By John Liu and Holly Kasun
In Part One of the Distributed Control Rights Management (DCRM) series, we explored the dawning of a new era of Internet of Value (IOV), the technology evolution where assets are digitized and value exchange is achieved at the speed of the internet. Next, how asset interoperability is a primary challenge to solve in order to achieve the IOV’s potential. Finally, we introduced how Fusion tackled interoperability of tokens through the encryption layer, by creating and managing token private keys (and in turn, their wallets) in a secure, decentralized manner.
In Part Two of this series, we explore how these Fusion-managed wallets unlock seamless value exchange through an innovative solution juxtaposing token rights with the creation of compatible Fusion representations of these siloed tokens.
Ownership vs. Rights and DCRM
The first piece to Fusion’s interoperability solution draws on the separation of ownership and rights to an asset. Ownership of an asset grants the owner full rights to enjoy the benefits of the asset and do whatever they will with the asset. The owner can choose to lend out and monetize the rights to an asset, allowing the holder of the rights to temporarily enjoy the benefits of the asset or perform action on behalf of the owner. This separation is well described by the relationship between that of a landlord and a renter. The landlord holds the ownership of the asset, which is the land. The renter, through agreement with the landlord, is granted rights to the land and can enjoy the benefits and use of the land. However, these rights, and all benefits associated, return from renter to landlord once the agreement is terminated.
By introducing the separation of asset ownership from asset rights in the digitized world, DCRM enables two important solutions:
- Gives its decentralized algorithm the rights of managing digitized assets on behalf of the owner, while preserving ownership of the assets for the owner. Specifically, the asset owner has granted Fusion only the right to manage balances under the direction of the owner, without giving Fusion the right to benefit from the asset.
- Enables value exchanges that rely on temporarily granting rights to an asset, such as loaning out an asset in exchange for a fee. Many institutional financial transactions are also made possible, such as forward swaps. We will explore these in more detail in Part Three of the DCRM series.
Lock-In / Lock-Out (LILO)
The second piece to Fusion’s interoperability solution introduces two processes known as “Lock-in” and “Lock-out”. These processes make it easy and secure to deposit external tokens into and withdraw tokens from the Fusion blockchain. Once tokens are deposited into the Fusion network, users can participate in the unhindered exchange of value across digitized assets regardless of their origin.
The Lock-In process:
- Users transfer their tokens into the Fusion-managed, token-specific wallets. This transfer grants Fusion rights to manage token balances in a secure and decentralized manner (as described in part 1) on behalf and at the sole discretion of the users.
- A one-to-one representation of the external token, along with its ownership, is created in the form of a Fusion asset on top of the Fusion blockchain. Any differences caused by what technology was used to digitize the asset has been abstracted away so that only the value and the owner, which are fungible concepts, is represented. By manipulating these Fusion assets and their respective external tokens, Fusion enables the interoperable exchange of digitized assets.
The Lock-Out process:
- Users transfer their tokens out of the Fusion-generated wallet which ends Fusion’s management rights to the tokens.
- The relevant Fusion assets representing the locked-out tokens are removed from the Fusion blockchain to maintain accounting integrity.
Putting it all Together
Through the combination of DCRM, which relies on owners granting rights of their assets to the Fusion algorithm, and LILO processes, users are able to exchange values across heterogenous digital assets in a single environment, and can do so knowing their assets are securely protected and managed by decentralized technology.
At all times in the Fusion ecosystem, the Fusion algorithm serves as an incorruptible protector of assets:
- No user can represent their own token balances falsely.
- No user can have their token balances manipulated falsely by others.
- Token external balance integrity is maintained on both external and Fusion chains.
- Individual ownership of assets is tracked by transaction-level reconstruction of balances and aggregated in Fusion’s multi-token wallet.
- All transactions are verified by consensus and securely signed by the Fusion algorithm. Using an approach similar to the one used in generating and storing sharded keys, the private keys used for Fusion-managed balances are never wholly reconstructed even during the transaction signing process.
By exchanging on The Fusion Network, location, asset type, payment type, and trust are no longer limiting factors in value exchange and by extension, The Internet of Value. For example, an investor of real estate holding EOS tokens in Asia can now find and invest in a property in the US that was digitized as an Ethereum asset that pays in ETH, without having to look at two separate blockchains and swap token types in an exchange. The next and final part of the series will examine some of the exciting financial applications that Fusion enables in more detail.