How It Works: A User Story

Denote Tokenized Collateral enabling collateral mobility on Canton network

Initial Context

• Alice & Bob are institutional clients with accounts at the Custodian Bank

• Alice has 100 XYZ shares custodied at Custodian

Issue Tokenized Collateral

• Alice wishes to tokenize 100 XYZ shares onto Canton network

• Alice creates an IssuerMintRequest to tokenize 100 XYZ shares

• Custodian checks its records and updates its internal system to lock 100 XYZ shares

• Custodian accepts the request and issues 100 tokens representing the custodied XYZ shares

Transfer Tokenized Collateral

Transferring shares is done in three steps: creating a transfer request, approving the request and creating a transfer instruction, and approving the transfer instruction

Create Transfer Request

• Alice wishes to transfer 10 XYZ shares to Bob

• Alice creates a TransferRequest for the Custodian

• To avoid any duplicate requests, the 10 XYZ tokens are locked on chain pending approval or rejection

Approve Transfer Request & Create Transfer Instruction

• A TransferRequest requires approval from the Custodian and can only be done to other parties like Bob that have approved accounts at the Custodian

• Custodian may also reject the request if it is incorrect, such as during bank holidays or if compliance documentation is missing

• Custodian updates its internal systems to prepare transferring 10 XYZ share from Alice to Bob

• Custodian approves the TransferRequest which creates a TransferInstruction for Bob to accept

Approve Transfer Instruction

• Bob approves the TransferInstruction

• Custodian, as an observer to the transaction, also transfers the underlying shares moving the custodied shares from Alice to Bob

Redeem Tokenized Collateral

• Bob wishes to unlock the 10 tokenized XYZ shares

• Bob creates an IssuerBurnRequest to unlock the custodied collateral

• Custodian accepts the request and the token is archived/burned

• Custodian's internal record is updated to unlock those 10 XYZ shares on Bob's account

Demo Video

Next Steps

• Explore the technical architecture of Denote Tokenized Collateral in Custody Workflows

• Explore how tokenized collateral can power a Tokenized ETF