NAB To Boost Digital Economy By Creation Of A Stablecoin
Mitchell Nixon
NAB Launches AUDN Stablecoin
The National Australia Bank (NAB) has developed a stablecoin, the AUDN, which will seek to allow its business customers to conduct real-time transactions using Australian dollars through blockchain technology.
This follows the creation of a similar stablecoin by ANZ, known as A$DC, that was created nine months ago to buy ‘tokenised’ carbon credit units.
I did an article on that here that you can read.
The move highlights the role of banks in driving innovation in the digital economy developing in Australia. The stablecoin, which is fully backed by Australian dollars held in trust at the bank, will be launched on the Ethereum (ETH) network in the middle of the year for various transactions, such as trading carbon credits (see ANZ reference above) and sending money overseas with minimal fees. The big four banks had attempted to create an industry-wide stablecoin for the Australian dollar last year, but per the Australian Financial Review, the effort failed due to competition concerns and varying cryptocurrency strategies among the banks.
NAB and ANZ are collaborating with regulatory bodies as guidelines for stablecoins are being established. Philip Lowe, the Governor of the Reserve Bank of Australia (RBA), recently asserted that regulating stablecoins should be a top priority and they should be held to the same standards as bank deposits.
“We certainly believe there are elements of blockchain technology that will form part of the future of finance,” said NAB chief innovation officer, Howard Silby.
“That continues to be the source of some debate. But certainly, from our point of view, we see [blockchain] has the potential to deliver instantaneous, transparent, inclusive, financial outcomes.”
Stablecoins, which link their value to a real currency, have the potential to reduce the volatility present in many cryptocurrencies. They are a crucial component for realising the efficiency benefits of blockchain technology, particularly in regards to settlement processes. By allowing for the simultaneous payment and transfer of digital assets, stablecoins eliminate the need for the one- to two-day delay currently experienced.
One area where stablecoins can be particularly beneficial is in carbon trading. They enable “on chain” payments and transfers to occur at the same time carbon credits are exchanged, resulting in increased trading efficiency and reduced settlement risk.
Additionally, banks are interested in offering stablecoins as a way for investors to purchase “tokenised” real-world assets, which is an emerging trend in the financial markets. This would allow for instant settlement when digital assets are sold, bypassing the volatility of other cryptocurrencies and the risk associated with transferring funds in and out of cryptocurrency exchanges. Stablecoins can also be used to develop Web3 applications.
Despite a difficult 2022 for the cryptocurrency market, including the collapse of the FTX centralised cryptocurrency exchange and the arrest of its founder, Sam Bankman-Fried, banks continue to explore ways to utilise blockchain technology to improve financial market infrastructure. This follows the failure of the ASX to deploy blockchain to replace the CHESS system for settling the equity market, as well as the collapse of a different type of stablecoin, Terra Luna, last year, which was backed by other cryptocurrencies rather than a national currency.
According to Mr. Silby, NAB’s stablecoins can be utilised in various ways, including repurchase agreements, a type of short-term financing in the bond market, and for “green deposits,” which connect customer savings to environmentally friendly loans.
How NAB’s AUDN Stablecoin Works
The primary focus is to use the AUDN as a settlement token, as NAB aims to shift from T+2 to T0 settlement in some markets. Stablecoins enable “atomic settlement,” allowing multiple, interconnected transactions between various parties to be settled simultaneously. Very handy.
This move by the Australian major banks to create new forms of digital currency also represents a competitive response to technology companies, as banks aim to leverage their trusted and regulated status in the economy.
Although Facebook’s plans to launch a stablecoin called Libra have fallen through, global regulators still have concerns about the role of technology companies in providing digital money. In the US, the largest stablecoin, Circle, known as USDC, is provided by a non-banking technology company.
DigitalX, a digital asset specialist listed on the ASX, has pledged to use the AUDN once it is made available to NAB customers.
It will use the NAB stablecoin to prove its reserves in its digital asset funds and to create real-time atomic settlement for Australian equities in partnership with Automic Group, a share registry.
“What we learnt from Luna last year is the look through of the back book of the stablecoin is the most important thing: if it is not constructed properly, there is counterparty risk,” said DigitalX CEO Lisa Wade, a former NAB executive.
“Stablecoins are the link in the chain for essential financial market infrastructure and, absolutely, banks have the regulatory advantage – I can trust my deposit.”
NAB and ANZ are not the only Australian companies developing stablecoins pegged to the Australian dollar.
Novatti, an ASX-listed payments firm that recently received a restricted banking licence from the Australian Prudential Regulation Authority, has created its own stablecoin called the AUDD.
Additionally, a non-bank called Ettle has launched the cash-backed stablecoin, the AUDE, to both retail and institutional markets.
The government is currently examining the possibility of implementing a crypto regulation regime, but it is currently uncertain if stablecoin regulation will be included in the initial legislation. Stablecoin regulation has been proposed in a private member’s bill by Liberal senator Andrew Bragg in September.
NAB plans to use its AUDN stablecoin for various purposes, including carbon markets, repos, and providing lower cost international fund transfers. The technology behind it may also help the bank avoid the SWIFT network and reduce its dependence on complex and costly correspondent bank relationships when money is sent abroad.
“We see a digital cash component as essential,” Mr Silby said. “We can see obvious benefits for the cash leg of settlement of carbon credits on a blockchain, and we also plan to use it for cross border remittance.
“We are planning to offer stablecoins in multiple currencies in jurisdictions where NAB has licences.”
National Australia Bank (NAB) is currently undergoing internal testing of its stablecoin, the AUDN, and it will not be available to customers for at least three months. The testing includes moving money between subsidiaries and branches, and it is being overseen by banking regulators.
Other banks such as JPMorgan and Wells Fargo have also created stablecoins for internal efficiencies, such as netting of transactions between subsidiaries.
NAB’s Vision for Stablecoin Regulation
NAB’s approach to cryptocurrency differs from the Commonwealth Bank of Australia (CBA), which is trying to provide retail access to speculative crypto coins through its banking app, but is being blocked by the Australian Securities and Investments Commission.
It is believed that bank-created stablecoins could potentially compete with central bank digital currencies, but market participants expect that they will be used in parallel for different purposes.
The Reserve Bank of Australia is currently exploring use cases for CBDC with the Digital Finance Co-operative Research Centre, and NAB and other major banks have submitted use cases to the RBA. The successful pilots will be chosen in the first half of the year.
NAB views its stablecoin as similar to a “tokenised” deposit, it was minted on Ethereum blockchain in December and has also been “burned” to remove it from circulation. The AUDN is not meant to float in crypto markets but for specific use cases.
According to Mr. Silby, the conversations with regulators regarding the AUDN stablecoin have been positive and productive. The government has proposed regulating crypto custodians as part of its regulatory reforms, and Mr. Silby stated that NAB is interested in playing a role in the safe storage of digital assets for institutional and high net-worth customers, and may become licensed under any new regulations.
Another Australian stablecoin, Novatti’s AUDD, went live in November on the Stellar blockchain and is partnering with Ripple, a US-based digital currency company, to launch the AUDD on its XRP Ledger.
Fintech Ettle created the AUDE stablecoin in partnership with Meadow Labs, which will be offered to both retail and institutional investors on Ethereum and the Algorand blockchain.
Other Australian dollar stablecoins include the Australian Dollar Token (AUDT) and XAUD, in which DigitalX has an equity stake.
Earlier stablecoin products such as AUDRamp, which went live in September 2018, and TrueAUD, which was launched in April 2019, have minimal volumes.
“We certainly believe well regulated entities are going to have a massive role here ensuring there is trust in any financial system that uses digital assets and currencies on a blockchain,” Mr Silby said.
“We have a strong regulatory framework for banking. How digital assets will be treated is still emerging. But what is clear is it is less about the tech and more about whether companies in the space have governance practices, separation of duties, and understand differences in custody and trading. These are things banks are well experienced at.”
Conclusion
The NAB’s introduction of the AUDN stablecoin marks a pivotal moment in Australia’s embrace of blockchain technology and digital financial innovation. Stablecoins like AUDN demonstrate how blockchain can create more efficient, transparent, and secure financial systems. But as the potential of blockchain expands—whether through Bitcoin mining, DeFi, or stablecoin innovation—success in the crypto market depends on deep understanding and informed strategies.
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