Lykke Whitepaper

Abstract

Lykke Corp is a FinTech company based in Zurich that has launched the first global marketplace for all
asset classes and instruments, using the Colored Coin protocol on blockchain. The paper explains the
architecture of the exchange and first use cases. We discuss how the exchange will evolve over time. We
explore the macroeconomic benefits of the new distributed ledger technology (DLT). The Lykke
exchange operates similar to JAVA in the sense that it is compatible with any type of blockchain;
marketplace was first developed on blockchain of Bitcoin, but is currently being expanded to Ethereum.
Every financial instrument can become a listed security on the blockchain in the form of a digital token,
through the so-called Colored Coin protocol. Colored coins follow the idea of ”coloring” a specific
Bitcoin – the issuer guarantees to hand out the underlying assets to the person, who returns the colored
coin. For example, the Federal Reserve (FED) can issue a colored coin in the same way as it prints paper
money; it would take a fraction of a Bitcoin and then insert the ”I Owe You” statement of the FED, like a
regular bank note. The same mechanism can be used for any other financial claim. Colored coins are
different in nature than cryptocurrencies, because they have a specific issuer and are backed by a real
financial asset.

Reporting of colored coins in traditional banking software systems, such as bookkeeping and risk
management is straightforward, because every colored coin can include an International Securities
Identification Number (ISIN), thus can be treated as any other financial instrument, fully compatible with
existing back-office systems. Financial institutions can create colored coins for existing financial products
and gradually move business processes to blockchain. They can operate the old and the new systems in
parallel and switch over to the new system at their own pace. In the new system, interest rate payments
are second by second, improving liquidity provision.

Lykke has launched the exchange initially for the main currencies, the Lykke coin (shares of Lykke) and
started two innovative projects: colored coins for music rights and colored coins for CO2 certificates.
Perspective asset classes include futures & options on digital assets, crowdfunded loans for retail and
private equity financing for Small and Medium-Sized Enterprises (SME), contracts for difference, zero
coupon bonds and other fixed income, natural capital bonds and more.

Lykke Exchange and all its tools and services are open source; the transparency of technology is ideal for
research. The paper provides a high level overview of the DLT, exchange architecture and reports on
initial experiences. The paper concludes with a research agenda and technological roadmap.

Lykke Website
Lykke Whitepaper

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