- 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.”
Walmart China to Track Food Products in Supply Chain Through VeChain’s Blockchain Technology
There are few global corporations which recognized the potential of blockchain technology early on. Walmart is also among them, so no surprise that today it’s ahead of everyone else in the blockchain game. While others are contemplating where and how can they use blockchain to improve things, Walmart has started applying the technology to areas where it matters. The latest example of this came from China, where Walmart is going to utilize the VeChain Thor blockchain technology for tracking food in its supply chain.
An announcement in this regard was done yesterday by VeChain Foundation. The Foundation said in a press release that Walmart China is setting up a new Blockchain Traceability Platform in partnership with VeChain, PricewaterhouseCoopers (PwC), cattle company Inner Mongolia Kerchin and China Chain-Store & Franchise Association (CCFA). The platform has already been announced by Walmart too at a seminar jointly organized with CCFA in Beijing. Walmart China has already released information about 23 product lines it plans to track on the new platform, and in the coming days company also plans to release 100 more. Once released, all these product lines will cover the tracking of more than 10 categories on a blockchain platform for the supply chain of Walmart China. The company said:
“It is expected that the Walmart China’s traceability system will see traceable fresh meat account for 50% of the total sales of packaged fresh meat, traceable vegetables will account for 40% of the total sales of packaged vegetables, traceable seafood will account for 12.5% of the total sales of seafood by the end of 2020.”
The announcement is a big development for VeChain too, which is one of the 197 companies formally authorized as a registered blockchain service provider by China’s cyberspace administration. Here’s what Mr. Kevin Feng, Chief Operating Officer of VeChain, said regarding the partnership with Walmart China:
“As the world-leading enterprise-public blockchain platform, VeChain aims to empower enterprises in the large-scale digitization process by providing safe and mature blockchain deployment solutions and promote the wide application of blockchain technology. We achieve this while putting forward new insights for the development of the businesses’ ecosystems. The launch of the Blockchain Traceability Platform by Walmart China, the world-class retail giant, is of great significance to the commercial application of blockchain technology. VeChain will work with Walmart China to actively take heed of the call of the government, by utilizing technology to promote the traceability of fresh food, and to provide innovative solutions for the traceability platform through digital technology, so as to generate more transparent and reassuring consumption experience.”
Blockchain can serve as a highly useful resource for Indian e-commerce companies and retailers too. Let’s see when they realize its importance!
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Law as an Enabler for Blockchain Adoption in India
Officially endorsed by the Maharashtra Government, Trescon’s 11th edition of World Blockchain Summit assembled India’s key policymakers, government authorities, blockchain experts, enterprises, IT giants and startups to pave the way for India to be the next blockchain epicentre of the world. Vivekdeep Gupta, N.S. Nappinai, Sharat Chandra and Dr. N. Rajendran were some of the top speakers who keynoted the summit.
In a bid to bolster an enterprise-grade blockchain adoption roadmap for businesses and governments in India, the internationally-acclaimed global tech event series World Blockchain Summit, with the support of the Maharashtra Government, gathered over 300 senior professionals from enterprises and government agencies and global blockchain experts to share their deep experience and understanding of how the nation can benefit from the revolutionary technology, at Taj Santacruz, Mumbai on 20 June 2019.
When talking about the regulatory environment of blockchain in India, N.S. Nappinai, Advocate & Cyber Law Expert, Nappinai & Co., Advocates, had quoted in her keynote speech:
“For any innovation, you need to come to a tipping point where it has grown exponentially and organically. However, for it to grow further, one of the differentiators could be law as an enabler.”
Dilip Krishnaswamy, Vice President, Reliance Jio Infocomm; Dr. N Rajendran, CTO of National Payments Corporation of India; Vivekdeep Gupta, Country head, R3; Dr. Paritosh Basu, Senior Professor, The NMIMS University School of Business Management; Sharat Chandra, President of Government Blockchain Association, India Chapter and Jaideep Reddy, Leader, Nishit Desai Associates among others, addressed the summit on key areas such as the ‘legal and regulatory landscape of blockchain in India’, ‘adoption challenges of blockchain for enterprises and its impact on the BFSI Sector and real-world industry use cases of Blockchain that can transform governance and Indian industry verticals.
Among the several exhibitors at the summit, Refine Medium, a blockchain-based media platform had quoted.
“We decided to attend World Blockchain Summit to hear industry leaders share their views about the blockchain space. There is a significant advantage that can be gained from using platforms such as World Blockchain Summit for outreach. The summit has enabled us to get access to our immediate market which are active people in the blockchain space.”
The summit also partnered with top regional and international investors that included Artha Venture Fund, Chance River (USA), Anthill Ventures, Unicorn India Ventures, Kalaari Capital and Nexus Venture Partners, to name a few.
LetsEndorse – A digital collaborative ecosystem that engages in co-creating problem-solving, holistic and high-impact social projects, triumphed the Startup Grand Slam Pitch Competition, a fund-raising platform where companies get to pitch in front of global investors including VCs, angel investors, and key government authorities, to launch or expand their businesses.
Other sponsors and exhibitors of the summit included: Kanerika, Osiz Technologies Private Limited, Refine Medium, Alo Agri Tech Pvt. Ltd, LetsEndorse and TrustWorks.
About World Blockchain Summit
World Blockchain Summit is a global series that takes place in 10+ destinations across the world. The summit connects global blockchain gurus and technology players in this space including emerging startups – with regional businesses, government authorities, IT leaders, tech entrepreneurs, investors and blockchain developers – all under one roof.
Trescon is a global business events and consulting firm specialized in producing highly focused B2B events that connect businesses with opportunities through conferences, road shows, expos, investor connect and consulting services.
For further details about the announcement, please contact: Rahul Harindra
PR and Media Relations Executive and write to him at or get in touch with them on +91 080 4611 3911. `