Monad Private Settlement: private execution & settlement sub-environments.
An institutional synopsis.
Monad Private Settlement solves onchain privacy.
01With an increasing number of institutions exploring the onchain world, they face many choices and challenges. One of the more pressing issues is how to utilize the power and efficiency of the blockchain while safeguarding privacy. Institutions are already using public blockchains for certain use cases where privacy is not a priority. While certain stablecoins and tokenized products have scaled, it is typically where confidentiality is not a critical component of the transaction. Practically everything else a bank, fund, or asset manager does — holding and transferring client funds, quoting prices, managing treasury, correspondent relationships, trading, etc. — is necessarily private, either through regulatory obligation or by competitive need. A public chain will, by the nature of its construction, publish potentially sensitive information.
The typical response by institutions has been to run a permissioned ledger, either alone or in a consortium. This approach introduces concomitant tradeoffs which may be undesirable to institutions, including liquidity fragmentation across ledgers, constant bespoke bridging to the outside world, and forcing one party to have central control — and thereby governance and liability responsibilities. Additionally, an institution seeking to create its own L1 is faced with the daunting tasks of funding the project, sourcing the talent with the experience necessary to build, the opportunity cost of the build timeline, and the ongoing maintenance of the blockchain.
Monad Private Settlement presents an elegant solution whereby institutions can achieve the privacy they require while availing themselves of the performance of the Monad L1 chain. Rather than having to build their own chain and be forced into the maintenance ad infinitum, participants create their own Private Settlement domain, which is a confidential execution domain enabled by a hub smart contract installed on the public L1 with no protocol change required. Each Private Settlement domain lives on the Monad network, and when registering such a domain, the participants define the validator set and the access rules. Monad built the public chain that sequences transactions for all domains. Participants using a Private Settlement domain get the efficiency of the Monad L1 with the privacy and configurability they require.
Monad Private Settlement attributes.
02Privacy
Transactions, state, and contract code within a Private Settlement domain are encrypted and remain private. The L1 provides sequencing, ordering, and state settlement. Transaction communication between different domains is private and secure while enabled by the L1. Privacy enables the processing of identity data inside Private Settlement domains, opening up a whole new range of applications implemented fully onchain, profiting from the tamperproofness of blockchain.
Sovereignty
The creator of a Private Settlement domain specifies the validators, the jurisdiction, the access rules, the attestation policy, and which L1 tokens will be available in the domain. Future configurations remain customizable by the creator.
New level of composability
As a result of sequencing on the L1, contracts are composable across Private Settlement domains and with the L1. Rather than fragmenting, separate Private Settlement domains can interact with pooled L1 liquidity. The ability to store, use, and transmit confidential data in domains, and to communicate confidential data across different domains, enables the composition of applications and business processes across different organizations, as known from web2, but with the digital assets of blockchain and its superior security and accountability.
No protocol change
The mechanism is characterized by ease of use. A hub smart contract on the L1 enables Private Settlement domains and drives their interaction and settlement. No forking is required.
Atomic settlement
As Private Settlement domains are embedded in the L1, atomic settlement can be ensured. All legs settle, or none does. Delivery-versus-payment settlement is built into the logic.
Build & maintenance
There is no need for a costly build and subsequent maintenance of an L1. All the tooling and standard interfaces of the EVM make integration with existing infrastructure easy. The power and efficiency of the existing Monad public chain is available to all participants.
Privacy is mission critical.
03By design, all transactions and all state and code within a Private Settlement domain are encrypted. All private information within a domain is kept confidential, even from the L1 itself. Transactions originating from users are encrypted, addressed to the target Private Settlement domain, and then submitted to the L1 for sequencing. Transactions between separate Private Settlement domains are encrypted as well. There is no leakage of confidential information during transmission, allowing for secure communications amongst Private Settlement domains. For example, token transfers between domains are private. Neither account addresses nor amounts are visible to the public.
Institutional participants can handle multiple use cases confidentially: payroll and supplier payments, treasury movements, client flows, investor registers, trading positions and orders, and holdings. All information that needs to remain confidential stays confidential. In addition to controlling its private information, an institution can allow access to specific information for regulators and auditors to satisfy compliance obligations. This allows a range of regulated entities the opportunity to move business onchain with Monad Private Settlement.
Sovereignty and access control.
04Power and freedom to choose are embedded in the system. At the inception of a Private Settlement domain, an institution gets to choose and configure the key components of the functionality. The creator of the domain decides which validators can operate it, the jurisdiction, the access rules, the attestation policy, and which L1 tokens will be available to transact within the domain.
Access to the Private Settlement domain, its smart contracts, and their state is governed by the access control policies that can be defined for each contract. Any access to the domain and information will be denied by default unless the pre-set criteria are met. All sensitive information, such as balances, records, logs, addresses, and receipts, has policies linked to it. Configuration remains changeable by the creator of the domain. Post-creation configurability gives institutions the flexibility to match the Private Settlement domain’s functionality to the evolving needs of their business.
Pooled liquidity and interoperability.
05Private Settlement domains solve for fragmentation that typically arises from using a permissioned chain. The messaging infrastructure allows for the composition of smart contracts across Private Settlement domains and the L1. Through interconnectivity via the L1, Private Settlement domains can avoid segregating liquidity across different domains. With each Private Settlement domain’s transactions settling back onto the L1, one does not sacrifice composability to achieve privacy in this environment.
No confidential information is revealed while the private environment stays connected to the broader liquidity of the L1. As a result of sharing the Monad network’s ordering, Private Settlement domains can transact with each other using standard EVM flows and APIs rather than relying on special bridges, routers, or forwarders.
Accelerated onchain GTM.
06With Monad Private Settlement, institutions can accelerate their onchain journey by leveraging the efficiency of the Monad L1 in their own private domain without a costly buildout or long development timelines. The power and ease of use of the EVM and its ecosystem make the move onchain accessible to institutions both large and small.
Creating a private onchain environment using Monad Private Settlement is designed to minimize operational lift, and requires setting and configuring a hub contract that will govern activity for the environment. The hub contract on the Monad network that enables the private environment is a standard EVM smart contract. No forking of the L1 or use of offchain components is required to create a private domain.
Confidential cross-organization composability.
07Confidential state and transactions dramatically expand the kinds of business that can be conducted fully onchain. The jurisdictional and geolocation awareness of Monad Private Settlement, together with privacy and access protection, allows identity data to be stored onchain and be directly used in computation. It can be sent between Private Settlement domains set up by different organizations, enabling cross-organization workflows fully onchain that can now include digital assets and benefit from the security, settlement finality, and speed of the Monad chain.
Services offered by different Private Settlement domains can be composed in a secure and confidential way. Furthermore, Private Settlement domains enable access to and interaction with legacy infrastructure, as they can hold and use access credentials onchain.
Use case examples.
08Privacy combined with the execution and settlement functionality of Monad Private Settlement supports traditional financial firms seeking to mirror their existing businesses compliantly onchain. While the uses are broadly applicable to varying types of business, we seek to briefly provide several example use cases.
Private Settlement is designed to help support incorporation of tokenized deposits and payments privately and compliantly. Client information remains confidential, and banks can provide regulators and auditors the view on data necessary to remain compliant with their obligations. Payments and settlement occur swiftly and reliably within a specific domain or between domains.
Payroll, treasury movements, and supplier payments all remain private with the necessary audit and governance controls.
Tokenized funds and their corresponding investor registers remain confidential while still taking advantage of the efficiency available onchain.
Trading firms and OTC desks can conduct trading operations while positions, order details, and counterparty information remain private. Competitive edge is maintained with no leakage of trading strategies or data.
Application requirements.
09All of the aforementioned business use cases share several requirements.
Privacy, identity, and compliance are critical for all regulated businesses. Obligatory privacy and data protection constraints have hindered previous scalable onchain adoption by traditional financial institutions. Monad Private Settlement is designed to support an accessible, compliant solution.
Regulated businesses must be able to demonstrate sovereignty and control within their jurisdiction. The ability to implement specific checks and balances is critical to any implementation roadmap. Private Settlement domains allow for a clear framework at the inception of an environment, with all prerequisites codified into the hub smart contract.
Certain expectations exist for the speed of execution and settlement. Institutions need fast, deterministic, and reliable settlement that is easy to join and subsequently transact on. Transaction execution — whether internal to the domain or externally between Private Settlement domains — must be timely and continuously available. Considering each domain lives on the Monad L1, there is a demonstrable track record of uptime and resilience publicly available for review.
The composability and access to pooled liquidity afforded by virtue of the connection to the Monad L1 solve for an important shortcoming of previous bespoke permissioned ledgers that were operating in isolation to achieve privacy. Private Settlement domains have the benefits of composability while maintaining privacy within the domain, in transactions between domains, and in interaction with the L1.
Counterparty risk is mitigated within the system through the logic of EVM-compatible smart contracts. By default, unentitled parties are blocked from participating in and interacting with a Private Settlement domain. Access to confidential information contained therein is denied by default and given only when permitted by defined access control rules. Atomic settlement further mitigates counterparty risk by forcing a delivery-versus-payment workflow. The unique properties of Monad, such as multiple concurrent proposers and encrypted transactions, create a framework which blocks unknown parties by default.
Interoperability is another critical requirement. Once again, the smart contract construct allows for significant interoperability, which can be delineated in the hub contract. Typical permissioned chains are forced into a cycle of creating bespoke bridges, which introduce potential risk and friction into the system, and guaranteeing atomicity is impossible. Specialized Private Settlement domains can seamlessly offer services to other Private Settlement domains that implement services such as oracles, interaction with offchain components, and legacy applications.
The takeaway.
For financial institutions, previous attempts to generate a private environment involved either non-compliant or unwieldy workflows that made the move onchain infeasible. Today, Monad Private Settlement offers a private and flexible solution that can accommodate a range of business types and use cases. It offers all the advantages of a public blockchain while addressing its shortcomings.
By leveraging the Monad L1 and EVM smart contracts, Private Settlement offers exceptional configurability while maintaining connectivity to pooled liquidity. By taking advantage of Monad’s existing build, institutions can avoid significant development spend. Moreover, Monad Private Settlement accelerates speed to market in onchain finance and thereby reduces the opportunity costs of lengthy development timelines.
An institution needs only to create the Private Settlement domain, set the parameters for privacy, and configure the environment. Once the initial setup is complete, the Private Settlement domain can transact privately with other Private Settlement domains and is seamlessly integrated with the L1.
Disclaimer
This document is provided for informational purposes only. It does not constitute legal, financial, investment, tax, or regulatory advice, and it is not an offer or solicitation to buy or sell any asset or to use any product or service. Nothing in this document is a representation or warranty, and no one should rely on it in making any decision. Certain statements describe features that are under development or subject to change and are forward-looking; there is no assurance they will be delivered as described. This document is not intended for distribution in any jurisdiction where doing so would be unlawful.