Blockchain for Banking News

Shinhan Bank, SCB Tech X conduct stablecoin trial on Hedera DLT network

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Today Korea’s Shinhan Bank and Siam Commercial Bank’s SCB Tech X said they completed a proof of concept (PoC) to use stablecoins on the Hedera public DLT. A major Taiwanese financial institution also participated, enabling cross border remittances and real time foreign exchange (FX) in Thai Baht, Korean Won and the New Taiwan dollar.

For Shinhan this is the second Hedera DLT trial, as it previously conducted one in conjunction with South Africa’s Standard Bank. Both of the banks are on the Hedera governing council.

“Stablecoins offer a low-cost, fast, and reliable way to transfer value across borders, which can help to increase financial inclusion and improve access to financial services for individuals and businesses in underserved communities,” said Byunghee Kim, who leads blockchain at Shinhan Bank. “With this next phase of PoC, we are pleased to have demonstrated how the use of Hedera’s EVM-compatible technology helps eliminate intermediaries, reduce costs, and speed up the remittance process.”

The reference to EVM is a nod to Hedera’s smart contract capabilities, which are Ethereum compatible.

To date a significant proportion of stablecoin usage has been for crypto transactions, with a substantial part of the balance for P2P payments. While the average cost of remittances is 6% according to the World Bank, the figure varies significantly worldwide. Jurisdictions such as India, which has high volumes are far cheaper than others, where costs can reach 15% and even 35%.

On low cost networks such as Hedera a transaction can cost a fraction of a cent.

Hedera has created a stablecoin accelerator with plans to open source major components of the software needed to launch a stablecoin.

How interbank stablecoins work

Correspondent banking usually means banks have to keep accounts around the world to send payments. With a stablecoin solution they can use an intermediary currency such as a dollar stablecoin. Hence each bank only needs to provide liquidity between its local currency and the dollar. 

For example, if someone in Korea wants to send money to Thailand, they could use a Shinhan Bank stablecoin. Shinhan might maintain a (private) liquidity pool with the USDC stablecoin enabling the Korean won to be converted to dollars. In turn, if SCB maintains a (private) liquidity pool between USDC and the Thai baht, the USDC stablecoin received can be converted to baht. With each leg of the transaction costing a fraction of a cent, the payment transaction costs are tiny, so the real charge comes down to the FX margin.

Another issue with stablecoins is the scalability of public blockchains and DLT. Hedera with EVM smart contracts can do 300 transactions per second. Many transactions might not need smart contracts. These can use Hedera’s native token service, which can scale up to 10,000 transactions per second. It is also working on a hybird version that uses smart contracts for the issuer managing the stablecoin as opposed to every transaction.

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