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Northern Trust has started to work with BondEvalue, a debt market firm based in Singapore financial regulatory sandbox and has created a platform called BondbloX, which is a Blockchain-powered exchange designed to trade bonds that have been digitised. In a report released by the International Institute of Finance (IIF), it stated the global debt market will exceed $255 trillion in 2019. It was also claimed that the world debt market has risen by over $7.5 trillion in just the first six months of 2019. Northern Trust, the 10th largest custody agent globally, will provide custody services for BondbloX. BondEvalue is creating Digital Assets backed by high-grade bonds, which will enable retail investors to access to these bonds in a digital format. Usually smaller investors are not able to invest in these types of bonds, given the normally large minimum investments asked for.
JP Morgan has teamed up with Singapore’s Central Bank, the Monetary Authority of Singapore (MAS), to develop a Blockchain-powered cross-border payments solution. This project is part of the fifth phase of a Blockchain initiative, called Project Ubin, which started in 2016 looking at how to integrate Blockchain technology into payments and settlement. Sopnendu Mohanty, chief fintech officer of MAS, seemed to be hinting of what may be coming when he said. “We hope this development will encourage other central banks to conduct similar trials, and we will make the technical specifications publicly accessible to accelerate these efforts. We look forward to linking up with more Blockchain networks to improve cross-border connectivity. This will be a big step forward in making cross-border transactions faster, cheaper, and safer.” Mohanty also said, “There is growing evidence now that Blockchain-based payments networks can enhance cost efficiencies and create new opportunities for business”
Expect to see many more announcements in 2020 of projects and initiatives involving cross-border payments and the digitisation of bonds. Key financial centres, such as Singapore, will not wish to miss out on these developments. The use of Blockchain technology will shake up many of the incumbents, removing the need for many of the current intermediaries.
However, caution is required since there is a growing body of evidence that governments in many countries are suppressing and potentially shutting off the internet, including:
The ability to control and potentially shut down a country’s internet has to raise serious alarm bells if we are going to see further adoption of Blockchain technology. For example, were a country to be using Blockchain technology and therefore reliant on the internet for medical records, financial services, transport and supply chains etc, then it would be, in effect, creating systemic risk for its economy. This vulnerability could be manifested by the government suppressing or, indeed, turning off the world wide web within its borders.
Blockchain technology is often cited as a way to be able to embrace the 1.7billion people in the world who are unbanked, as well as being able to provide provenance and traceability. However, many of these unbanked are citizens of countries which have a track record of manipulating the internet. Also, a significant number of goods that are imported from overseas markets into, typically, Europe and America emanate from several countries which exert undue influence over the unfettered use of the internet.
They have set up a Crypto Rating Council (CRC) and intend to publish ratings on ICOs on a 1 to 5 scale - 1 signifying a ‘Utility token’ has few or no characteristics consistent with a traditional regulated security i.e. Bitcoin A rating of 5, the CRC suggests that the token has many characteristics potentially of a security.
Mary Beth Buchanan, Kraken’s general counsel, was quoted in the WSJ as saying, “It does show the SEC what each exchange is doing to come to a decision.” However, the Crypto Council’s Frequently Asked Questions recent release stated, “The framework is the Council’s attempt to provide a consistent analysis which the members find useful but it is not legal advice and does not reflect the opinion of any member or outside counsel of whether any given asset is a security.”
Interestingly, the CRC has determined that XRP from Ripple (which is trying to compete with SWIFT) and which has always argued that it is a utility token, has been given a rating of 4. So, will this encourage regulators, in particular, the SEC, to look again at Ripple, on the basis that it is indeed a security token, and which potentially may have raised capital and not meet SEC regulations? After all, Ripple has been served a class action alleging that it has sold hundreds of $ millions of tokens without complying with the SEC security regulations.
At least the CRC is attempting to offer guidance and, no doubt, others will look to amend and try and improve on offering different guidance. This has to be welcomed, as opposed to ignoring this issue and waiting for the SEC to knock on their door which is the tact some organisations have currently taken.
Block.one is the creator of EOS, which has issued over $4.1 billion of tokens, making it the largest ICO ever. Being fined $24 million (only 0.0058%) to get an SEC waiver looks like a stunning deal for Block.one, so it is of no surprise that within hours of this announcement EOS’s token price was up by 9%.
“Block.one did not provide ICO investors with the information they were entitled to as participants in a security offering,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement. “The SEC remains committed to bringing enforcement cases when investors are deprived of material information, they need to make informed investment decisions.”
As an aside, Block.one (according to a Bloomberg report in June 2018) was holding most of its current $2.2 billion in US Government bonds and 140,000 Bitcoins.
From this information, if you assume Bitcoin price is $8,200 then Block.one’s holdings are worth $1.19 billion which, added to the $2.2 billion of US bonds, ought to imply that EOS capitalisation ought to be at least $3.35 billion and not $2.9 Billion. No wonder Block.one was reported to be looking to buy back its stock. If Block.one did manage to buy back all the EOS tokens, then presumably Block.one’s ordinary shareholders could turn Block.one into a $450 million ‘cash shell’.
Given this Block.one ruling and the on-going battle that the SEC is having with Kik’s ICO, (a Canadian-based social message company), it is clear evidence that the SEC does indeed have teeth and is looking to pursue those ICOs which have broken US laws. Indeed, the SEC has just fined another company, Nebulous Inc, as it too is claimed to have violated SEC security regulations back in 2014. Interestingly, this shows that the SEC can take years to decide the action it wishes to pursue which is cold comfort for those organisations that carried out ICOs in the past.
It used Smart Contracts with an Ethereum-based version of the Icelandic króna and created by a company called Monerium.
“As the first company authorised to issue e-money on blockchains, we are delighted to demonstrate the benefits of blockchains for mainstream B2B transactions using a legal form of digital money,” said Monerium’s CEO, Sveinn Valfells.
Monerium has an eMoney licence, enabling it to move money around Europe without the need to use banks. By using ‘programmable’ eMoney in conjunction with Smart Contracts, Monerium is looking to reduce the cost of moving money while making payments faster.
Gert Sylvest, co-founder of Tradeshift said, “Smart contracts can create smart invoices which are not just as useful for lowering administrative hurdles in business-to-business (B2B) cross-border transactions, but for building new financing models that make it easier for enterprises to improve access to credit and improve cash flow. That is why we have built the world’s first smart invoice and now settled it with licensed digital cash”.
In effect, a smart invoice can create a token which represents the cash that is due to an invoice. Since whoever holds the token is entitled to receive the money from the invoice, it opens tokens to the world of factoring and credit lending which, by using Smart Contracts, payments could all be automated. A key advantage is because the tokens are held on a Blockchain i.e. there is one immutable database and history of transactions, thus avoiding fraudulent activity by the same invoice being used twice as collateral since the token can only be used once.
So IKEA, by accepting payment using a token on the Ethereum Blockchain, demonstrates how it is possible to bypass the banking system and make the process transferring money more efficient. It is not difficult to see why banks are having to rethink their business models and become more digitally engaged themselves.