The rise of a market for digital assets, both natively digital (e.g., non-fungible tokens, utility tokens) and those representing non-digital resources (e.g., security tokens, stablecoins, e-money tokens), is closely linked with the growing diffusion of distributed ledger technologies (DLT) platforms among investors. The increasing volume of transactions involving digital assets makes it worthwhile to investigate how central bank money can contribute to make the settlement safer and more efficient. While this is not strictly needed at the current juncture, central banks should arguably prepare to ensure that they can keep central bank money at the core of the settlement process of financially relevant assets. This requires the identification of possible solutions to increase interoperability between currently independent infrastructures: those regulating the exchange of the digital assets and those providing central bank money settlement services. A way to achieve this goal is to allow these transactions to flow through the market infrastructures, where central bank money is safely managed. This implies building a "bridge" between DLT platforms and market infrastructures.
This paper analyses several technical interoperability models and then describes the results of two experimental activities, which evaluate two different solutions for synchronizing the asset-leg and the cash-leg of a DvP (delivery versus payment) transaction. Both use the Target Instant Payment Settlement (TIPS) platform to provide the settlement services of the cash leg. The first, named "TIPS Hash-Link", is a lightweight, API based and DLT agnostic protocol which enables a loosely coupled integration of the market infrastructure with the majority of DLT platforms. Inspired by the Hash‑Time Locked Contracts (HTLC) protocol, TIPS Hash-Link has been specifically tailored to overcome some failure scenarios commonly experienced with HTLC, leveraging TIPS as a trusted escrow for funds and a smart contract to coordinate the DvP operations on the DLT in a safe and consistent manner. The second one, named "TIPS-Algorand Just In Time Locking", takes advantage of the features offered by a specific DLT platform, Algorand. In particular, it leverages a native feature of the chosen DLT that simplifies DvP transactions guaranteeing atomicity; as such, this approach needs the two systems to be directly connected to interact with each other.