- With $63.2 million in fresh funding from 14 banks, Fnality is building tokenized versions of five major fiat currencies.
- The digitized fiat would be fully collateralized by cash held at central banks and is meant to solve the “cash on ledger” problem faced by other financial blockchain projects.
- The consortium says it is open to working with JPMorgan, whose JPM Coin project has similar aims.
- Fnality’s tech partner, Clearmatics, is building these systems on a private version of ethereum.
Fnality International is building the missing link in the banking blockchain.
Formerly known as Utility Settlement Coin (USC), the newly rechristened U.K.-based project is developing blockchain versions of five major fiat currencies: the U.S. dollar, the Canadian dollar, the British pound, the Japanese yen and the euro. Led by former Deutsche Bank executive Rhomaios Ram, the consortium boasts an ample budget, having just raised $63.2 million from 14 shareholder banks.
In a recent interview with CoinDesk, Ram and other bank and tech executives involved in Fnality shed some light on the previously secretive project’s plans – starting with the role these tokens, still referred to as USC, would play in the enterprise blockchain ecosystem and the wider financial world.
What’s the point of representing fiat currency, the very thing bitcoin sought to usurp, on a blockchain? According to Ram, it’s a means to an end, not an end in itself.
He pointed to the many private blockchain projects trying to tokenize wholesale markets, either at the proof of concept stage or close to production. All are lacking one thing: fiat currency on the ledger.
In other words, it’s all well and good if a stock or bond zips around on a distributed electronic network, but if the cash side of the trade is being done the old-fashioned way, it’ll still take days to settle, defeating much of the purpose.
Hence, the USC would address what many in the industry have come to refer to as the “cash on ledger” problem. To Ram, the funding round disclosed last week was an important validation of this idea. He told CoinDesk:
“The real story here is that a committed group of investors believes they have found the answer to the cash leg. Now that’s a giant marker for pushing the tokenization of wholesale markets.”
Bridge to JPM Coin?
To be sure, megabank JPMorgan Chase (not one of Fnality’s shareholders) has similar ideas for JPM Coin, the fiat-backed cryptocurrency it is developing for its clients to send each other money.
“We really think this cash token is the foundation for enabling other enterprise blockchain applications,” Christine Moy, executive director and head of JPMorgan’s Blockchain Center of Excellence, said at Consensus 2019 last month, “We’ve been researching enterprise blockchain now for about four years; many different use cases varying from supply chain finance to financial markets and all of them need a payment leg.”
But JPMorgan, massive as it is, is just one bank.
Ram said he and his team “definitely anticipate several banks producing their own individual coin for their own individual ecosystem.” Although not Fnality’s primary goal, there would still be a need for the equivalent of correspondent banking between an ecosystem of bank coins, he said.
So, if JPM Coin were to be joined by a hypothetical Barclays Coin, for example, Fnality’s token, known as USC, could operate as a bridge between these.
“As well as existing asset-side DLT projects (e.g. bond issuance and collateral tokenization), we can imagine USC being compatible with and having benefit for something like JPM Coin, where owners of the JPM Coin may want to transfer their holdings to another bank coin,” said Ram. “In other words, we could act like a tokenized correspondent channel.”
While JPMorgan wouldn’t comment for this article, there’s clearly some mutual admiration:
But more crucial to Fnality’s plan is connecting each decentralized market infrastructure (one for each currency jurisdiction) to a corresponding central bank.
Stepping back, trade settlement today requires businesses to hold accounts in multiple locations to handle cash and securities, splintering liquidity and leading to a mess of post-trade pipes and buffers that kick in and delay the settlement of the trade.
Cash held in reserve at a central bank being brought onto a blockchain would cut through the Gordian Knot tying up each jurisdiction, making settlement instant, removing counterparty risk and freeing up capital, Fnality reckons.
Exactly how this will be achieved involves a complex mix of regulatory and technical issues – a process Ram described as “a journey of discovery.”
On the legal side, the new name hints at Fnality’s secret sauce, according to Robert Sams, CEO of Clearmatics, the consortium’s tech partner.
Describing how the system will work, he told CoinDesk:
“Legal settlement finality is happening inside the system’s blockchain rather than across the books of a legacy settlement institution. This might appear to be a subtle distinction, but it’s what turns a cryptographic key pair into cash itself. It’s a foundational distinction.”
USC vs CBDCs
Flying under the radar for most of its four-year existence, Finality has invited speculation about how cross-border tokenized fiat will be collateralized at the central bank level.
Hyder Jaffrey, strategic investment and fintech innovation manager at Swiss bank UBS, one of Finality’s shareholders, pointed to an important difference between so-called central bank digital currency (CBDC) projects and what Fnality does.
Jaffrey told CoinDesk:
“Central bank digital currency is issued by the domestic central bank and hence backed by the central bank itself. The USC is commercial bank money. The design of it allows it to carry some of the characteristics of central bank money. Ultimately, how we are achieving that is through the cash collateral backing the USC sitting at the domestic central bank. It’s a nuance but it’s very important.”
Commercial bank and central bank money have different characteristics: the former carries credit and commercial counterparty risk; the latter carries sovereign risk. Fnality is exploring an uncharted path between the two, Sams said.
“Money is usually in the form of either commercial bank money (the liability of a commercial bank) or central bank money (the liability of a central bank),” he told CoinDesk. But USC “is a tokenized asset that has similar credit risk properties to central bank money, without being a substitute for central bank money.”
Design and roadmap
Clearmatics’ blockchain architecture for Fnality is a private version of ethereum called Autonity. A distributed state transition system, where all participants on the chain keep a continually updated record of the blockchain’s full state, is essential to ensure the system’s resiliency, Sams said.
Such a full-broadcast system has been tested at the central bank level, by the Monetary Authority of Singapore (MAS), and it raised some performance issues.
However, Lee Braine of the CTO office of the investment bank at Barclays, another Finality shareholder, pointed out that volumes in the wholesale interbank space that Fnality is targeting are very different from retail bank payments and as such the performance characteristics would also be very different.
While many market infrastructures tend to centralize parts of their blockchain solutions for the sake of efficiency, the resiliency aspect is at the heart of much central bank research with universities and others, Braine said.
Looking ahead, Fnality’s complex roadmap will see things begin to come to fruition in 2020, the company said. (Aside from UBS and Barclays, its shareholders include Banco Santander, BNY Mellon, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, MUFG Bank, Nasdaq, Sumitomo Mitsui Banking Corporation, and State Street.)
Speaking practically, the first products may be simple payments, said Braine. Then it would move to more complex currency swaps, for example, as in classic foreign exchange, or involving some kind of security, formalized as delivery versus payment (DvP), meaning both sides of the trade are completed simultaneously.
“As you move down that roadmap you get greater value, but it’s also the case that you need to integrate with market infrastructures to get more value,” Braine said, concluding:
“So you can imagine looking across clearinghouses and exchanges, and thinking ahead a few years from now, you see the scenario where more of them are using tokenized assets.”
Examining the Reported Fall in Blockchain and Cryptocurrency Investments in the Year 2019
Examining the Reported Fall in Blockchain and Cryptocurrency Investments in the Year 2019
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The year 2019 witnessed a sharp drop in Blockchain and cryptocurrency investments as suggested by a report. This year’s investment data fell short compared to last year’s as enthusiasm wanes on the part of investors. 2019 may have been an eventful year for bitcoin as it shot into prominence both with investors and multi corporations; however, it lacked the propensity to increase enthusiasm amongst investors to strike a deal. A recent report indicates a sharp drop in private funding including initial coin offerings (ICOs) and venture capitals in the year 2019.
Comparing the last year 2018 investments with this year 2019, only a quarter of last year’s investment has only been recorded this year 2019 on investments through ICO and venture capital.
Blockchain and Cryptocurrency Investments
The eventuality began in December 2018 with a nose-diving crash of cryptocurrency price points, the worst ever to be recorded in the last two years. The year 2018 had started on a very good note with an impressive market cap which went down right as the year ended. Though there was a slight improvement to this, investments still went below the mark. This could be attributed to other currencies not carrying so much weight as bitcoin. So the impact was minimal. Other currencies have failed to arouse the interest of the investors like bitcoin which accounts for a whopping 70% of valuation recorded so far. Years 2017 and 2018 were historic in the record of blockchain and cryptocurrency investments as there was a push up in this regard, however, this could only be attributed to bitcoin’s impressive market cap.
The market, however, took a downturn resulting in the reduction of venture funding of upcoming crypto-based companies. Private funding reduced by close to 50% in the year 2019 as when compared to the year 2018. This may depict that interest may be waning in Blockchain and cryptocurrencies ultimately force dropping the investment as well.
There is however light at the end of the tunnel as all hopes are not lost. Two leading cryptocurrency exchange, Bithumb, and a South Korean exchange have raised three hundred million dollars ($300 million) all together in rounds of funding.
Chinese Blockchain Firm GXChain Raided by Police
Chinese authorities cracked down on a high-profile blockchain company that provides data services to online peer-to-peer (P2P) lenders.
The police in the eastern city of Hangzhou on Wednesday raided and sealed the office of Hangzhou Cunxin Data Technology Co., the operator of blockchain project GXChain. The police told Caixin that further information will be disclosed later.
Phone calls to the company’s founder and Chief Executive Huang Minqiang and another employee by a Caixin reporter wouldn’t go through. Chinese bitcoin tycoon Li Xiaolai, a major investor with a 7.5% stake in the company, declined to comment.
The reason for the crackdown was unknown, but some said they suspected it may be related to the company’s personal credit data business.
“I have no idea why the police took action against GXChain,” said Dovey Wan, founding partner of blockchain-based investment company Primitive Ventures, on Twitter Wednesday. “The trigger might be their data business—they sell processed personal credit data, which is a highly sensitive area now in China.”
Wan also posted a video on Twitter showing GXChain’s office gate being sealed by police and saying “all executives of the company are now with the police for interrogation,” citing a source close to Hangzhou local police.
Founded in 2016, GXChain is a blockchain company that offers data uploading, storage and exchange to enterprises in industries including internet finance.
Among the clients listed on GXChain’s website are Alibaba-backed ZhongAn Technology, online loan search platform Rong360.com and New York-listed P2P lending platform PPDAI Group.
GXChain is known for using data scraping and data crawling to obtain personal credit data from online marketplace Taobao and digital payment platform Alipay. GXChain is one of a few companies that can extract a Zhima Credit score, a private personal credit-scoring program run by Alibaba’s Ant Financial Services Group. Zhima Credit doesn’t share the scores with any third party, and there are some technical difficulties to extract the data, an industry participant told Caixin.
Data crawlers sometimes could cross the line because clients that buy the data are not authorized to use it, the industry participant said.
GXChain CEO Huang once told Caixin that GXChain’s vision is to return the ownership of data to users, and he expressed outrage over the misuse of personal data by the industry.
Even though GXChain is high-profile in the blockchain industry, it was not included in the first batch of 197 blockchain-based information service providers that were granted registration in March by China’s cyberspace information regulator.
Santander Issues $20 Million End-To-End Blockchain Bond on Ethereum
Major Spanish bank Banco Santander has issued what it claims is the first end-to-end blockchain bond.
In a Sept. 12 news release, the bank revealed that it had issued a $20 million bond directly onto the Ethereum (ETH) blockchain, where it will remain until the end of its one-year maturity.
Faster, cheaper and simpler than legacy systems
Santander has claimed that its use of blockchain technology for end-to-end bond issuance represents a first step towards a potential secondary market for mainstream security tokens.
As the news release outlines, Santander issued the $20 million bond — which carries a quarterly coupon of 1,98 — while one of the Santander Group’s units purchased the bond at market price.
Santander Securities Services operated as tokenization agents and custodian of the cryptographic keys used for the issuance, with Santander Corporate and Investment Banking (CIB) acting as a dealer.
The transaction was conducted on the public Ethereum blockchain, with Santander securely tokenizing the bond in a permissioned manner. Both the cash used to complete the investment and the quarterly tokens were tokenized, with the bank noting that the high degree of automation involved dramatically reduced the number of intermediaries required for the process.
Noting that the blockchain bond transaction was faster, more efficient and simpler than legacy systems, Santander CIB says it will now engage with its clients to move the initiative from the project stage through to development.
The blockchain bond initiative continues the work begun by Santander’s blockchain lab in 2016, with additional support from London-based fintech Nivaura — backed by Santander InnoVentures — and legal advice from global law firm Allen & Overy.
Last month, Cointelegraph reported that Santander now plans to expand its implementation of Ripple’s xCurrent payments technology to a number of Latin American countries. The bank had first introduced the technology in Spain, Brazil, Poland and the United Kingdom back in April 2018.
Also last month, the World Bank revealed it had raised an additional ~$33 million for its Kangaroo bond due August 2020 using blockchain technology.
The World Bank likewise claimed a first in stating that the initiative represented the first bond that has been created, allocated, transferred and managed through its life cycle using distributed ledger technology.