Page 7 - PROJECT KHOKHA 2

EXECUTIVE SUMMARY
The first phase of Project Khokha was launched in 2018, published as Project Khokha: Exploring the use of distributed ledger technology for interbank payments settlement in South Africa – now referred to as PK1 (SARB, 2018). The project explored the implications of distributed ledger technology (DLT)- driven innovation in financial markets. More specifically, PK1 explored the use of DLT for interbank settlements by successfully replicating some functions of the South African real-time gross settlement (RTGS) system on DLT, focusing on performance, scalability and privacy. The results of PK1 set the foundation for further exploration of the implications of DLT in other use cases.
Digital financial innovation has, however, progressed since the finalisation of PK1, and developments related to tokenisation of money and securities by the public and private sector have underscored the need for further exploration.
The second phase of Project Khokha (PK2) sought to unpack the use of DLT and tokenisation in the financial markets through a different use case, that
is, the issuance of a South African Reserve Bank (SARB) debenture on DLT. Innovative technologies such as DLT allow securities to be issued in tokenised form (i.e. as a digital representation value recorded on a single shared
ledger, reducing inefficiencies stemming from the current market design
built around several centralised infrastructures). To create a token market,
two DLT platforms were created – one on which tokenised assets such as
the debenture token and commercial settlement token could be issued and traded, and the other focused on tokenised central bank money or settlement token (refer to Figure 1 for a conceptual design). Having both the security and settlement tokens available on an interoperable token market prompted further questions surrounding on-DLT settlement of both the securities and payments leg of a trade. The commercial bank settlement token option could also generally be referred to as a wholesale digital settlement token (wToken), while the central bank token is referred to as a wholesale central bank digital currency (wCBDC). The wCBDC was the chosen payment option in the primary market, while the wToken was selected for use in the
secondary market.
PK2 took place as a proof-of-concept (PoC) to test the parameters of the technology and develop a clearer understanding of the policy, legal and regulatory arrangements that would need to be in place to support the PoC use case. As an experimental project, PK2 does not reflect any specific policy stance. Rather, PK2 explores what the future of trading, clearing
and settlement may look like in a possible future tokenised world. Such explorations are crucial, given the growth of technological innovation in the financial ecosystem and the use of new forms of payment instruments facilitated by the rapid rate of technological expansion.
EXECUTIVE SUMMARY
PROJECT KHOKHA 2 7