Page 30 - PROJECT KHOKHA 2

THE PROOF-OF-CONCEPT
Decentralised design considerations
In considering a DLT-based market infrastructure, it is unavoidable to consider its ability to distribute and/or decentralise, particularly considering the growth of the
DeFi market and the attention
that it is starting to receive from regulators and central banks. DeFi’s decentralised infrastructure, protocols and DApps allow for
the development of more ‘open, interoperable and transparent’ market infrastructure and functions, which is why it is referred to as the ‘Money Legos’ upon which financial services may be built.
DLT enables a new paradigm to implement settlement and security instruments
Schär (2021) describes a multi-layered DeFi architecture (depicted in Figure 11) which illustrates the Money Lego nature of DeFi, which the technical teams used to reflect on in considering the design of the debenture token market based on the following five layers:
• The settlement layer is the foundation of the architecture and its native DLT protocol asset. For instance, Ether enables recording ownership information in line with its ruleset.
• The native protocol asset along with other assets (non- and fungible tokens) make up the asset layer.
• The protocol layer consists of the standards used to implement a set of smart contracts relevant to a particular use case, such as exchange or lending functionality, and is accessible by other users.
• User-oriented applications connecting users to specific protocols make up the application layer.
• The aggregation layer creates user-centric platforms connecting several applications and platforms.
Figure 11: Schär’s DeFi architecture
Aggregation layer
Application layer
Protocol layer
Asset layer
Settlement layer
Aggregator 1
Aggregator 2
Aggregator 3
Exchange
Lending
Derivatives
Asset Management
Others
Native protocol asset (ETH)
Fungible tokens ERC-20
Non-fungible tokens ERC-721
Others
(Ethereum) blockchain
30 PROJECT KHOKHA 2