The bank has spent years developing Progmat, a blockchain infrastructure for digital securities. However, a key requirement is to enable settlement which will be done through stablecoins. Hence MUFG developed Progmat Coin as an infrastructure to support stablecoins from multiple regulated issuers. Given that stablecoins and other digital assets could exist on different blockchains, there’s a need for cross-chain settlement to go into production.
Tatsuya Saito, a VP at MUFG and future CEO of Progmat, noted the need for the solution “for blockchain interoperability when handling Real World Assets (RWA) such as security tokens, stablecoins, and utility tokens (NFT) across multiple chains. We aim to lead the trend of tokenizing RWA globally and collaborate with Datachain to create initiatives that represent this movement, including the commercialization of cross-chain settlements for digital securities using stablecoins, which is planned for 2024.”
The trial delivery versus payment (DvP) transactions used a stablecoin issued on the Progmat Coin infrastructure based on R3’s Corda enterprise blockchain, which paid for a security on a GoQuorum permissioned blockchain. DataChain was the technology provider for the interoperability element. It used IBC, the cross chain protocol originally developed for the Cosmos public blockchain with additional modules which DataChain has open-sourced.
Three key requirements were addressed by the solution:
- avoid the requirement for a trusted third party for interoperability
- the ability to settle different types of transactions such as securities and NFTs
- sidestep the need for another network to perform the interoperability.
Apart from the Corda and Ethereum-based GoQuorum interoperability, trials are also planned for Hyperledger Iroha, originally developed by tech firm Soramitsu. The Japanese startup developed Cambodia’s Bakong payment project and several local Japanese currencies, which is why interoperability is needed with its technology. However, trials for exchanging stablecoins for local currencies will involve payment versus payment (PvP) transactions as opposed to DvP.
Later this year, Progmat is morphing into a joint venture involving other major banks and exchanges, including Mizuho, SMBC, JPX and SBI. By the end of 2022, Yen 40 billion ($300 million) in digital securities had been issued on the Progmat network.
Meanwhile, Japan’s stablecoin regulations come into force in June. This restricts the issuance of stablecoins to banks, trust banks and some fund transfer companies. Unlike other countries where the backing assets are often government bonds, in Japan, they tend to be commercial bank deposits. Deposit insurance is also available for commercial bank-issued tokens based on bank deposits.