Strong Federations: An Interoperable Blockchain Solution to Centralized Third-Party Risks

TL;DR

Strong Federations are a new blockchain-based solution that enables private, verifiable, and interoperable asset transfers across markets, reducing trust and capital requirements compared to traditional systems.

Contribution

The paper introduces Strong Federations, a novel blockchain architecture that enhances privacy, interoperability, and trustworthiness for cross-market asset transfers.

Findings

First implementation deployed in a financial market.

Reduces transaction latency and capital requirements.

Supports privacy-preserving, publicly verifiable transactions.

Abstract

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.