This week in crypto policy, the EU prepares for wholesale CBDC, while the European Commission made progress on its ‘Digital Decade’ by establishing a ‘Digital Hub.’ Meanwhile, France’s central bank governor, François Villeroy de Galhau, said tokenized CBDC eligibility details are imminent, and trials for real transactions are planned for 2024.
Switzerland, France, and Singapore executed a test named ‘Project Mariana,’ an initiative exploring cross-border trading and settlement of wholesale CBDCs. Singapore’s central bank is also collaborating on ‘Project Mandala,’ a venture with multiple central banks aiming to simplify cross-border payments.
FTX founder, Sam Bankman-Fried, may be looking at prison time for defrauding billions from investors in what is being called one of the biggest financial frauds in US history. As the trial proceeds in the US, so does caution around crypto. However, countries from Europe to APAC continue to innovate.
The European Commission published its first report on the State of the Digital Decade on 27 September 2023, providing a comprehensive look at progress towards “achieving the digital transformation to empower a more digitally sovereign, resilient, and competitive EU.”
Furthermore, the European Commission’s previously launched Digital Finance Platform – a collaborative space designed to bring innovative financial firms and national supervisors together to support innovation in the EU’s financial system – has recently added a new ‘Data Hub’ to give innovative firms access to synthetic supervisory data for the purpose of testing new solutions and training Artificial Intelligence and Machine Learning models.
While the Digital Finance Platform offers practical tools designed to facilitate the scaling up of innovative financial firms across the EU, the newly launched Data Hub has been created to complement national sandboxes and innovation hubs that typically focus on facilitating the dialogue between regulators and innovators for private and public sector use cases.
The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) also published a call for tender this week, giving a deadline of 10 November 2023 to firms to develop a methodology and sustainability standard for mitigating the environmental impact of crypto-assets. The estimated value of this tender is EUR 800,000
“The increasing demand for crypto-assets and expansion of crypto-mining, including within the EU, could undermine the EU’s efforts to achieve its climate and sustainability goals, in line with the Paris Agreement,” said FISMA. “The action aims at enhancing the EU capacity to assess and mitigate the impact of crypto-mining and develop specific sustainability standards.”
EU Prepares for Wholesale CBDC
European states’ central banks are on the brink of unveiling plans for a wholesale CBDC, aiming to transform the way financial institutions handle securities and forex settlements. “The Eurosystem has started exploring new technologies for the settlement of central bank money, including the issuance of a first type of tokenized CBDC,” said the governor of France’s central bank, François Villeroy de Galhau, speaking in Paris on 3 October 2023.
Indicating a faster progression than the debated plan for a digital euro, Villeroy de Galhau also revealed that tokenized CBDC eligibility criteria would be disclosed in the coming weeks, with real transaction trials expected next year.
Project Mariana and Project Mandala: Latest Cross-Border Initiatives
Meanwhile, the Bank for International Settlements (BIS), alongside the central banks of France, Singapore, and Switzerland, have successfully tested “Project Mariana,” an initiative testing the cross-border trading and settlement of wholesale CBDCs using DeFi mechanisms on a public blockchain.
The project, while purely experimental, underscores the growing interest and exploration of integrating CBDCs and DeFi concepts in the evolving global financial landscape. Commenting on this unique collaboration, Emmanuelle Assouan, Director General for Financial Stability and Operations at Banque de France said, “Mariana is a novel experiment in several aspects: we have developed a practical solution to exchange multi-CBDCs in a global network interoperable with regional platforms on which the CBDC of each jurisdiction is issued; this could be a forerunner for the functioning of cross-border payments in the future.”
It is worth noting that the Swiss central bank also explored the feasibility of encoding policy and regulatory requirements into a common protocol for cross-border use cases. Thomas Moser, Alternate Member of the Governing Board of the Swiss National Bank said, “In a potential future with tokenized assets, safe and efficient pricing and exchange mechanisms for cross-currency transactions remain essential. Project Mariana demonstrates the feasibility of such an infrastructure in an innovative way.”
Meanwhile, Sopnendu Mohanty, Chief FinTech Officer, Monetary Authority of Singapore said, “This collaboration across Singapore, Switzerland, and France has demonstrated the potential of open and interoperable networks.”
Singapore’s central bank has also initiated a collaborative venture called “Project Mandala” with the Reserve Bank of Australia (RBA), the Bank of Korea (BOK), the Central Bank of Malaysia (BNM), along several financial institutions. Project Mandala focuses on streamlining and enhancing cross-border payments while integrating jurisdiction-specific regulatory requirements into a unified protocol.
This project aims to target cross-border activities like foreign direct investment, borrowing, and payments. By automating compliance procedures and enabling real-time transaction monitoring, Project Mandala also aims to mitigate challenges like regulatory disparities, extended transaction times, and stakeholder uncertainties.
UBS Launches Blockchain-based Tokenized Fund in Singapore
UBS Asset Management recently initiated the live pilot of a blockchain-based Variable Capital Company (VCC) fund in Singapore on 2 October 2023. Part of a larger VCC framework, this fund integrates several “real world assets” through blockchain under Project Guardian – a joint venture steered by the MAS. In collaboration with traditional financial institutions and fintech providers, the VCC fund pilot aims to help understand how to improve market liquidity and market access for clients.
“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products,” said Thomas Kaegi, Head of UBS Asset Management, Singapore and Southeast Asia. “Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients.”
The pilot utilizes UBS’s proprietary tokenization service, UBS Tokenize, to launch a tokenized money market fund on the Ethereum public blockchain.
Hong Kong Stock Exchange Introduces Blockchain-Based Settlement System
The Hong Kong Stock Exchange (HKEX) has unveiled a new blockchain-based settlement platform, aimed at traders in Hong Kong purchasing stocks in China. HKEX believes that the system will enhance settlement speed and offer improved transparency. This move aligns with the ongoing global trend of integrating blockchain technology into traditional financial systems to optimize processes and bolster security.
New DeFi Regulatory White Paper
In this update, we’ve mentioned regulators like the Financial Stability Board, IOSCO, and European Commission many times. They are all looking to adopt policy recommendations on decentralized finance (DeFi). To help these regulators, the Crypto Council for Innovation developed solutions, insights and frameworks for regulating this nascent sector.
This week, those recommendations were launched. The “Key Elements of an Effective DeFi Framework” white paper defines DeFi for policymakers and offers a clear understanding of its unique benefits and risks, that also works for the DeFi industry.