De-fi the metaverse

It’s not just about payments. Digital currencies have an important role to play in the future of transactions, particularly at an institutional level, according to Jackie Kallman, Head of Payments Industry at ANZ Institutional.

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But the opportunity is much broader than that – it’s a peek at the future of the world’s financial infrastructure.

"People look at the metaverse today and think ‘oh, that's just that thing people talk about - no one knows what it is’. But there are real transactions occurring there already.” – Nigel Dobson

“We're talking about tokenisation,” she told On Air with ANZ Institutional. “The payments [element] is sort of secondary. One thing you do with it. We have to look at the whole spectrum.”

This means digital assets as payment tool – including stablecoins, such as ANZ’s market-first A$DC – are unlikely to push existing methods entirely out of the market, Kallman says. At least for now.

“I think it is absolutely an ‘and’ not a ‘or’ [payment mechanism],” she said. “In my view, it's inevitable stablecoins and digital coins will exist alongside our payment systems today.”

Speaking with Kallman on the podcast, ANZ’s Banking Services Lead Nigel Dobson said the bank saw promise in “tokenisation for our customers … significantly around the institutional customer base.

“The emergence of tokenisation of assets is really what's drawing us towards this.”

The experts were speaking as part of a series of podcasts in the lead up to the Sibos financial services event in October. You can listen to the conversation below.

The Metaverse

Dobson agrees stablecoins can coexist at an institutional level with other payments – and sees significant, specific opportunities where digital assets can play an important role.

“Where [coins like] our A$DC are going to play most notably is in venues where digital assets are the native form of transaction,” he says.

Settling a digital asset transaction through existing systems is “time consuming, expensive, uncertain [and] precisely why the major stablecoins of the world exist today – to avoid that,” Dobson says.

One key area outside the box Dobson expects stablecoin transactions will occur includes the metaverse.

“People look the metaverse today [and think] ‘oh, that's just that thing people talk about - no one knows what it is’,” he says. “But there are real transactions occurring there already.

"ANZ Worldline recently announced they are opening up and working with a customer of theirs… in the metaverse

The more these virtual worlds develop “the more there will be a demand for a native coin, or a native means of settlement, that enables transactions to occur in the virtual world”.

Another key area in the future will be tokenised bonds and equities, according to Dobson. ANZ is already talking to a number of exchanges about the practice.

“That would allow us to settle in… almost real time,” Dobson said. “Is that better? Is it faster? Yes, it is. You need the will of the community to move forward though on that.”

All cleared

As demand for tokenisation grows, an increasing number of regulatory bodies are looking into the role they can play. As more central banks look to central bank digital currencies (CBDCs), the implications for payments are vast, according to Kallman.

“I think one of the real values of a tokenised currency is that it removes that clunky clearing settlement reconciliation,” she says. “Transactions, from a payment perspective, are cleared, settled and reconciled in real time. That's a really exciting thing.”

Still, private stablecoins offer that same benefit and many of the other benefits are clearer in offshore markets.

“I think a lot of the previously highlighted use cases for CBDCs don't necessarily apply in Australia,” Kallman says. “They're not major problems here. We have a largely banked population [and] we have a really strong real time payment system.”

Whatever the method, Dobson agrees the settlement impact of digital currency is transformational – including the always-on element.

“Synchronised clearing and settlement is profound,” he says. “We’ve got 24/7 domestic markets here [in Australia] right through the New Payments Program but we don't have a 24/7 global market for payments yet.”

This “obvious step forward” allows not just for digital currencies but other forms digital assets, Dobson said – all with so-called atomic settlement.

“The point of the atomic settlement is it can occur and synchronise clearing and settlement effectively,” he says. “It can then reduce, if not eliminate, counterparty risk. And your transactions are locked and secured and settled in real time. Why wouldn’t you want to do that?”

Sibos Financial Services Conference:

After two years in the digital wilderness due to the COVID-19 pandemic, the best minds in the financial services industry will meet in person again – this time in Amsterdam.

From October 10 to 13, the Sibos Financial Services Conference will provide a platform for industry participants to delve into the trends which will shape the sector into 2023 and beyond.

ANZ Institutional Insights will provide market-leading insights in the lead up to the event. These thought-leading conversations from ANZ’s industry experts will offer a sneak peek at the ideas set to dominate the conference – and the future of the industry.

You can find out more on our dedicated Sibos page.

Kallman expects investment to continue to flow into traditional methods of digital payments, even as the same businesses innovate with tokenisation.

“I do think a balanced approach that continues to develop and invest in existing payment systems alongside stablecoin is appropriate,” she says. “At least until stablecoins become widely adopted.”

Risk vs opportunity

Regulation is critical here, according to Kallman, to balance the risk with the opportunity.

“If you have strong regulation, you have that safety rail for all kinds of innovation,” she says. “And it helps to do new things without creating the systemic risks we are all worried about. The right regulation actually supports and drives innovation.”

Kallman said regulators in Australia have so far been up to the task. “We've had really productive conversations with our regulators. We're really lucky to have that.”

ANZ continued to attract high levels of interest around its A$DC stablecoin, Dobson says. The bank designed the coin in recognition “not that payments need to be improved but that digital assets need to exchange and trade in an efficient way”.

“We created our coin to allow the settlement and change of ownership of digital assets in the future,” he says. “With a thesis that many of our customers would choose to tokenise a large portion of their supply chain, their assets, their digital and non-digital assets for their customers. And in fact, probably breed new business models.”

That demand is expected to grow, as more deals are successfully completed, and the percentage of total crypto transactions made using stablecoin rises rapidly. According to Dobson, the use cases are already becoming clear to many.

“Our customers are saying, ‘that's great, we can use that in our digital asset exchanges, we can use the tokenization benefits associated with this to digitise some of the assets, both physical and digital, that we have in our supply chains and our production lines’.”

“And that opens up a whole range of possibilities.”

Dobson and Kallman also spoke about the implications of the transparency around digital assets, how they expect the regulatory environment to develop, and the upcoming Sibos conference.

This article was originally published in ANZ’s Institutional Insights page.


Shane White is an editor with ANZ Institutional Insights.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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