n a previous blog post, we did a deep dive on a core part of a DeFi platform’s Digital Twin (i.e. Participant Onboarding) using RegDefy. To explore this further we can consider one of the current hot topics in Decentralised Finance (DeFi) namely: Interop.
Most platforms recognise that the future belongs to a world of heterogeneous DLT networks. Here each Ledger maintains the records for one or more assets issued and owned by participants on that network. Assets can be “moved between” networks using bridges or atomic settlement protocols. There are several options which are driven by the business requirements, legal analysis and regulations:
- Burn & Mint
- Wrap & Mint
- Peer to Peer Interop
1. Burn & Mint
Here an organisation is able to issue a digital asset on multiple networks. For example Circle’s ability to issue the USDC stablecoin on Ethereum, Solana and Polygon. If a user wishes to move their USDC holding from Ethereum to Solana (say) then they instruct Circle to Burn the amount on Ethereum and Mint the same amount on Solana.
2. Wrap and Mint
Here instead of burning the asset on the source network, it is locked or encumbered (Wrapped) by the issuing organisation on the source network and then Minted on the destination network. The advantage here is that the asset does not leave the issuing network giving the issuer greater control.
3. Peer to Peer Interop
Rather than rely on an intermediary, this protocol allows each network to maintain sovereignty by proving that an event happened on another network and reacting accordingly. As a result assets can be swapped between buyers and sellers and the value is moved between networks. The main achievement of these protocols (e.g. Harmonia which was the basis of the interop between HQLAx and Fnality) is that the swap is atomic. In other words the participant ends up with either of the assets but never both or none.
Each of these mechanisms contributes a different set of dimension items for each organisation to the model. Those for the Issuer are shown below:
| Dimension | Burn & Mint | Wrap & Mint | Peer to Peer Interop |
| Offerings (something a customer would find valuable) | Minting and burning services on both networks | Locking and minting services on respective source and destination networks. | Proof validation and asset transfer services |
| Stakeholder Groups (Teams) | Asset Operations Team | Asset Operations Team | Network Operations Teams |
| Capabilities (something an organisation can see or do) and Processes (how the organisation does it) | Mint and Burn Assets on both networks | Lock and Mint Assets on both networks | Validate proofs from other networks; Emergency Unlock assets |
| Commitments (obligations an organisation must comply with) | Relevant standards and legislation in that region, Organisation policies | Relevant standards and legislation in that region, Organisation policies | Relevant standards and legislation in that region, Organisation policies |
| Apps & Data | Asset Smart Contract; Operations Tool | Asset Smart Contract; Operations Tool | Asset Smart Contracts; Message relay system |
| Risks | The two stage process may not complete atomically | Asset may remain locked on the issuer network | In the event of network insolvency, one asset may remain locked on a network |
As you can see, different mechanisms contribute differently to the model even at the line item level. This is even more pronounced as you dig down into those items (e.g. steps for processes of mappings for capabilities). RegDefy manages all these lists, elaborations and relationships for you.
