On Tuesday, June 1, 2021 at 1500 UTC, Stellar validators will vote on whether to upgrade the network to Protocol 17. If the vote goes through, the upgrade is immediate, so everyone building on Stellar should prepare by installing up-to-date versions of any and all Stellar-related software they use. For more information, see the Protocol 17 Upgrade Guide.
A few times a year, we roll out a new version of the Stellar Protocol that includes new features designed to meet ecosystem needs. There's a lot of coordination and cooperation involved in protocol upgrades — in addition to validator assent, they require everyone building on Stellar to install new versions of Stellar Core, Horizon, and the Stellar SDKs — but they are worth the effort because they expand network capabilities and empower developers to build new and better products and services on Stellar.
Features introduced in recent protocol changes — fee bumps, claimable balances and sponsored reserves — allow apps and services to handle account lumen requirements, which makes it easier to design user-friendly experiences. Protocol 17 introduces a single new feature that opens up new possibilities for issuing regulated assets on the Stellar network...
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.
To enable asset clawback, Protocol 17 introduces a new account flag, new trustline and claimable balance flags, and new operations to take advantage of those flags. When the right account flags are set, an issuer can clawback a full or partial balance or a claimable balance, and can set and clear trustline flags as necessary.
Issuers of clawback-enabled assets can take advantage of the feature to:
Clawback doesn't affect existing assets, balances, or accounts, and an issuer clearly designates an asset as clawback-enabled when they issue it. Asset holders are aware of that designation when they opt in to holding the asset, and while this probably goes without saying, clawback can't be enabled on XLM – Stellar's native network token — because XLM doesn't have an issuing account or require a trustline. Asset clawback also can't be retroactively applied, so it won't impact any assets that currently exist on the network. Rather, clawback empowers a new kind of issuer to issue a new kind of asset on the network.
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.