UBS is reportedly looking into creating a “utility settlement coin”, a common token around which an alliance of financial institutions can settle securities trades.
According to Financial News, the cryptocurrency would be “linked to real-world currencies and connected to central bank accounts.”
The blockchain has become one of the hottest areas of exploration for financial institutions, holding promise to streamline the settlement of securities, saving billions in costs, reducing counterparty risk and cutting down settlement times to a matter of minutes.
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UBS was one of the first to disclose its interest, announcing a dedicated research initiative at Canary Wharf-based FinTech accelerator space Level39, bringing together technology experts from the bank and wider FinTech community. In toying with different concepts, the bank shared its testing of a ‘smart-bond’ and is reportedly considering working with Ethereum, the recently launched smart contracts technology.
Indeed, UBS is reportedly collaborating with blockchain technology startup Clearmatics. While not stating its involvement with Ethereum outright, the startup’s chief scientist is Ethereum founder Vitalik Buterin and its platform is said to host a “Turing-complete programming language”- one of the advertised features of Ethereum.
According to its website, Clearmatics is developing “clearing machines” for financial over-the-counter (OTC) markets. It would settle securities trades and automate the execution of derivatives and other financial contracts through what it refers to as its Decentralised Clearing Network (DCN) technology.
The creation of a common settlement environment linked to central bank accounts can remove several of the obstacles that can one day impede the mass adoption of blockchain technology. It has been argued that no matter how much blockchain infrastructure is set in place, its value is underutilized so long as, for example, government bonds are ultimately settled via the Fedwire. Others have further pointed out that multiple independent blockchain systems used by multiple institutions, if not interoperable, would just recreate the existing entanglement of systems used today in more sophisticated terms.