14 banks, 5 kinds of certificates: Fnality creates a missing link in the inter-bank blockchain system

The UK project, called Utility Settlement Coin (USC), is developing a blockchain version of the five major French dollars, the US dollar, the Canadian dollar, the British pound, the Japanese yen and the euro. The team, led by former Deutsche Bank executive Rhomaios Ram, has ample budget and has just raised nearly $63.2 million through 14 shareholder banks.

In a recent interview with CoinDesk, Ram and other bank and technology executives involved in the Fnality project unveiled more details about the project that has been kept secret.

Bank-card-charge-card-credit-card-163005 (Source: pexel )

We all know that the purpose of Bitcoin is to subvert the traditional way of paying for French currency. So what is the significance of building a legal currency payment channel on the blockchain? In Ram's opinion, this is just a means they use to achieve their goals.

Ram said that there are now many private-chain projects trying to certify the entire wholesale commercial market (the so-called wholesale commercial market is a commercial market that targets resellers, industry and business users selling goods and services), although these projects are already in place. The proof of concept phase of the project, or has already begun to be put into use, but all of the above projects did not involve the use of legal currency on the ledger.

The rapid transfer of stocks or bonds on a distributed electronic network through blockchain technology has brought a lot of convenience to people, but if the cash portion of the transaction is still carried out in an old-fashioned way, it still takes several days. The time to settle, then this is largely contrary to the purpose of the transaction.

Therefore, USC is working to solve the "cash on ledger" problem that many insiders call. For Ram, the successful financing disclosed by the project side last week is the verification of this idea. He told CoinDesk:

Now we have a group of determined investors who believe we have found the answer to the cash flow problem. This is an important symbol to promote the certification of the wholesale commercial market.

Connect to JPM Coin?

To be sure, the big bank JPMorgan Chase (not a shareholder of Fnality) has a similar idea for its cryptocurrency JPM Coin.

Christine Moy, executive director and head of the Blockchain Center of Excellence at JPMorgan Chase, said at the 19-year consensus meeting last month:

We really believe that this cash pass is the basis for supporting other enterprise blockchain applications. We spent four years researching the corporate blockchain; there are many different use cases from supply chain finance to financial markets, but they all involve the payment process.

But JPMorgan Chase is a big bank, but it is just a bank.

Ram said that he and his team "determined that in the future, there will be many banks that can create cryptocurrencies that belong to their own ecosystems." He continues to say that although this is not the primary goal of Fnality, there is still a need for a business similar to a correspondent bank between several ecosystems of different banks' cryptocurrencies.

Therefore, if JPMCoin wants to interact with a bank's cryptocurrency, then Fnality's Pass USC can serve as a bridge between them.

Ram said:

In addition to existing asset-side distributed ledger projects (such as bond issuance and mortgage pass-through), we can imagine that USC is compatible with and benefits from products like JPM Coin, and owners of JPM Coin may wish to transfer their assets to another On a bank's cryptocurrency. In other words, we are a bit like a pass-through communication channel.

Although JPMorgan Chase is not willing to comment on this article, it is clear that both parties appreciate each other's work:

Screen Shot 2019-06-14 at 7.41.13 PM (Source: Twitter )

Secret weapon

For Fnality's plan, it is more important to connect each decentralized market infrastructure (each monetary jurisdiction) with its corresponding central bank.

Today, trade settlement requires companies to open accounts in multiple locations to handle cash and securities operations, but doing so would undermine cash liquidity and would also delay the settlement of transactions.

Fnality believes that depositing central bank reserves of cash into the blockchain will break the inherently difficult problems between different jurisdictions, making settlements faster, while eliminating counterparty risk and releasing capital.

Of course, achieving this goal will inevitably involve a range of regulatory and technical issues that Ram calls "the journey of discovery."

Robert Sams, CEO of Fnality's technology partner, Clearmatics, describes how the system will work:

The settlement will eventually take place inside the blockchain system, not on the ledger's ledger. This may seem like a subtle difference, but each cash has its corresponding encryption key, which is an essential difference.


Fnality has hardly caught people's attention in the four years since its establishment, but it has finally led to hopes on how to solve the problem of cross-border certification of legal currency at the central bank level.

Hyder Jaffrey, one of Finality's shareholders and a strategic investment and financial technology innovation manager at UBS, pointed out an important difference between the so-called central bank digital currency (CBDC) and Fnality's projects.

Jaffrey told CoinDesk:

The central bank's digital currency is issued by the central bank, so it will be endorsed by the central bank. The USC comes from a commercial bank and its design allows it to have some characteristics of the central bank's currency. We ultimately hope to achieve this through USC's cash collateral at the domestic central bank. This is a subtle difference, but it is very important.

We know that commercial banks and central banks have different characteristics: the former needs to bear credit risk and commercial counterparty risk; while the latter has certain sovereign risks. Sams said that Fnality is exploring an unknown path between the two.

He told CoinDesk:

Currency usually exists in the form of commercial bank currency (commercial bank debt) or central bank currency (central bank debt), but USC is a generalized asset that has a similar credit risk attribute to the central bank currency, so it is not a substitute for central bank currency. Product.

USC design and roadmap

Fnality's blockchain architecture is a proprietary version of Ethereum called Autonity. According to Sams, distributed state transition systems are critical to ensuring system resiliency, so all participants in the system chain need to constantly update the complete state record of the blockchain.

Although the Singapore Monetary Authority (MAS) has tested this full-broadcast system at the central bank level and found some performance issues with such systems. However, Lee Braine, another shareholder of Finality and the chief technology officer's office at Barclays Investment Bank, points out that the size of the interbank wholesale commercial market that Fnality is targeting is very different from that of retail banking, so its performance characteristics are quite different.

Braine said that while many market infrastructures tend to centralize some of their blockchain solutions in order to increase efficiency, much of the research done by central banks and universities is centered on resiliency.

Fnality's roadmap will begin to be implemented gradually in 2020. (In addition to UBS and Barclays, its shareholders include National Bank of Spain, Bank of New York Mellon, CIBC, Commerzbank, Credit Suisse, Holland International Group, KBC Group, Lloyd Bank Group, MUFG Bank, NASDAQ , Sumitomo Mitsui Bank and State Street Bank.

Braine said that Fnality's first product may involve convenient payments. Subsequently, it will move to more complex currency swaps, such as classic forex trading, or a certain type of securities in the form of payment delivery (DvP), which means the synchronicity of both sides of the transaction.

Braine concluded at the end:

We will inevitably gain more value as we move forward. Of course, this includes the value gained through integration with market infrastructure. Imagine that in the future, looking at the entire clearing house and exchanges, there will be more clearing houses using certified assets.