Proposed Bank Tokens Standards by Kinexys, a JP Morgan and MIT Venture
In a groundbreaking development, Kinexys by JP Morgan and MIT Digital Currency Initiative (DCI) have joined forces to outline standards for interoperable bank tokens on open blockchains. The focus of this collaboration is on permissioned tokens with embedded identity and privacy management, designed to ensure compliance and interoperability.
The proposed standards aim to bridge the gaps in programmability and scalability, particularly in the ability to envision and consider advanced use cases for bank tokens and stablecoins. One of the key aspects of these standards is the ERC-3643 token standard, developed by Tokeny and used by financial institutions like ABN AMRO for regulated tokens. Known as T-REX (Token for Regulated EXchange), ERC-3643 enables tokens to be interoperable across different systems while respecting regulatory constraints.
Another crucial aspect is the incorporation of on-chain identity and privacy controls. This allows both issuer-backed and permissioned tokens to be managed securely and compliantly, with mechanisms such as zero-knowledge proofs to enhance privacy while verifying identity attributes without revealing sensitive data.
The MIT DCI has also developed the PArSEC platform (Parallelized Architecture for Scalably Executing smart Contracts), designed to support smart contract execution at scale. This platform, aimed at central bank digital currencies, could potentially be applicable to bank tokens in interoperable environments.
The collaboration emphasizes open source development, shared research, and engaging regulators to promote standards compatible with multiple financial and regulatory frameworks worldwide. This approach is essential for the adoption and evolution of these proposed standards, which will require industry-wide collaboration.
The paper also explores potential areas where regulations might be relaxed for blockchain-based bank payments. For instance, it suggests primarily relying on existing Ethereum standards but proposing two new ones for interbank payments. The second gap in standards relates to suspending accounts, freezing and seizing funds, and the authors propose that seizures should be done transparently to avoid undermining trust.
Moreover, the transfer and authorization of payments would be validated on-chain to ensure that the payment amount does not exceed the amount authorized. Each bank would be responsible for vetting their own clients and their end of the payment for DLT-based payments. The wallet would request the format of the payment information needed by the bank, and present the appropriate screen to the user for input.
In the report on bank stablecoins, tokenized deposits, and DLT payments, a simple example of the programmability that will soon be expected but is not currently being considered is provided. An alternative design that prevents the risk of breaking current designs due to advanced programmability is also suggested.
Without the ability to envision and consider these use cases, there's a risk that in just a couple of years, an expensive interbank payment system might not be fit for purpose. The collaboration between Kinexys by JP Morgan and MIT DCI is a significant step towards addressing this issue and ensuring the future of interbank payments on open blockchains.
- The focus of the collaboration between Kinexys by JP Morgan and MIT Digital Currency Initiative (DCI) is on permissioned tokens with embedded identity and privacy management for bank tokens and stablecoins on open blockchains.
- One of the key aspects of the proposed standards is the ERC-3643 token standard, which enables tokens to be interoperable across different systems while respecting regulatory constraints.
- The MIT DCI has developed the PArSEC platform to support smart contract execution at scale, which could potentially be beneficial for bank tokens in interoperable environments.
- The collaboration emphasizes open source development, shared research, and engaging regulators to promote standards compatible with multiple financial and regulatory frameworks worldwide.
- The paper also explores potential areas where regulations might be relaxed for blockchain-based bank payments, suggesting the need for industry-wide collaboration to ensure the future of interbank payments on open blockchains.
