Yesterday, blockchain startup CANVAS announced the successful execution of its central bank digital currency (CBDC) trial in Australia, using the eAUD to test foreign exchange (FX) transactions.
Tokenized FX settlements hold significant benefits, including round-the-clock trading and instant payments. The test is part of a series of pilots conducted by the Reserve Bank of Australia and the Digital Finance Cooperative Research Center (DFCRC).
Details of the FX transaction
During the trial, the eAUD was exchanged for the USDC stablecoin between DigitalIX and TAF Capital on an Ethereum layer 2 solution. This allowed the transaction to be settled instantaneously without sacrificing privacy, scalability, and regulatory compliance.
According to the team, another crucial aspect of their solution is that participants always maintain control and custody of their assets.
The test also demonstrated the advantages of tokenized settlements compared to traditional FX trading and international remittance networks, including 24/7 trading and atomic (instant) payments. This removes the counterparty risk.
“The eAUD, as a CBDC, holds the potential to address crucial challenges in both FX and International Remittance Markets such as improving transaction times, reducing fees, and providing more open access,” said David Lavecky, CEO at CANVAS.
“We believe that CBDCs, Digital Securities and Tokenized Assets will radically transform finance and markets over the next decade. Our use case demonstrates the benefits of using CBDCs in tokenized FX transactions and how our privacy focused Layer 2 blockchain provides improvements over traditional markets by eliminating market inefficiencies, errors, and settlement risks.”
Australia’s CBDC Pilots
CANVAS’ project is one of 15 selected use cases in the Reserve Bank of Australia’s CBDC pilot. The list includes major names, such as Mastercard, which will explore the use of eAUD on a public blockchain, as well as others like Intuit, ANZ and Commonwealth Bank. It also involves a wide variety of applications, ranging from offline payments and CBDC custodial models to nature-based asset trading and livestock auctions.
A Layer 2 Ethereum solution
The public Ethereum blockchain has benefits, such as decentralization and a large user base. However, transparency can be a disadvantage in payments and the core blockchain lacks scalability.
Hence, the CANVAS Connect blockchain used for the FX transaction is a Layer 2 ZK-Rolllup scalability solution based on Starkware’s StarkEx, which is used by DeFi platforms such as dYdX and the Sorare fantasy sports platform.
CANVAS was keen to emphasize that it is privacy enabled. All that’s stored on the main Ethereum network is a transaction hash like a fingerprint. At the second layer, only the parties to the transaction can see the details by default. However, CANVAS confirmed permissioned access to the data for regulators and the government for AML purposes.
Unsurprisingly the central bank is using a permissioned blockchain for its CBDC issuance. While StarkEx solutions can be permissioned, CANVAS Connect is an open network targeted at financial services and hence is designed to incorporate KYC and AML.