At Altify, we are committed to leveraging cutting-edge technology to bring innovation to financial markets. In our latest product update, we’ve selected the Liquid Network, a Bitcoin sidechain developed by Blockstream, to tokenise our Legal Finance Token (ALFI), which represents legal financing bonds issued by Fenchurch Legal.

This article will explore why we chose the Liquid Network, focusing on its technical benefits and how they align with the requirements of tokenised legal finance products.

Why the Liquid Network for Tokenisation?

The Liquid Network offers several critical features that make it an ideal platform for issuing and managing tokenised financial instruments such as ALFI. As a Bitcoin sidechain (or, Layer-2 network), Liquid benefits from Bitcoin's security and decentralisation while providing enhancements for more sophisticated use cases, such as asset issuance and reissuance, whitelisting, confidential transactions (which hide the transaction amount while still allowing verification), and faster settlement times.

Beyond these technical and practical advantages, Bitcoin and the Liquid Network are rapidly becoming favoured choices for Real-World Asset (RWA) issuances.

In Latin America, approximately $1 billion of promissory notes have been issued on the Liquid Network. In Q3, 2024, the Blockstream Mining Note, a security token that raised nearly $50 million across eight tranches, executed the largest-ever Revolving Warrant Agreement (RWA) payout, returning over 1,200 Bitcoin to investors.

More high-profile issuances are expected. The government of El Salvador plans to launch its “volcano token” on the Liquid Network, marking the first-ever tokenisation of sovereign debt on a global scale.

Let’s examine some of the benefits identified by the government of El Salvador, Blockstream, and Altify in choosing the Liquid Network:

‍

Speed: Faster Transaction Settlements

A key reason for selecting the Liquid Network is its ability to process transactions much faster than the Bitcoin main chain. The Liquid Network operates with one-minute block times, compared to Bitcoin’s ten-minute blocks. This faster block generation ensures that financial transactions, including the issuance and transfer of tokens like ALFI, are confirmed more swiftly, which is crucial in today’s financial markets.

For tokenised assets such as ALFI, fast settlements are essential, as they reduce the friction that often exists in traditional legal finance, where investments can be tied up for extended periods with limited flexibility.

‍

Confidential Transactions: Protecting Sensitive Financial Information

Private credit is a regulated sector where privacy is paramount. The Liquid Network’s support for Confidential Transactions (CT) offers a significant advantage for ALFI.

Confidential Transactions conceal transaction amounts from public view while maintaining the integrity and verifiability of the transaction. This is particularly beneficial for ALFI, where sensitive financial instruments are involved.

This feature ensures that sensitive financial data remains private, while still leveraging the transparency and auditability of blockchain technology. It strikes a balance between the need for privacy and the requirement for a verifiable, trustless financial system.

‍

Asset Issuance: Streamlined Tokenisation of Real-World Assets

The Liquid Network is built for the issuance and management of assets—a core feature that Altify has utilised to tokenise legal bonds with ALFI. Liquid’s native asset issuance capabilities enable us to efficiently create, reissue, burn, or distribute tokens representing fractional ownership of legal financing bonds issued by Fenchurch Legal.

For investors, tokenising real-world assets offers several advantages:

Fractionalisation: Investors can purchase smaller portions of a bond, reducing the barrier to entry and allowing broader participation in the legal finance market, including those who may not have had sufficient capital to invest in these products before.

Efficient Asset Transfer: The Liquid Network’s atomic swap capabilities facilitate seamless transfers of tokenised assets between users, enhancing liquidity and market efficiency, should we open ALFI to secondary markets.

By utilising Liquid’s robust asset issuance framework, Altify streamlines the process of managing and trading tokenised bonds. This functionality, embedded within the network, ensures that tokenised assets retain the security and integrity inherent in blockchain technology while offering the flexibility needed to manage complex financial instruments.

‍

Federated Security Model: Balancing Decentralisation and Trust

The Liquid Network operates on a federated security model, where a consortium of trusted participants, known as the Liquid Federation, validate and secure transactions. This model strikes a balance between decentralisation and trust, providing a secure and well-regulated environment for tokenised assets like ALFI.

For financial institutions and investors entering the world of tokenised assets, this federated model offers an additional layer of assurance. The Liquid Federation includes prominent exchanges, financial institutions, and market players, ensuring the network operates smoothly and securely—crucial when managing high-value legal finance tokens.

While fully decentralised networks can sometimes face governance or trust challenges, Liquid’s federated approach mitigates these risks by involving a consortium of reputable parties.

First, an Altify investor will fill out a short application form which is reviewed by our team to ensure that you qualify for the product. This primarily relates to your country of residence and tax jurisdiction. Our team then reaches out to the investor to confirm the amount of USDT that they want to invest.

The investors USDT is debited from their account, sent to Fenchurch Legal and Fenchurch Legal issues a bond to Altify.

Altify issues ALFI on a 1:1 basis for the investors USDT. (e.g. if 1,000 USDT is invested, the investor receives 1,000 ALFI tokens).

The ALFI tokens are minted, burned or re-minted by utilising Blockstream AMP on the Liquid Network.

The newly minted and investor-allocated tokens are moved out of the Altify issuance wallet, and into a custodial wallet which holds Altify investor assets only.

Should an investor wish to exit their investment early, the tokens are sent out of the custodial wallet, and into the minting wallet to be burned, or allocated to another investor if appropriate.

Fenchurch Legal uses the proceeds to lend to vetted UK law firms, and the law firms repay the principal and interest back to Fenchurch Legal on a regular basis.

Every quarter, Fenchurch Legal makes distribution payments for interest earned to bond holders.

These payments are distributed to the Altify investors.

Altify deducts its fee from each individual investor after the distribution is complete.

Once the bond matures the principal and any accrued interest is paid to the bondholder, the tokens are sent from the custodial wallet back to the issuance wallet, and the tokens are burned.

Altify distributes the principal back to each investor, along with interest and deducts the final interest fee.

Altify removes the ALFI holdings from investors whose investments have matured, moves the tokens back to the issuance wallet, and burns them.

‍

Financial Markets: The Future Is Here

At Altify, we believe that the tokenisation of real-world assets (RWA), such as legal finance bonds, represents the future of investing. By leveraging the Liquid Network’s technical advantages, we are reshaping the private credit landscape, offering investors a secure, private, and liquid financial product.

The introduction of fractional ownership and the potential for secondary markets grants investors greater flexibility and access to assets traditionally reserved for institutions. Liquid’s infrastructure enables us to provide a scalable, efficient solution for managing tokenised legal bonds while maintaining the privacy, speed, and security required by modern financial products.

As we move forward, Altify remains committed to leveraging technology to create innovative, accessible financial products for today’s investors. With the Liquid Network as our platform of choice, we are excited to lead the tokenisation revolution in private credit.