Those interested in streamlining business-to-business (B2B) transactions see decentralized finance (DeFi) as a way to simplify payment flows, but they’re also concerned about confidentiality.
Understandably so. After all, they don’t want their competitors to see what they’re buying and how much they’re paying — and that’s directly at odds with DeFi’s underlying promise of radical transparency.
Enabling Both Confidential Transactions and Compliance
That confidentiality is a key feature of Transparent’s Xand Alpha real-time settlement network for institutional traders. The firm explained that this system allows users to protect their identity and transaction details while preserving the public auditability of the ledger.
Transparent uses zero-knowledge proofs that allow the transacting parties to retain all of the core fundamental data to a transaction — such as the identities, assets and amounts involved in the transaction — while also restricting access on a public blockchain to only those involved in the transaction.
“For everyone else who’s using the infrastructure, they know that the inputs and the outputs are correct, they know the total amount of liquidity that’s available in the network, but they’re not able to now see a competing firm’s transactional data because they weren’t a party to it,” Fowler said.
At the same time, regulators can request information about particular transactions, and those parties can provide it, keeping the existing norms around financial reporting intact.
“We think this is a very important approach and one that balances the needs of the existing users and stakeholders like regulators while at the same time being able to leverage that value of a public, open blockchain,” Fowler said.
Streamlining Business Payments
Transparent has been working with a number of commercial banks and trading firms, primarily in the digital asset space. A lot of the early users of the system are traders, Fowler said, but the infrastructure and service are open for any Financial Crimes Enforcement Network (FinCEN)-regulated financial institution in the U.S.
“In trading assets with a lot of volatility in terms of pricing, having a real-time digital dollar for instant settlement provides a tremendous amount of value,” Fowler said. “So, for that reason, we’ve started there, but the kind of core value proposition of this real-time settlement with a digital dollar instrument with an open infrastructure is one that certainly has broader applicability to the trading sector overall.”
When talking with corporate treasurers, Fowler has seen that digitization is at the top of the company’s list when they think about the opportunities for improving and streamlining business payments with vendors, reducing time in invoicing and creating more opportunities for employees, customers and vendors.
“That’s where we see a lot of interesting conversations happening, and that’s where concepts like what we’re working on around confidentiality are critical,” Fowler said. “It’s one of the things that they care about a lot in terms of exposure of their business in a new type of payment system and what are the risks that go along with that.”