Stellar Lumens (XLM) is currently ongoing a network upgrade which will allow asset issuers to implement Asset Clawback. This makes the Stellar blockchain fully regulated and complaint with securities laws. This is known as Protocol 17.
The protocol is currently being voted on. If and when validators vote to accept Protocol 17, the upgrade takes effect immediately, and since all the new software is backwards compatible with the current protocol, the best course of action is to update sooner than later. Doing so will ensure your Stellar integration keeps on ticking when the network levels up.
- May 4, 2021 at 1500 UTC — Testnet upgraded. Now the testnet is running Protocol 17!
- June 1, 2021 at 1500 UTC — Public network upgrade vote
Asset clawback is designed for businesses issuing regulated financial instruments, such as money market funds, bonds, and equities. To comply with securities regulatory requirements in many jurisdictions, these issuers — or their designated transfer agents — must demonstrate the ability to revoke assets in certain situations, and this new feature allows them to do that.
Issuers of clawback-enabled assets can take advantage of the feature to:
- Recover assets that have been fraudulently obtained
- Respond to regulatory actions
- Enable identity-proofed persons to recover an asset in the event of loss of key custody or theft.
Before Protocol 17, there were a limited number of regulated financial instruments on Stellar because there wasn’t a great way to comply with securities regulations that require the issuer revocation ability.
There were some suggested solutions that relied on multi-sig, but they gave the issuer signing power over the asset holder’s account and compromised the custody of other assets in their wallet, and so they weren’t viable for most people.
With the introduction of Asset Clawback, issuers can easily tokenize all kinds of funds, bonds, and equities, and they can do so in a compliant manner.
By connecting these new assets to the existing network of anchors — services that provide users all over the world to access the network in their local currency — Stellar allows issuers of regulated assets to extend their reach, access new markets, and increase access to the world’s financial infrastructure.