 - Capital Markets 3
Section 1.3 - Real Estate 4
Section 1.4 - Remittances 5
Page 1

Introduction
provide implementation details for DLT use cases applicable to the Nigerian financial sector.
Section 1 - Use Case Implementation Details
To ensure the Committee’s comprehensive understanding with regards to the structure and
requirements that correspond with implementing high priority DLT use cases, this section will
outline the multiple consideration points therein. The use cases considered herein will include
DLT applications within trade & agriculture, capital markets, real estate, and remittances. Note
that technology provisioning can be accomplished with relative ease by licensing DLT platforms
from major enterprise-grade software vendors like Symbiont and Rootstock. Payments
settlement will occur through bank wires, with the expectation of central bank digital currency
utilization once it becomes available.
Section 1.1 - Trade & Agriculture
Trade & agriculture DLT solutions with the largest addressable market focus on trade finance.
The use case implementation focused on in this section will therefore be a digital trade finance
solution tailored for the Nigerian economy. The specific implementation considerations explored
will include structure and process.
Section 1.1.1 - Structure
An ideal digital trade finance solution powered by DLT will include a consortium of public sector
and private sector network participants. Participants will operate nodes on the DLT network,
which will ensure network data integrity and consistency. Commodity sellers, productizers,
service providers, government regulatory agencies, trade financing institutions, importers, and
exporters will have a discovery mechanism (i.e. request for quotes) available to them whereby
each will be able to find counterparties for their trade activity in addition to other relevant
participating parties. Counterparties, service providers, government regulatory agencies, and
financing institutions will establish transactional channels amongst each other to facilitate trade
Page 2

in a streamlined manner through the trade lifecycle, enabling seamless multi-lateral
communication, financing, settlement, and if required network administration arbitration.
Section 1.1.2 - Process
The trade facilitation process will begin with a request for quotes from a buyer (e.g. importer,
productizer) or seller (e.g. exporter, productizer), which will be distributed among all relevant
network participants that qualify under initiator-defined parameters. Qualifying counterparties,
service providers, and financing institutions will provide their quotes for participation in the trade,
with transaction data being automatically calculated per each quote combination for review by
the trade initiator and subsequent acceptance or declination. When the trade initiator selects a
quote combination with the parties that offer best-fit terms and pricing, each party becomes
legally obligated to meet their set expectations and verify activity completion for recording on the
network ledger. If any complications arise due to disagreement among participating parties,
network administrators (e.g. government regulatory agencies) can review trade terms and
activity recordings on the ledger for proper and auditable arbitration.
Section 1.2 - Capital Markets
Capital markets DLT solutions with the largest addressable market focus on securities
digitization. The use case implementation focused on in this section will therefore be a securities
digitization solution tailored for the Nigerian economy. The specific implementation
considerations explored will include structure and process.
An ideal digitized securities solution powered by DLT will include regulator mandated standards
for digital securities issuance, corporate actions, and maturation among regulated securities
market participants. Regulator ensurement effectively brings the entire securities lifecycle onto a
DLT. Regulated securities market infrastructure providers (e.g. exchanges, prime brokers,
clearing houses, custodians) and large market participants will be network nodes, and in turn
provide facilitation services throughout securities’ lifecycles. Issuers, buy side institutions, sell
side institutions, infrastructure providers, and government regulatory agencies will establish
transactional channels amongst each other directly or through their infrastructure providers to
facilitate events in a streamlined manner through the security lifecycle, enabling seamless
Page 3

multi-lateral communication, primary & secondary market counterparty information exchange,
post-trade settlement, corporate actions, and if required network administration arbitration.
The digitized securities process will begin with issuance, whereby a securities issuer will send a
digital request for approval to the applicable regulatory government agency to issue the desired
securities. The request will include detailed, standardized information and documentation on the
issuance and relevant corporate information, which will all be stored on the network ledger.
Trusted issuers can go through an expedited and largely automated process whereby the
provided data will be analyzed through smart contracts and non trusted issuers will likely go
through a more comprehensive manual review before regulator approval. Once regulator
approval has been provided, the issuance automatically occurs and the issued securities
become available to all network participants in a primary market. When issued securities are
traded in the secondary market, market infrastructure providers that facilitate the trades will
report transaction details on the ledger and initiate settlement actions accordingly. The digital
securities are then transferred to and from relevant parties on the network. Corporate actions
will be initiated by securities issuers and enacted on an automated basis with impact details
being provided to relevant network participants in a comprehensive manner. Upon final
securities maturation, automated redemption with the respective issuer will become possible in
addition to the standard set of network actions. If any complications arise due to disagreement
among participating parties, network administrators (e.g. government regulatory agencies) can
review issuance and relevant transaction terms and activity recordings on the ledger for proper
and auditable arbitration.
Section 1.3 - Real Estate
Real estate DLT solutions with the largest addressable market focus on real estate tokenization.
The use case implementation focused on in this section will therefore be a securities digitization
solution tailored for the Nigerian economy. The specific implementation considerations explored
will include structure and process.
An ideal real estate tokenization solution powered by DLT will include a federal government
mandated framework for deed issuance, assignment transfers, and payouts for real estate with
Page 4

cash flow. National government ensured standardization creates interoperability amongst all
market participants, regardless of their locality. Each property deed will be represented through
a set of fungible tokens issued on the DLT, for fractional or holistic sale to real estate owners
and investors. Real estate portfolio managers & investors, brokers & dealers, custodians,
property managers, and regulatory government agencies will be network nodes, and in turn
provide facilitation services with regards to real estate sales, payouts, and assignment transfers.
Real estate portfolio managers & investors, brokers & dealers, custodians, property managers,
and regulatory government agencies will establish transactional channels amongst each other
directly or through their infrastructure providers to facilitate events in a streamlined manner
through sales, payouts, and assignment transfers, enabling seamless multi-lateral
communication, primary & secondary market counterparty information exchange, government
approvals, post-trade settlement, payouts, and if required network administration arbitration.
The real estate tokenization process will begin with digital property deed issuance, whereby the
regulatory government agencies around the nation responsible for real estate assignment will
issue digital token sets to represent all real estate in their jurisdiction. Issued tokens will then be
assigned to the respective registered owners of represented real estate directly or through a
network participant custodian or proxy. Payouts for real estate with cash flow will be automated
and sent from the direct revenue recipient (e.g. property manager) to respective real estate
token holders proportionate to the percentage of total token float held. Upon real estate token(s)
sale, in a fractional or holistic manner, the corresponding government filings and approvals or
declinations will be automated, and if approved the token transfer will occur from previous
owner to the new owner directly or through their network participating custodian or proxy.
Section 1.4 - Remittances
Remittances DLT solutions with the largest addressable market focus on receiving remittances
in the developing world from the receiving countries’ global diaspora. The use case
implementation focused on in this section will therefore be a receiving remittances solution
tailored for the Nigerian economy. The specific implementation considerations explored will
include structure and process.
Page 5

An ideal receiving remittances solution powered by DLT will include a global multicurrency
central bank digital currency system. However, such a system may be years from widespread
adoption and will require resources and collaboration beyond the scope of the FSS 2020 DLT
Committee. A practical receiving remittances solution powered by DLT that can be implemented
in a reasonable timeline with minimal public sector resource requirements will include a bitcoin
transfer and conversion mechanism between retail customer-focused financial institutions in
remittance sending countries and retail customer-focused financial institutions in Nigeria.
Utilizing bitcoin for transfers ensures minimal costs and processing times relative to traditional
international money transfer mechanisms. Participating regulated financial institutions will be
nodes on the bitcoin network, providing facilitation services for senders and recipients through
the remittance lifecycle. Participating financial institutions will establish transactional channels
amongst each other to facilitate bitcoin transfers in a streamlined manner enabling seamless
multi-lateral communication and if required regulator or third party arbitration.
The remittance facilitation process will begin with the remittance sender initiating a remittance
transaction at a network participating financial institution in the sender’s country. The sender will
provide sending country local currency denominated funds, sent through local electronic funds
transfer or cash in addition to identifying information for the recipient. The respective network
participating financial institution in the sender’s country will then instantly convert these funds
into bitcoin and transfer the bitcoin and corresponding recipient information to the respective
participating financial institution in the recipient’s country. The respective network participating
financial institution in the recipient’s country will instantly convert received bitcoin into recipient
country local currency to be stored until retrieval by the recipient. The recipient will initiate a
remittance redemption at their respective network participating financial institution and provide
proof of identity that matches with the information provided by the sender. Once identity has
been verified by the sender’s respective network participating financial institution, local currency
denominated funds will be dispensed in cash or electronic funds transfer.
Use Cases & Proof of Concept Sub-Committee Team Lead
Josiah Hernandez, CEO Satoshi Capital Advisors
Page 6

Introduction
provide details on government revenue generation and collection with regards to previous
explored use cases, in addition to additional details on the proposed central bank digital
currency proof of concept.
Section 1 - Government Revenue Generation &
Collection
To ensure the Committee’s comprehensive understanding with regards to the government’s
ability to generate and collect revenues in a DLT network, this section will outline the multiple
consideration points therein.
With regards to revenue generation, the government will be able to charge network participation
fees that can be structured in a per year format (e.g. 5 million NGN per year) or in a per
transaction format (e.g. 0.25% per transaction). This can be automated to mitigate resource
requirements by ensuring NITDA, FIRS, and/or other relevant regulator(s) operate nodes on the
trade & agriculture DLT with read-access to all transactions. The automation functionality will
enable these fees to be taken out from network participant accounts and sent to the
corresponding regulatory agency in real-time or on a predetermined schedule.
With regards to taxation collection, all per-transaction taxes will be calculated and presented to
transaction parties for approval before they verify their interest in participation and per-year
taxes will be presented to network participants in real-time or on a predetermined schedule and
withdrawn from network participants accounts at fiscal year-end. The FIRS will be a network
participant with read-access to all transactions, enabling them to receive payment and audit
transactions and participants in an automated manner.

Section 2 - CBDC Proof of Concept
The proof of concept CBDC framework provided in the original Use Cases & Proof of Concept
Sub-Committee Working Document provides operating and technical details for its
implementation. This section will provide more specific information with regards to how a near-
term implementation can be accomplished to meet the Committee’s proof of concept
expectations.
A minimum viable product will require two regulated financial institutions with accounts at the
CBN and the CBN itself to participate in the CBDC network. We request the CBN to approve
participation therein, in addition to Jaiz Bank and Zenith Bank due to their participation in the
Committee. The proof of concept will achieve the following deliverables.
● Interbank connectivity through transactional channel creation on the DLT network.
● Interbank transfers with instant settlement and transaction finality.
● Interbank transfers with zero costs.
● Immutable and auditable transaction trail for all CBDC transactions on the network
ledger.
● Automated AML/CTF compliance monitoring and reporting for the CBN.
● Automated taxation calculations and collections for the FIRS.
The selected distributed ledger technologies for the proof of concept are as follows.
● Symbiont Assembly
○ Symbiont Assembly is recommended for full deployment due to its proven
quality, design, and scalability; utilized by banks around the world custodying
more than 27 quadrillion NGN in assets.
○ The Symbiont Assembly network can be built in a way that requires limited to no
development fees, however Symbiont has provided a quote for $150k or more
per year in licensing fees.
● Rootstock RSK
○ Rootstock RSK is a widely utilized and proven DLT that other central banks
leverage for proof of concepts in the wholesale CBDC arena (e.g. Argentina).

○ The Kaduna ICT Hub has provided a quote for $35k (₦15.4 million) to develop
the proof of concept utilizing Rootstock RSK. There are no licensing fees for
Rootstock RSK.
● Lightning Network
○ Lightning Network is a highly scalable DLT that can achieve up to 1 million
transactions per second and utilized for a proof of concept by a Visa partner
company for DLT-based transaction processing.
○ The Kaduna ICT Hub has provided a quote for $40k (₦17.6 million) to develop
the proof of concept utilizing Lightning Network. There are no licensing fees for
Lightning Network.

Introduction
provide details on technology selection criteria and process with regards to the proposed
wholesale central bank digital currency proof of concept.
Section 1 - Selection Criteria Table
Satoshi
Capital
Advisors
Symbiont
Assembly
Rootstock
RSK
Lumino
Lightning
Network
Omni
Layer
Chromaway
Postchain Ethereum
Hyperledger
Fabric R3 Corda
Permissioned Yes Yes Yes No Yes No Yes Yes
Enterprise
Deployment
Yes,
Extensive
Yes,
Extensive
Yes,
Limited No Yes, Limited No
Yes,
Extensive
Yes,
Extensive
Scalability
(Tx/Second) 80,000 5,000 1,000,000 7 10,000 15 20,000 6,000
Launched 2015 2018 2018 2013 2017 2015 2017 2016
Code Base
Closed
Source Open Source
Open
Source
Open
Source Open Source
Open
Source Open Source
Open
Source
Immutable Yes Yes Yes Yes Yes No Yes Yes
Auditable Yes Yes Yes Yes Yes No Yes Yes
Maintainer Symbiont RIF Labs
Lightning
Labs
OMNI
Foundation Chromaway
Ethereum
Foundation
Linux
Foundation R3
Maintainer
Type Institutional SME Startup Hobbyist SME Hobbyist Institutional Institutional
Section 2 - Selection Process
The technology selection process included comparing technologies in three distinct categories
to ensure fair ground: those with (1) institutional maintainers, (2) SME maintainers, (3) startup
maintainers. Comparison utilizing the table above resulted in the following technologies being
selected: (1) Symbiont Assembly, (2) Rootstock RSK Lumino, (3) Lightning Network. Cost
considerations have been provided in the previous addendum document.

Introduction
provide details on the applicability of the major distributed ledger technologies to the previous
explored use cases.
Section 1 - Selection Criteria Table
Satoshi
Capital
Advisors Distribution
Optimal
DLT 1
Optimal
DLT 2
Optimal
DLT 3
Optimal
DLT 4
Optimal
DLT 5
Trade
Finance Wholesale
Symbiont
Assembly R3 Corda
Hyperledger
Fabric
Chromaway
Postchain
Rootstock
RSK Lumino
Digital
Securities Wholesale
Symbiont
Assembly
Hyperledger
Fabric
Chromaway
Postchain R3 Corda
Rootstock
RSK Lumino
Digital
Securities Retail
Hyperledger
Fabric
Rootstock
RSK Lumino
Chromaway
Postchain R3 Corda Omni Layer
Real Estate
Tokenization Wholesale
Symbiont
Assembly
Rootstock
RSK Lumino
Chromaway
Postchain
Hyperledger
Fabric R3 Corda
Real Estate
Tokenization Retail
Rootstock
RSK Lumino
Hyperledger
Fabric
Chromaway
Remittances Retail
Lightning
Network
Rootstock
RSK Lumino
Hyperledger
Fabric
Chromaway
Postchain R3 Corda
Central Bank
Digital
Currency Wholesale
Symbiont
Assembly
Hyperledger
Fabric
Chromaway
Postchain R3 Corda
Rootstock
RSK Lumino
Central Bank
Digital
Currency Retail
Rootstock
RSK Lumino
Hyperledger
Fabric
Chromaway
Section 2 - Selection Process
The technology selection process included comparing technologies across multiple distinct
categories including: (1) existing enterprise-scale utilization, (2) existing integration into market
infrastructure, (3) scalability requirements, (4) accessibility requirements, (5) technology
robustness, (6) maintainer provenness, (7) time-in-market, and (8) ledger reliability.

An Exploration Into Distributed Ledger Technology (DLT) - Satoshi Capital Advisors

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (19)

Ähnlich wie An Exploration Into Distributed Ledger Technology (DLT) - Satoshi Capital Advisors

Ähnlich wie An Exploration Into Distributed Ledger Technology (DLT) - Satoshi Capital Advisors (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

An Exploration Into Distributed Ledger Technology (DLT) - Satoshi Capital Advisors