BEHIND THE NUMBERS: the stable in stablecoin

In late 2021 the World Bank estimated there were over 200 million digital currency users globally - and the rate of growth was outpacing internet adoption in a comparable period back in 1997.

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Based on that adoption rate, it was forecast there would be over 1 billion digital asset users by the end of 2023. That will almost certainly prove an underestimate. In Australia today, roughly 20 per cent of the population already hold privately issued crypto currency in digital wallets – so the rate of adoption is accelerating.

“The “bridge” between centralised finance - what’s being called traditional finance or TradFi - and DeFi is shorter than we thought.”

The total value locked on decentralised finance - DeFi - protocols or venues has grown from $US5.6 billion in late 2019 to over $US230 billion in late 2021 and funds are increasingly from sophisticated professional investors.

Moreover, in the state sector, more than 85 per cent of central banks around the world, including our own reserve banks of Australia and New Zealand, are contemplating the creation of central bank digital currencies (CBDCs) - largely in response to the potential destabilising impact of privately created cryptocurrencies operating in unregulated venues.

The “bridge” between centralised finance - what’s now being called traditional finance or TradFi - and DeFi is shorter than we thought. This is clearly a sector of great interest to a bank like ANZ.

But is DeFi a threat to or opportunity for TradFi? It’s certainly a threat to some of the “traditions” of TradFi but actually I think we are seeing growing complementarity between the two realms – to the benefit of both.

Same, same, different

We recognise the fundamental business model of digital asset transactions - they offer marketplaces matching buyers and sellers, lenders and borrowers. The development of the Token Economy is transforming the operating model of financial services and many other industries but in essence these markets are no different to the markets in which we have always, as a bank, operated.

This is the basis of ANZ’s Digital Asset strategy. ANZ is already a digital bank, operating across a range of centralised financial market infrastructures and networks. We have assessed our opportunities and, importantly, listened to and worked with our customers.

An AUD stablecoin was the most logical next step for ANZ. These coins, tethered to real currencies, already make up around half the value on DeFi marketplaces. Our longer term mission is to continue to develop our internal expertise, work closely with our regulators and to develop a range of commercially interesting digital asset solutions with our customers.

Stable coin

We believe the first Australian-bank-issued Australian-dollar stablecoin, A$DC, went live in March and made the first payment through a public, permission-less blockchain transaction, using Fireblocks’ technology.

In a live transaction for ANZ customer Victor Smorgon Group we delivered the stablecoin to Zerocap, a private wealth management firm for digital assets. $A30 million in A$DC was minted as part of the transaction - pegged to the Australian dollar - which was transferred between the two parties and then later redeemed into fiat currency (conventional state-backed currency).

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In minting our first stable coin we have already identified some key elements of success:

  • Speed to market is key. We went from concept to live in three months, allowing us to make some important observations about the differences between TradFi vs DeFi. Unlike TradFi, digital asset service components are already in production, composable and enterprise ready. We didn’t need to build any costly centralised infrastructure or governance or spend $A100 million doing so.
  • There are lower barriers to entry – the availability of “As a Service” smart contract auditing, on-chain compliance and digital asset custody services, means the landscape will remain highly competitive and fast moving, in particular from banks who are becoming increasingly active.
  • We have a right to play – ANZ is a well-regulated institution, with years of experience in risk and market management. We have an open invitation from our regulators to share our learning as we progress and we have a leading institutional franchise with customers keen to experiment and with good problems to solve.

What kind of asset?

Critically, what we are not doing is creating private money. We’re creating a payment instrument. We do expect A$DC to circulate - but backed by bank deposits. Because the A$DC is not money, it is not part of a commercial bank’s power to create private credit, as is the norm in a system of fractionalised reserves.

Equally importantly, because this stablecoin is backed by ANZ – with our AA credit rating and government deposit insurance – it does not face the same risks of a “run” on redemptions which have caused some concerns with more volatile versions of stablecoins.

There are categories of stablecoins, which are either not fully reserve (fiat) backed or rely on algorithmic stabilisation mechanisms, which attempt to maintain a fiat currency peg by controlling supply/demand. A “run” is only of concern if the redemption is uncertain which is not the case with our A$DC.


For a bank issuing this kind of stablecoin, revenue comes from holding client deposits or collateral without paying interest – that is a bank earns interest on the float.

We don't anticipate offering a return on the collateral or the coin and the reason for that is twofold. The business model around issuing digital coins is the collateral be non-interest-bearing - and that's the fee. Effectively, it’s the net interest margin the bank takes for the work involved in issuing, minting and managing those coins.

Moreover, we believe the utility a customer derives from holding the coin is sufficient value in itself as to not require a pure investment income. These coins have been minted for utility rather than investment proceeds. They're used to communicate natively with digital asset exchanges and other smart contracts residing in digitised or tokenised assets.

In theory, A$DC could be programmed to offer a yield – in which case it would become an investment tool. But we have no intention of doing so. This is a purpose-led coin not an investment-led coin.

In choosing this path ANZ is operating where its role is clear. Institutional investors want digital assets and they want to mainstream their crypto operations. We mint and manage an Australia-dollar stablecoin, within our regulated perimeter.


ANZ is also piloting the automation of supply chains in the local alcohol industry, helping a local distillery digitise the payment of excise tax.

We are doing this in partnership with a company called Convergence Tech, along with KPMG, and a government funded project for the distilling industry. Convergence Tech has enabled the distillers to “tokenise” alcohol - a physical asset.

Those smart contracts that represent the alcohol, the physical asset, are able to speak to our smart contract coin. And in the event of the utilisation of that alcohol, the manufacturing process, they can trigger an event that then asks or tells our coin to pay excise tax to the Australian Tax Office.

So that's a very different scenario but one equally interesting in the DeFi space.

A bank

DeFi might be a new world and we may be an old world TradFi institution but critically we don’t see those as mutually exclusive elements. As an approved deposit taking institution – an ADI – we can hold deposits. That’s valuable. And because of the regulatory perimeter in which we operate we can offer a number of other services, including the minting and redeeming part of the coin issuance and management.

In the custody space – which again is a regulated, trust space – we can hold our customers’ private keys on behalf of them. And there are potentially other use cases where, depending on the nature of the assets that are tokenised, there will be a number of financing opportunities.

As a bank we’re comfortable dealing with supply chain automation and digitisation opportunities. There is an emerging concept of digitising assets and then monitoring them through a manufacturing process. Allowing the tokenised assets to speak to a range of different providers, service providers, including a bank, is of great interest.

We have information on the inventory moving through that supply chain. Today we can do traditional financing of that inventory. That could also be digital, using smart contracts and automation - but still requiring financial intermediation.

Central banks

For our regulators, the approach we are taking is rational. We have all the compliance elements we would have for a traditional payment. Once you take off the table things like volatility and unbacked private coins, what you see in the crypto world, that is more comfortable for regulators.

We're not altering the money supply. We're just enabling a transaction to occur in a venue which is new from an operating model point of view but not necessarily very new from a business model point of view.

ANZ’s Digital Asset strategy is not just exciting but essential if the bank is to have an enduring role in a world where DeFi and TradFi merge. It’s a great opportunity.

Nigel Dobson is Banking Services Lead, Institutional at ANZ

editor's picks

24 Mar 2022

A stable platform for the next step

Nigel Dobson | Banking Services Lead, ANZ

Stablecoins, tokenisation and defi are more than just online trends now. They are the basis of real demands from customers. And banks must step up.

11 Apr 2022

Stablecoins: a brave new world

Ryan McCall | CEO and co-founder, Zerocap

Oh brave new world that has such things in it… In the uncertain world of new money, stablecoins offer clarity and a range of productivity and financial benefits.