The 2 Layer Model

Layer 1 (on-chain and at sub-custodians for non-blockchain assets)

Layer 1 describes the system of physical custody: this is where the asset is actually held. For blockchain assets, this term refers to the blockchain of the asset itself, and for non-blockchain assets, this term is used to describe the network of sub-custodians with which Etana integrates.

Blockchain assets

Each account is implemented as a unique address or set of addresses. The key holders have direct access to funds. Within the Etana ecosystem, Etana manages the keys, while beneficial ownership of the funds is governed by the legal structure (regulatory and contractual) covering the Etana/customer relationship for the Etana Custody product.

Traditional and fiat assets

Customer funds are typically held in an omnibus structure owing to sub-custodian related constraints that limit the creation of new accounts. Exceptions are made in special cases, for example, where regulation requires that a segregated structure be implemented. The sub-custodian recognises Etana as the authorised entity that controls funds (including the ability to transfer funds from the sub-custodian to banking counterparties), while the legal structure governing the Etana Custody product governs beneficial ownership, as with blockchain assets.

Transactions within layer 1 occur between account representations either on-chain or between sub-custodian banking partners, and will involve associated pass-thru fees. In almost all cases, transactions booked at layer 1 take some time to implement, ranging from a handful of seconds for the fastest blockchains to multiple days for fiat currency transactions.

Layer 2 (the Etana ledger)

The Etana ledger is a layer 2 solution on top of a disparate collection of layer 1 providers, in order to present a consistent view of asset holdings, provide faster transactional capabilities and manage costs associated with direct layer 1 transactions.

The diagram above shows the relationship between layer 1 blockchains and sub-custodians, and the Etana ledger.

Accounts are created within the Etana ledger, on the right hand side. Typically accounts are created to represent a customer’s segregated funds, however an institutional customer may choose to omnibus their customers’ funds within a single account or smaller set of accounts (which may represent different sub-entities’ jurisdictions, for instance).

In order to hold funds within this account structure, corresponding accounts are created within the layer 1 environment, dependent on the asset type, and specific customer requirements.

For fiat assets, the corresponding account structure is created as part of the onboarding process, if required, otherwise a general Etana omnibus fund is used.

For digital assets, the corresponding account structure is created at the time of initial deposit: a new layer 1 address is created associated with the blockchain of interest.

In both fiat and digital cases, the layer 1 correspondent account is mapped to the ledger account.

Workflow: Deposit

When a customer initiates a deposit to Etana (that is, a deposit into the Etana ecosystem), the customer must request the layer 1 deposit destination from the Etana platform, and, depending on the asset, an additional reference identifier that can be used by Etana to identify and allocate deposits into omnibus layer 1 destinations to the corresponding Etana ledger accounts.

Deposits received by Etana are mapped to the ledger account to which they should be allocated, and booked to those accounts. The process varies depending on the asset:

Digital assets are mapped straight through to the ledger account since their deposit destination addresses can be used to uniquely identify the customer ledger account.

Fiat assets are mapped using identifying reference information when the funds are received by Etana.

Workflow: Withdrawal

In order to withdraw funds from the Etana ecosystem, a customer must register a destination account (a blockchain address or fiat institution account). With a registered and approved destination, the customer may request a withdrawal from their Etana ledger account.

As long as funds are available to honour the withdrawal request, the withdrawal process will be initiated. Depending on the asset type, amount and destination, the withdrawal will be processed via Etana’s automated systems, with operational oversight.

Workflow: Settlement

In general, a change of beneficial ownership occurs during settlement as instructed by an agent customer with management authority over Etana ledger accounts.

There are two ways that this can be achieved.

1. Trades may be reported to the Etana platform using the trade reporting API. Trades are specified as a symbol (base asset and quote asset), a price and an amount.

2. Settlement instructions may be reported to the Etana platform using the transfer API to specify the exact transfers that need to occur in settlement of a single trade or net of trades. This allows for finer grained control over the cash flows, but does not register within the trade reporting system.