Reinventing confidential intermediation with Secretarium

The token wild West

Crypto-token fever has taken the world of finance by surprise. Blockchain pundits promised there would be impartiality with few or no intermediates, free custody, no barriers to trading, no currency control and no tax.

Undeniably, custody and asset transfers are cheap in the crypto-world but, a few years on, the future is somewhat less rosy than promised. Lack of regulation has allowed questionable tokens to flourish. Crypto-exchanges such as QuadrigaCX continue to go bankrupt¹, engulfing their clients’ assets in the process. Moving in and out of fiat currencies still constitutes a money laundering risk.

The world of crypto-tokens is largely an unregulated cut-throat one. And yes, one must pay one’s taxes.

Token gateways are centralised

It is important to note that the central institution of tokens is not the blockchain itself, it is the crypto-exchange. Crypto-­exchanges allow buyside vs. buyside direct trading, hence their appeal to the fund management world. These are highly centralised institutions, yet, they are unregulated when they don’t trade in fiat currencies. They are inevitable because something needs to be entrusted with an indication of the interests of all parties in order to match them. Crypto-exchanges require custody of the assets to function, thus leading to a custody risk as unregulated institutions. Asymmetric access to the information allows client front-running, or leaking trading information to selected parties. Regulation to enforce the impartiality of these new intermediates is now well overdue.

Partiality of Crypto-exchanges

But surely - one would think - blockchain’s technical impartiality itself could be leveraged to create truly impartial exchanges. But it cannot. Institutions such as crypto-exchanges cannot run on a blockchain for several purely-technical reasons, including privacy, performance and determinism.

Consider the case of privacy: public blockchains do not provide anonymity; they provide pseudonymity at best.

And where would information such as your name, address, email address, bank account details be stored? As far as data is concerned, once your data is uploaded to a public blockchain, it is there for eveyone to see forever, so much for GDPR compliance!

Sharing without sharing

But what if a cryptographic platform could allow automation without sharing any data at all? What if we could have the same services as those provided by an impartial law firm, but walled up in a Swiss bank safe with no means of leaking data? This is precisely the value proposition of automated confidential intermediation.

With such a platform, building an impartial and privacy­ preserving crypto-exchange becomes possible. In fact, many existing disintermediation problems can be solved directly, thus obviating the need to jump into the token world in the first place.

Applications in Asset management

• A broker-free buyside vs. buyside anonymous interest matching platform, with controlled information disclosure and incentivisation of parties to reach a trade.
• A platform to corroborate views on the value of illiquid assets, incentivising the anonymous exchange of opinion for opinion, and creating index benchmarks for these assets.
• A client data pool to measure ownership concentration, enforce embargoes, prevent mis-selling, perform marketing statistics... whilst enforcing GDPR and not disclosing client data.
• A secondary market facility directly in fiat currency, automating transfer of shares in private equity, venture capital, fund shares... whilst provably enforcing taxation and keeping records of ownership.

Making confidential intermediation real

This engineering feat is achieved through a combination of three core technologies:

• Reuse of blockchain’s concepts to maintain the integrity of a ledger and give back control to its participants.
• Secure multi-party computing, which is a cryptographic protocol used to collectively provide insight on the data without disclosing that data.
• Secure hardware, such as Intel SGX, assembled in a secure peer-to-peer network.

This latter technology is pivotal to providing secure multi­party computing at scale and allowing non-determinism without compromising impartiality. Furthermore, the Secretarium platform is designed to guarantee finality of execution within a split second and integrates with banking systems, mobile phones and internet browsers as they exist today.

The blockchain impasse. What's next ?

As the lead for a blockchain lab, I have witnessed several projects hit the brick wall of either privacy, determinism, or performance. Products such as Corda or Quorum offer interesting compromises making them suitable to solve post-trade automation issues when a controlled transfer of information with select parties is permissible. However, they might not be well-suited when it comes to solving the performance and total privacy issues, especially in the pre-trade world.

“When it comes to B2B business process automation, a great number of these blockchain promises will be kept... But they will be so with confidential intermediation. Blockchain alone won't do the trick.”

Coming back to the blockchain and token hype: we are now past the peak of inflated expectations, and the trough of disillusionment has begun. This doesn’t mean that all its promises will come to nought. After the 1998 LTCM² crisis and the emerging market crisis, everyone swore not to touch derivatives or emerging assets again. But everyone did. Similarly, there was a dotcom bubble that eventually burst, but now the dotcom industry is thriving³.

“The only secret are the secrets that keep themselves” - George Bernard Shaw

CEDRIC WAHL After graduating with an MEng in Applied Mathematics from Mines ParisTech (a French Grande Ecole), Cedric worked for 20 years as a software engineer and an IT project manager, including 14 years with Societe Generale in structured fixed income derivatives risk management. He is the founder of the Societe Generale’s Blockchain Lab in the UK and the founder, with Bertrand Foing, of Secretarium Ltd, a confidential computing tech start‑up incubated by Societe Generale in the UK.

(1) www.cbc.ca/news/, 2019 April 8
(2) Long Term Capital Management
(3) http://news.bbc.co.uk/2/hi/business/8558257.stm