It’s fair to say that catching up on the hype cycle is a long, slow process when it comes to turning blockchain promise into blockchain reality, especially for companies in regulated financial markets
But it’s happening, Charley Cooper, chief executive of R3, a developer of digital ledger solutions for regulated industries — mostly financial markets firms like banks, exchanges, clearinghouses and the like — told PYMNTS. Its flagship product, Corda, uses private or “permissioned” distributed ledger (DLT) technology, which is also used to build cryptocurrency-powered blockchains.
Catching up on that hype required a few things, starting with showing customers that R3 could do so by using permissioned networks – meaning all participants must be approved and invited, unlike public blockchains like Ethereum where everyone set up a platform and offer services – could be set to “build business networks that would allow them, as regulated entities, to trade, settle, clear, process, match transactions in a way that satisfies regulatory requirements.”
Among other things, by ensuring that not only all participants are verified, but also undergo all necessary know-your-customer (KYC) and anti-money laundering (AML) checks, he said.
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Trying new technologies is “okay and exciting as long as you do it within the limits of what your regulators are comfortable with,” he added.
The second, Cooper said, convinces them that blockchains and DLTs can handle the volume of transactions required — Corda processes tens of thousands a day, he added.
work together
R3 began in 2015 as a consortium involving most of the world’s largest banks to work together on ways to create a framework for using DLT and blockchain in financial markets. While some left it to pursue other paths, it now has a broader base that also includes insurers like Allianz and Chubb, infrastructure providers and exchanges like Euroclear and Nasdaq, and banks like HSBC, Wells Fargo and Bank of America.
Today’s applications range from Wells Fargo’s digital cash program for interbank transfers to bond trading platforms Agora and Ledger Edge to SIX Swiss Exchange’s digital asset exchange SDX. The Italian Banking Federation’s Spunta Banca, its interbank transaction reconciliation program, is built on Corda.
Because of its roots, interoperability is an important part of R3’s work. Part of that, Cooper said, “is creating interoperability between the different applications that our customers use on Corda itself.”
As an example, he cites Wells Fargo’s need to make internal bank transfers. If you’re “thinking about moving securities within your ecosystem, you need to make sure that just because the applications are different, the underlying system on the platform it’s built on – Corda – can help those platforms work together and transact on.” recognizing a platform is another.”
A second is creating interoperability with blockchains, especially Ethereum. The goal is “to bridge the gap between traditional finance and decentralized finance, or DeFi,” Cooper said.
An important part of this, he added, “is the ability of actors on a permissionless blockchain [such as Ethereum] migrate to a private permissioned blockchain” while ensuring they go through the same AML and KYC process.
The point is that these regulated customers “feel comfortable that the other people on the network are entities with whom they are allowed to do business and comply with regulatory requirements” since the regular, permissionless blockchain’s pseudonymity means you are not secure know who they are.
With Fiat Digital
R3 is also working with a number of governments to see if Corda is a good platform for central bank digital currencies, or CBDCs.
See also: PYMNTS Cryptocurrency Glossary: Central Bank Digital Currency
At this point, Cooper said, most countries are still somewhere between considering the need for a CBDC and how to build one. Aside from China, whose digital yuan is about to launch, and a few small ones like the Bahamas’ sand dollar CBDC, the global central banking community has “tremendous interest” that hasn’t progressed beyond test projects and pilot projects.
With its B2B focus as a company, R3 has realized one thing, he said, is that “there is a massive question [about] the interaction between wholesale, which is B2B transactions, and retail, where average Joes like you and me go to Starbucks and buy our coffee with a central bank digital currency.”
Governments and central bankers “almost always move very slowly,” Cooper noted. “But when they finally get to the party, they make it big.”
An interoperability issue also being considered is how privately issued fiat-pegged stablecoins would interoperate with CBDCs like a digital dollar or digital euro.
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Cooper said he sees European lawmakers much more willing to consider a financial ecosystem where CBDCs and stablecoins coexist than those in Washington, DC, where there are greater concerns that “stablecoin proliferation would actually make it more difficult.” for the [Federal Reserve] to fulfill its monetary policy task.]
Regarding the financial institutions, Cooper said “stablecoin-curious” is a good way to put it.
“I think there is a realization that the world is moving towards alternative forms of tokenized cash and alternative forms of payment in many ways,” he added. “Many of our private sector clients are evaluating what stablecoin options they have, but none of them are going to be deployed extensively until they get more clarity from regulators.”
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