Linking Ledgers: Emergence of Web2.5 Platform – A Path to Tokenized Finance and DeFi Convergence

In my recent article, I focused on RWA (Real World Asset) design imperative, aiming to coexist with TradiFi (Traditional Finance). I highlighted the need for the concept of ‘LedgerLink.’ Think of LedgerLink as a Web2.5 technology platform that enables enterprises to adopt digital assets. It ensures seamless integration into the Digital Asset infrastructure, coexistence of ledgers, and harmonized operations. All of this results in reduced project costs and assumes reduced technology debt associated with digital assets apparatus.

The core problem solved by ‘LedgerLink’ is significant. The concept aims to not only solve the last-mile problem and bridge the gap but also provide a transitory path to the ubiquitous use of tokenized RWA – addressing both the instrument and infrastructure. Lately, my focus has been on Web2.5 Platforms as a transitory path to move the ‘Value economy’ to Web3.0 imperatives. This implies the emergence of new asset classes due to the creator-led economy and implied value distribution systems. This is above and beyond the current market infrastructure, which is a distribution system of the current four asset classes (Cash, Equities, Fixed Income, and Alternatives – including real estate).

Web2.5 represents a set of solutions and technologies that not only bridge the technology divide between Web 2.0 and Web 3.0 but also provide the much-needed market infrastructure technology. This offers a transitory path to convert the modality, transaction, and transmission of current assets and value transmission systems to the Web3.0 era.

When discussing the tokenization of RWA or real-world assets, it implies all the technological concepts and advancements from the Web3.0 world, including Blockchain, DLT, Atomic Swaps, AMM (Automated Market Makers), etc. This is applied to the current market structure and asset classes.

As we envision the era of the new ‘Digital Finance,’ we aim to eliminate the discerning principles of Traditional Finance (TradiFi) and Decentralized Finance (DeFi). We progressively move towards a converged infrastructure that includes traditional (RWA) assets and new natively tokenized assets. This converged infrastructure seamlessly integrates existing financial systems and assets into the new modern financial system built upon Web3.0 technologies and market imperatives. Web2.5 acts as an important glue that sees the vision come to fruition.

In this article, I intend to delve into more details on the concept of ‘LedgerLink,’ which I briefly discussed in the last article. The narrative behind LedgerLink is that, while protocols like ChainLink aspire to bring traditional finance to Blockchain, the concept of LedgerLink aims to bring blockchain, assets, and transaction frameworks to the traditional processing model. The intent is to coexist, not necessarily to replace either of the two transaction processing systems.

As discussed earlier, the intent of the Web 2.5 platform is to address two critical areas essential for lowering barriers and reducing costs:

1. A harmonized operational framework.

2. Interoperability on-chain and off-chain.

As the industry debates the tokenization of financial assets, there is also a debate among current market participants about the readiness of their existing infrastructure. Web2.5 Platforms like LedgerLink aim to put this debate to rest and forge a path to progress towards Web 3.0.

Key to a Harmonized Operational Framework – Harmonized Managed Ledgers

LedgerLink, a Web2.5 technology platform, addresses a crucial need: blockchain-based ledgers must coexist with existing ledgers. Aggregating information within a single open ledger should reduce informational asymmetry and transaction costs, a significant advantage of the transition to blockchain-based systems. For this to succeed, blockchain-based ledgers must coexist with existing ledgers. The concept of 'LedgerLink' aims to address technological, processing, and transactional challenges.

Financial institutions rely on various models and functions to enhance efficiency in lending, marketing, underwriting, pricing, collateral valuation, risk assessment, and transaction monitoring. Each of these functions utilizes a complex network of systems, such as market data for valuation and accounting book of record (ABOR) for asset recording. Financial institutions cannot create a parallel system to handle tokenized RWAs. 'LedgerLink' is designed to bridge the gap and solve the last-mile problem, offering a transitory path to the ubiquitous use of tokenized RWAs while addressing both the instrument and infrastructure.

LedgerLink, a Web 2.5 Platform, is Governed by the Following Design Imperatives:

1. Technology Design Imperative: Ensure the blockchain-based ledger system is inextricably linked with the traditional financial system, serving as the system of record.

2. Processing Design Imperative: Streamline the processing of tokenized assets with the existing processing stream to simplify operational and risk models.

3. Transactional Design Imperative: Ensure asset class-specific transaction systems remain isolated for efficient management without imposing systemic risk.

4. Financial Systems Integrations: Focus on integrating with core banking and accounting systems, such as Treasury Management, Accounting Book of Records, Investment Book of Record, and Custody Book of Record. This involves working in tandem with enterprise wallets, managing transaction processing of all digital assets.

Integration Design that Supports Adjacent Use Cases:

1. Audit – Proof of Reserve

2. Single ABOR – Accounting Book of Record

3. Solving for Asset Valuation – Accounting and Risk Calculations

Perspectives

LedgerLink Design imperative aims to achieve a harmonized operational mode where the system (including people, process, and technology) does not have to discern between the realization of tokenized assets and assets processed through the traditional financial system (digital or dematerialized). This includes data, messages, and the current transmission infrastructure. The focus of the existing financial services industry lately has been on Web 2.5 Platforms as a transitory path to move the ‘Value economy’ to Web3.0 imperatives. This implies the emergence of new asset classes due to the creator-led economy and implied value distribution systems—above and beyond the current market infrastructure that is a distribution system of the current four asset classes.

Web2.5 represents a set of solutions and technologies that bridge the technology divide between Web 2.0 and Web 3.0. It also provides much-needed market infrastructure technology for a transitory path to convert the modality, transaction, and transmission of current assets and value transmission systems to the Web3.0 era. As the industry debates the tokenization of financial assets, there is also a debate among current market participants about the readiness of their existing infrastructure. Web2.5 Platforms like LedgerLink aim to put this debate to rest and forge a path to progress towards Web 3.0.

For further reading, you may find the following links informative:

1. Unlocking Deeper Insights: A Dive into the 2023 RWA Market

2. Understanding Impediments and Hidden Challenges in Asset Projects

3. A Primer on Real-World Assets

4. Asset Tokenization: A Systemic Shift from Digitization to Financialization

5. Modernizing Financial Markets: The Role of Token Market Utilities

6. RWA Design Imperatives

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