Gu Yanxi: Looking at the USD Stablecoin from the Swiss Digital Asset Exchange
The Swiss Digital Asset Exchange (SDX) is actually an exchange established by the Swiss banking industry to trade new digital assets. The US dollar stable currency is based on the US dollar and is generated in a 1:1 manner. The two appear to be unrelated. But in fact, the two are two different development paths in the development of the same trend.
The Swiss Digital Asset Exchange SDX is a wholly owned subsidiary of the Swiss Stock Exchange (SIX). It was established in 2018. Its goal is to provide digital asset transactions. SDX adopts Corda as its underlying technology, and on this basis, it provides the full life cycle services of digital assets, that is, the generation, circulation, storage, transaction and settlement services of digital assets. In this transaction business, digital tokens will be used for transactions. This token is generated 1:1 based on the Swiss franc. SDX trading members need to convert Swiss francs into this token, and then use this token to trade on SDX.
SDX's parent company, SIX Group, is jointly controlled by 122 financial institutions. SIX Group is actually a financial infrastructure service provider for the Swiss financial industry. Six of the seven financial market infrastructure licenses issued by Swiss financial regulators were issued to SIX Group. So SIX Group not only provides securities trading services, but also provides infrastructure services for the Swiss financial market. The creation and business goals of SDX can therefore also be considered as a collective choice of the Swiss financial industry. More recently, the SNB partnered with the BIS’ Innovation Center to test its CBDC on top of SDX’s infrastructure.
In the U.S. market, there are already some several-dollar stablecoins circulating in the market. Recently, U.S. financial regulation has expressed its stance on stablecoin policy. It encourages the market to offer USD stablecoins in innovative ways. Therefore, it is expected that starting from 2021, USD stablecoins will experience substantial growth. It will appear in the market among USD stablecoins, and it is expected that US commercial banks will soon launch USD stablecoins (see my article "U.S. commercial banks to launch USD stablecoins”). And this dollar stablecoin is likely to be jointly launched by an institutional alliance. In this era, it is difficult to promote a dollar stablecoin in the market in a sole proprietorship.
In terms of the underlying technology that supports the generation and circulation of US dollar stablecoins, it is likely to be distributed accounting technology. Among the various blockchain and distributed ledger technologies in the market, R3's Corda is the one that best meets the operational requirements of financial institutions and the requirements of financial supervision. Therefore, the US dollar stable currency launched by the US commercial bank is likely to be based on R3's Corda. If this is the case, the USD stablecoin will use the same underlying technology as SDX.
It’s not a pure coincidence that SDX and the U.S. commercial bank’s USD stablecoin share the same underlying technology. This is the choice of the Swiss and American financial industries trying to use various innovations brought about by blockchain technology to develop new businesses on the premise of meeting regulatory requirements and in line with their own business habits.
The future encrypted digital financial ecology must be based on distributed accounting technology. Digital currency and digital assets will be circulated on it. All kinds of financial businesses are based on digital currency and digital assets. Due to such an ecological advantage, new types of financial services will emerge. Part of the existing financial business will also be migrated to this ecology. Such a development trend has been judged for some institutions and regions. They are taking corresponding measures to migrate to this new financial ecology. Each institution or region adopts different strategies in combination with its own characteristics. The Swiss financial industry chose to establish a digital asset exchange first, and use this to drive the construction of an encrypted digital financial ecosystem. Developments in the US market are varied. Due to the recent clear stance of U.S. financial regulation on digital stablecoins, this will encourage the substantial development of U.S. dollar stablecoins in the U.S. market. The development of USD stable currency will lead to the emergence of corresponding financial market infrastructure. Digital assets will surely emerge on top of this new financial market infrastructure. Various financial businesses based on stable coins and digital assets can thus be carried out. Of course, these financial services also include digital asset transactions.
Therefore, SDX and stablecoins in the US market are different development paths in a development trend, and they will definitely lead to the same goal. Since SDX has been in development for several years, its development experience can be used as a reference for the development of USD stablecoins. A reference in this regard is that the initiators of stablecoins are not limited to commercial banks, but have the participation of securities trading institutions from the very beginning. The resulting financial market infrastructure will be more solid and better able to support banking and securities trading operations.
In this regard, DBS Bank's measures are actually worth learning from. DBS Bank is about to start providing encrypted digital financial services. This business has had the participation of the Singapore Stock Exchange from the beginning. In the new entity, the Singapore Exchange will take a 10 percent stake. This entity will provide security token trading services, that is, digital asset trading services provided by the Swiss Digital Asset Exchange. DBS has enlisted the support of the Singapore Stock Exchange from the outset. This move can also be used as a reference for the launch of the new U.S. dollar stablecoin.
