Page 25 - PROJECT KHOKHA 2

Debenture token functionality
Issuing debenture tokens
The SARB’s FMD facilitated an auction process for participants in the PoC debenture token market, registering the debenture tokens with a simulation of the NNA for ISIN allocation, and issuing it directly onto a DLT. The debentures were issued as NFTs containing the relevant information for the security, such as debt instrument type, issuer, issuing and maturity dates, interest rates, beneficiary and other pertinent data.
Settling debenture tokens
In the primary market, the SARB debenture token purchases were settled with a specific DvP atomic swap7 c ontract process, where three actions occur in the same transaction:
(i) the DLT transfers the wCBDC token as settlement instrument from the buyer to the seller; (ii) updates the ownership (beneficiary) of the debenture NFT to the buyer; and (iii) validates the debenture NFT information against its ISIN record for verification. If any of these three actions failed, all three were rolled back, ensuring DvP.
Trading debenture tokens in the secondary market
At present, trade of debentures in the secondary market is not very active. To create more liquidity in the secondary market for debenture tokens, the challenges surrounding the high value of debentures (minimum value of
ZAR1 million) and the fungibility of debentures with different maturity dates and interest rates were overcome through the creation of the FDM Tokens. This new (synthetic) tokenised liquidity could also be ported between DLTs, and ultimately exchanged for wCBDC on the debenture’s native network at maturity of the debenture tokens.
Wholesale digital settlement token functionality
Creating an interbank settlement instrument
The wToken implemented on the project was called the Khokha Token and, as a privately issued settlement instrument, was created
as a new fungible instrument against reserve assets provided by the respective participants. It was an important design requirement
that the Khokha Token could be traded
between commercial banks and issued by
each participant, therefore making it a single ‘collective issue’ instrument, rather than a collection of ‘single issuer’ instruments which would lead to a complex process for determining the exchange rate as each participant priced the risk of another’s balance sheet differently.
During the co-design process, the project stakeholders discussed different reserve asset options to back the value of the Khokha Token and the decision was taken to utilise funds in the individual SAMOS settlement accounts
of settlement participants earmarked for
that purpose. The Khokha Token had to be redeemable by all participants for a predictable, transparent and reliable value to function as an acceptable settlement instrument, hence the wCBDC was selected given its classification
as a riskless asset. Utilising wCBDC in the redemption mechanism increased liquidity for the participants and enabled redemption on DLT.
Issuing and trading Khokha Tokens
The wToken is also transferrable to and from other DLTs where it can be traded between users. However, its minting (which entails the locking of reserve assets) and burning (which unlocks the reserve assets) as well as its redemption (for wCBDC) is only available on the wToken’s native DLT.
7 An atomic swap is an automatic peer-to-peer exchange of tokens enabled by smart contracts. It may also be referred to as atomic cross-chain trading when two different distributed ledgers are involved.
THE PROOF-OF-CONCEPT
PROJECT KHOKHA 2 25