Today New York Community Bank said it had used so-called ‘digital markers’ for blockchain-based payments. It referred to them as USDForward, which are tokenized bank account balances, similar to JPM Coin and Russia’s Sberbank settlement tokens.
It was keen to emphasize that this is not a stablecoin as a USDForward represents one-for-one money sitting in the bank account of the token holder and is used in an environment where all users have been through know your customer (KYC) compliance.
‘Forward’ is about bringing the USD forward by making it available on-chain, and is unrelated to derivatives. The announcement avoided the use of the terms ‘tokens’, tokenized cash and ‘digital currency’ highlighting the need for an accepted term for bank money that is not a stablecoin, such as a settlement token.
Last month it was announced that the Bank has invested in and partnered with Figure Technologies, which operates the Provenance Blockchain. One of Figure’s subsidiaries was recently granted a license as an Alternative Trading System (ATS). A USDForward was used to pay for secondary market transactions relating to Figure’s own stock on the Figure ATS.
“New York Community Bank’s digital marker and Figure ATS together demonstrate the remarkable possibilities for private company stock trading and settlement in real-time without counterparty or settlement risk, and is a harbinger of the significant disruption blockchain is bringing to global exchanges, including public equity markets,” said Mike Cagney, CEO of Figure.
NY Community Bank is part of the JAM FINTOP Bank Network, which has 66 community bank members. It’s now been announced that JAM FINTOP and the Provenance Foundation have set up the USDF Consortium to enable other banks also to create ‘digital markers’ to use bank account money on-chain.
The holy grail for on-chain payments or cash on ledger is to use central bank digital currency (CBDC), but that looks a ways off. Another avenue is to use a consortium of bank money deposited at a central bank. That’s the route that Fnality is taking, backed by numerous global banks. But that’s also not a speedy adoption path with massive regulatory hurdles. Options such as these digital markers and JPM Coin are the fallback, although the digital money is as good as the Bank’s reputation in times of crisis. While stablecoins might be viable for on-chain payments by individuals and SMEs, the lack of KYC is problematic for others.
We had questions about the digital markers but didn’t get a response in time for publication. Is the account segregated to prevent the bank account money from being used offchain? And whether or not tokens are used. Or if avoiding the terminology was to further distance digital markers from stablecoins.
Update: Added clarification regarding the use of ‘forward’ in the name