Why ICAP believes banks will adopt digital currencies

Crazy Review : Startup Clearmatics launched the "Utility Settlement Coin" project. UBS, Bank of New York Mellon, Deutsche Bank, and Santander jointly participated in the system test, but ICAP, the world's largest brokerage and trader, did not participate. Of course, it is because of the large impact of the project, but the institution also clearly knows the value of the project, but is just cautious. However, the project follows four principles, predicting and deliberately avoiding possible problems from the beginning.

Translation: Annie_Xu

Recently, an outsider among a group of financial institutions announced that it is building a new blockchain and digital currency settlement system.

The project, called "Utility Settlement Coin" (USC), was initiated by the startup Clearmatics, and four global banks UBS, BNY Mellon, Deutsche Bank, and Santander participated in the test. The fifth member of the project alliance, ICAP (the world's largest trader and brokerage company), did not participate in the test for two reasons.

First, the project participants span multiple companies among market infrastructure providers; second, as market infrastructure providers, digital currencies on distributed ledgers may revolutionize their products.

But ICAP hopes to use this unique strategy not to be cautious about being marginalized, but to participate in promoting efficient private distributed network deployment methods.

Michael McFadgen, managing director of Euclid Opportunities, ICAP's internet finance investment arm, said the company has identified the principles and context that the project needs to follow.

“The long-term plan for building a market infrastructure based on a distributed ledger is to have common layers that are widely used by the market. One of these layers is likely to be the Utility Settlement Coin, which will become the basis for other layers.”

The operating system of USC (Utility Settlement Coin) is called the Decentralized Clearing Network by the alliance, which allows central banks to open their own real-time full settlement services and provide more channels for central banks to issue currency.

It is unclear how market infrastructure providers such as ICAP will use the technology, but McFadgen said they are likely to follow four main principles.

Critical Mass

The need for widespread adoption is the first principle, reflecting the difficulty of transforming the underlying infrastructure of a country's financial institutions and convincing market participants to change their mindsets.

McFadgen said:

“If there are ten different token designs, then USC cannot be used. We intend to deploy it carefully to ensure that all stakeholders participate and maximize the acceptance of the entire industry.”

However, even if widespread adoption is achieved, there is still the issue of how these central bank digital currencies can be interoperable.

McFadgen said that at this stage, the alliance is “not looking at interoperability with Ripple,” a distributed ledger network that has received a lot of interest from major banks.

“A lot of people want to implement this kind of structure. We need to operate with such people and ensure coordination between our assets.”

The second is the principle of participation.

Previously, Clearmatics CEO Robert Sams said that many regulators and central banks from the OECD (Organization for Economic Cooperation and Development) have been involved in the project from the early stages.

But McFadgen noted that the project also needs to expand the types of financial institutions to include asset managers, hedge funds, buy-side and “any financial institution that has a connection to the financial markets.”

Infrastructure

The third principle is commercialization, but this term can only give a broad definition of the actual business model that will ultimately be implemented.

Unlike traditional businesses, McFadgen chose to use the same wording as Sams, calling the project a utility that could eventually adopt either business model.

The USC project is still in its infancy, and although Euclid Opportunities is investing, ICAP has not yet made any moves. McFadgen said, "There is no real industry investment at this point."

This suggests that the project remains conservative due to the challenges of widespread adoption.

For example, if the USC is successfully implemented, each central bank will also need to adopt its own version of a token backed by its own currency.

ICAP and blockchain

ICAP members currently involved in the USC project include Jenny Knott, CEO of post-trade risk and information, Charles Ocheret, the newly appointed chief innovation officer, and distributed ledger and blockchain personnel from financial market automation startup Traiana.

The team has been working on blockchain at ICAP since the end of last year.

Much of the ICAP blockchain project is aimed at standardizing post-trade processes into a “Rosetta Stone” that can then be easily integrated with distributed ledgers.

But earlier this year, ICAP also announced that a seven-member team at its startup Traiana had completed an experiment in collaboration with Axoni to convert bank transaction data and process it on a blockchain.

McFadgen said it is not competing with the Clearmatics project, which is working on the pipeline for transactions and cash, while Axoni and ICAP are building smart contracts that determine the nature of transactions.

McFadgen concluded:

“We have discussed various distributed ledgers extensively and will continue to discuss and experiment with them in the future.”