Project Guardian: Ant International’s Tokenized Deposits Go Global
Ant's use of blockchain saves $27 a trade and days in transfers.
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A new report sponsored by Ant International and the derivatives body ISDA for Singapore’s Project Guardian shows how tokenized deposits are lowering the cost of cross-border transfers, and Ant’s solution is live and saving clients money right now!
Anyone who thought that Ant’s best days of innovation are behind it is sorely mistaken! Ant is using a Distributed Ledger Technology (DLT) solution and tokenized bank deposits to provide clients with low-cost, instant, transparent transfers.
Trades on the network save up to $27 per trade (excluding FX costs) and 1 to 3 days!
What is more amazing is that Ant is “putting its money where its mouth is” and is providing 24/7/365 foreign exchange markets for its clients’ transactions.
Speaking of clients, Ant has a lot of them and serves 1.3 billion consumers and 2 million merchants in 200 countries.
How Ant does it:
In essence, Ant is buying and selling money to clients at retail rates and receiving wholesale rates when it does the actual conversions.
First Ant connected its tokenized treasury management platform, named “Whale,” to other banks with tokenized deposits. Whale was first used exclusively by Ant for its treasury operations, and is now connected to other token users abroad.
Next, and here’s where the magic comes in, any client making a cross-border trade through Ant’s systems can get an immediate transfer based on Ant’s market rates 24/7/365. Ant fulfills the paying and receiving ends through its accounts.
Now, what makes this work is that Ant provides retail exchange rates at the time of transfer and eventually uses its wholesale connections to ensure funding on the receiving and paying sides of its accounts during market hours.
While Ant may take some foreign exchange risk when markets are closed, it covers this risk by funding the trades with wholesale exchange and low-cost DLT transfers on its network.
Ant claims that only 33% of its total transactions are able to use this system, and I assume that it is dependent on the availability of tokenized deposits in different currencies.
With time, this number will increase as tokenized deposits in various currencies are connected to the system.
Friends, if this isn’t genius, nothing is.
Customers and merchants using Ant’s transfers are getting a better deal, solely because of Ant’s use of DLT and its capacity to work as a marketmaker, most likely focusing on RMB transfers.
But wait, there’s more!
The report focuses on two other systems. One from BNY and OCBC that worked on a specialized “Hash-Time Locked Contract” (HTLC) system that allowed interoperability between permissioned blockchains.
The second is HSBC’s DLT Foreign Exchange system processed some $9.4 trillion foreign exchange transactions with its partner Wells Fargo.
The solution has now been adopted by OSTTRA, a JV between S&P Global and the CME Group, with HSBC and Wells as users of the service. OSTTRA provides end-to-end trade processing and workflow solutions across global derivatives and FX markets.
And for any of you wondering why ISDA is involved, I’m an ex-derivatives guy and was wondering, it's because of their experience with pre- and post-trade reporting using their “Common Domain Model.”
Look, whatever you think of blockchain, these are examples of functioning blockchain systems that are changing our world.
Now, one final thing to consider. Will these banks give up on tokenized deposits for stablecoins? No way, no how! Stablecoin’s future isn’t as secure in banking as many supporters would have you believe.
Kudos to all the participants in Project Guardian!
👉Technical points to consider:
🔹 Standardizing tokenized bank liabilities is extremely complicated. It isn’t just the transfer but the entire back office process, which is why ISDA was required. OSTTRA took over HSBC’s FX system.
🔹 There are two main pain points identified by workstream participants: (i) first implementing tokenised bank liabilities and shared ledger solutions in cross-border payments and FX settlements; and (ii) the lack of a generally accepted industry-wide framework facilitating the adoption of tokenised bank liabilities.
🔹 A real-world application of cross-border payments with tokenised bank liabilities would likely face a scenario where the tokenised bank liabilities are denominated in different currencies and issued on different shared ledger networks by different banks. This raises the question as to how to ensure interoperability of tokens across different shared ledgers.
🔹 Effective liquidity management facilitates domestic and cross-border payment obligations, the optimisation of cash flows, and, in turn, improves financial stability. Liquidity management often involves converting currencies and managing intra-day or short-term funding gaps to avoid disruptions in payments or settlements and the prevention of wider systemic risk.
Ant stepped in to provide this liquidity, which is key in markets! I recently wrote about how markets FAIL without liquidity: HERE
🔹 Problem: Dependency on multiple local RTGS clearing bound by cut-off times. FX markets are only open five and a half days a week. The payment of these transactions is affected by time differences and payment systems’ operating hours. Meanwhile, shared ledger and tokenised bank liabilities-based solutions offer 24/7 operations.
🔹 Fragmented settlement layers: Operational friction arises from distinct settlement layers, each managed by different parties with independent workflows. Implementing a shared ledger can simplify this by integrating settlement into a single process and technology layer, reducing intermediary reliance, and enhancing transaction visibility.
🔹 Cost of cross-border payment: In cross-border payments, a common settlement asset or common settlement platform does not exist. The use of multiple intermediaries in traditional cross-border payment adds to transaction costs, notably for retail payments, despite G20 efforts to reduce them. The lack of a common settlement asset requires banks to either extend credit to each other or to pre-fund potential cross-border payment needs. The funds locked in these pre-funding accounts represent opportunity costs, which may ultimately be passed on in the form of fees.
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