Digital Pound - Entangle Labs Case Study

The Stablecoin Landscape and Challenges

As the industry anticipates a massive influx of capital, buoyed by Larry Fink’s prediction of a $30 trillion opportunity in the tokenization of traditional assets, it's easy to overlook that two of the most successful crypto products today are already tokenized real-world assets: USD-Tether and USD-Circle.

Over the past decade, we’ve seen various stablecoin experiments, each attempting to achieve price stability. However, none have matched the success of these USD-backed tokens, which together hold a market capitalization of $150 billion. Among the different types—algorithmic, under-collateralized, and over-collateralized stablecoins—the over-collateralized models like USDC and USDT have proven the most resilient, aligning with the best financial practices of advanced economies to ensure stability and trust.

As governments worldwide accelerate their digital currency projects, the UK is no exception. In 2023, His Majesty's Treasury gathered public feedback on the potential implementation of a Digital Pound. The general sentiment, both public and governmental, is optimistic about the benefits a CBDC could bring, while also being cautious about potential pitfalls.

Challenges and Protections:

To ensure the stability and reliability of a CBDC, several key protections must be in place:

1. Issuance Function: Stablecoins should be fully backed by deposits at the Bank of England, ensuring they maintain their value and are fully redeemable.
2. Transfer Function: A designated entity must manage and oversee risks across the payment chain, acting as the payment system operator to ensure regulatory compliance.
3. Store of Value/Exchange Function: Wallet providers must safeguard the legal rights of holders and ensure stablecoins can be redeemed at par with fiat currency at all times, maintaining trust and usability in daily transactions.
4. DeFi Integration and Treasury Bonds: The Digital Pound, powered by Entangle’s infrastructure, can be seamlessly integrated into DeFi platforms. This enables high-volume activities such as lending, borrowing and yield farming with GBP-backed assets. Additionally the infrastructure can be expanded to support the tokenization of GBP treasury bonds, allowing for increased liquidity and easier access to these government backed securities.

Public permissionless ledgers used by some stablecoin systems often lack centralized governance, posing systemic risks. Therefore, any such system must ensure accountability and effective risk management.

To address these concerns, several essential features have been identified for any digital currency in Britain. Customizable and configurable data are crucial for the implementation of the Digital Pound. The system must be modular and flexible, allowing for seamless integration of diverse data types and robust data monitoring.

The Need for Transparency in Real-World Asset Transactions

When dealing with real-world assets connected to large institutions, transparency is paramount, especially when billions of dollars are at stake. The Entangle infrastructure is designed to meet these stringent transparency requirements, providing a reliable and verifiable system that ensures all transactions are conducted with the highest level of accountability.

One of the standout features of Entangle’s infrastructure is the ability for third-party agent transmitters to be hired by external partners. This flexibility allows institutions to bring their trusted agents into the network, providing them with the comfort and assurance needed to manage significant financial transactions securely and transparently.

Entangle Solutions for the Digital Pound

Entangle's infrastructure is designed to provide the foundational technology needed for the secure transfer and management of tokenized real-world assets (RWAs) on-chain, making it an ideal solution for implementing a stable and reliable Digital Pound.

Key Components:

1. Photon Messaging: A network of smart contracts and libraries across all blockchains, using a highly customizable proof-of-stake agent network to transport data.
2. Interoperable Blockchain: Built on a modified Cosmos Tendermint framework, this blockchain ensures cost-efficient storage and processing of data, delivering it seamlessly to destination chains.
3. Universal Data Feeds: A blockchain oracle framework that aggregates and delivers high-fidelity data with custom logic capabilities, ensuring accuracy and timeliness.

Conclusion

The development of a Central Bank Digital Currency (CBDC) like the Digital Pound represents a groundbreaking advancement in financial technology, addressing inherent issues in both cash and current digital payment systems. Entangle’s robust infrastructure supports the secure, efficient, and transparent transition of real-world assets on-chain, providing the essential tools needed to implement a Digital Pound that enhances financial accountability, lowers barriers to entry, and improves market liquidity.