Strong Federations: An Interoperable Blockchain Solution to Centralized Third-Party Risks
This addresses centralized third-party risks in financial markets by providing a novel blockchain-based system, though it appears incremental as it builds on existing blockchain concepts.
The paper tackles the limitations of blockchain technology in privacy, execution fidelity, and transaction finality by introducing Strong Federations, a solution that enables interoperable, publicly verifiable asset movement without third-party trust, reducing transaction latency and capital requirements as demonstrated in the Liquid implementation.
Bitcoin, the first peer-to-peer electronic cash system, opened the door to permissionless, private, and trustless transactions. Attempts to repurpose Bitcoin's underlying blockchain technology have run up against fundamental limitations to privacy, faithful execution, and transaction finality. We introduce \emph{Strong Federations}: publicly verifiable, Byzantine-robust transaction networks that facilitate movement of any asset between disparate markets, without requiring third-party trust. \emph{Strong Federations} enable commercial privacy, with support for transactions where asset types and amounts are opaque, while remaining publicly verifiable. As in Bitcoin, execution fidelity is cryptographically enforced; however, \emph{Strong Federations} significantly lower capital requirements for market participants by reducing transaction latency and improving interoperability. To show how this innovative solution can be applied today, we describe \emph{\liquid}: the first implementation of \emph{Strong Federations} deployed in a Financial Market.