Roxe seminar: cross-border payment based on blockchain network
The Office of the Comptroller of the Currency (OCC) stated in an explanation letter issued at the beginning of the month that the National Bank of the United States and the Federal Reserve Association can use public blockchains and stablecoins for settlement, which indicates that banks and savings associations can now run crypto nodes and Use the associated stable currency for "permitted payment activities". OCC also believes that the blockchain stablecoin network can be used as a cheaper, faster and more efficient payment method to reduce the cost of cross-border transactions.
What profound impact will this move of the U.S. Office of the Comptroller of Currency (OCC) have on traditional financial markets and digital asset markets? On January 22, the online seminar "From Concept to Application-Cross-border Payments Based on Blockchain Network" hosted by Roxe Payment Network was held, inviting Wanxiang Blockchain Chief Economist Zou Chuanwei and American Force Research Institute Consulting company founder Gu Yanxi, UCLA visiting researcher Zhang Yutong, Wanshang Tianqin Law Firm partner Zhang Feng, Odaily Planet Daily CEO Wang Mengdie conducted in-depth discussions on hot topics, Roxe Payment Network CEO Haohan served as the seminar host.
Application of stable coin technology in payment scenarios
"This move by OCC will help promote stablecoin payments to become mainstream, and there is a lot of room for development." Zou Chuanwei, chief economist of Wanxiang Blockchain, said: "The United States has a very clear regulatory framework for stablecoins, and it also clarifies commercial banks. The role played in it. In the letter of explanation, OCC clarified that commercial banks can participate in independent node verification networks as operating nodes, that is, commercial banks can participate in consensus bookkeeping."
Previously, in the European Commission’s proposal on crypto asset market regulations, the content related to stablecoins was very close to that of the United States. Therefore, from the perspective of the regulatory framework, whether stablecoins are defined as commodities, securities or derivatives depends on their specific design types. As we all know, commodities are subject to relatively loose supervision. In order for stablecoins to be recognized as commodities, they must not only meet the regulatory conditions, but also need to issue a full reserve of 1:1, and the assets of the statutory reserve must be placed in a regulated U.S. bank, and It promises users that it can be exchanged in a 1:1 two-way manner and cannot pay interest to users. This kind of stable currency that will not interfere with the local currency order has a lot of room for development.
"Although the policy does not completely exclude issuance on the public chain, from the perspective of the compliance regulations of'who issues who is responsible', the issuance of financial products should be on the consortium chain rather than on the public chain." Ren Gu Yanxi said: “The statements of the US President’s Financial Market Working Group and the OCC both indicate that the United States does not plan to develop its own USD CBDC in the near future, but will hand over to the market to provide USD-based digital stablecoins. This means Under the premise of regulations, institutions such as Diem (formerly known as Libra) and commercial banks can issue stablecoins according to their own conditions, either independently or in alliances, and there is no clear technical regulation, as long as it is a distributed, independent and suitable network. can."
"This policy will not only promote the development of stablecoins, but also the development of the U.S. and even the global financial market. As we all know, the U.S. dollar is supported by a centralized clearing system, while stablecoins are supported by blockchain or distributed accounting. Technology to execute, that is, the issuance of stable coins requires an infrastructure based on the underlying blockchain technology. The future encrypted digital financial infrastructure will not only support the most basic and simple financial products such as stable coins, but also support the ownership of securities and real estate. The circulation of a variety of financial products promotes the circulation and transactions of all financial products." Gu Yanxi further added.
UCLA visiting researcher Zhang Yutong believes that stablecoin technology is a technical route that can be used in payment scenarios, and it mainly depends on how OCC views the application of stablecoins in payment scenarios. He said: "In the field of payment, there are generally two types:'account-type' and'no-account-type'. The use of blockchain in payment scenarios is an accountless operation, which is essentially technically biased. Payment processing and processing have no restrictions on payment scenarios, that is, as long as there is demand for online and offline consumption. In addition, because of the natural financial properties of stablecoins, stablecoin technology will be more widely used in financial scenarios. First, borrowing, and then It is an evolutionary process such as securitization. The OCC's letter of explanation provides banks and non-bank financial institutions with opportunities for innovation and bold attempts, which may lead to a situation of multi-head competition in the United States."
In the future, the application of stable currency to payment is a trend in the development of accountless payment. "On January 20, the "Regulations on Non-bank Payment Institutions (Draft for Comment)" issued by the People's Bank of China changed the traditional payment license standards from the original "online payment", "prepaid card issuance and acceptance", and "bank card receipt". "Single" and so on, have become "has an account" and "has an operation". OCC's stable currency policy is to allow the use of accountless payment methods. "Regulations on non-bank payment institutions (draft for comments)" after revision , Blockchain technology may also be used as a technical route for accountless operations in China.” Zhang Yutong explained.
Regarding the main points mentioned in the OCC's explanation letter, Zhang Feng, a partner of Wanshang Tianqin Law Firm, expressed the following three points:
(1) The starting point of OCC is to maintain the effectiveness of the banking system. It treats public blockchains as financial infrastructure and encourages banks to use stablecoins based on public blockchains for cross-border payment settlements. This is where banks participate. The beginning of the integration of the blockchain and public chain asset trading system.
(2) The use of stable currency for settlement is still to serve bank users. At the level of regulations, bank users and blockchain users still cannot switch freely, that is, the exchange of fiat currency tokens obtained by OCC can only be used inside the bank.
(3) This is the beginning of blockchain Token assets entering the banking system. In the future, more blockchain assets may enter the banking system, and banks may even provide users with limited blockchain asset services.
Odaily Planet Daily CEO Wang Mengdie believes that the OCC’s explanation letter indicates that the United States wants to leverage the advantages of the private sector in the field of digital currency, and may wait until it matures before adopting public-private cooperation. As long as it is a bank that abides by the law and has good credit, it can issue stable currencies like debit cards and checks, and convert them into legal currencies. This is not only conducive to resource integration, but also enhances the acceptance and acceptance of digital currency in society, and helps diversify risks. She further added: “Currently, cross-border payments rely on SWIFT and need to pass through multiple intermediary banks, and face pain points such as long cycles and low efficiency. Blockchain technology can eliminate intermediary agent banks and help banks, enterprises, and individuals. Solving the pain points in cross-border payment is conducive to reducing the cost and increasing efficiency of the bank's stock business, thereby accelerating the flow of funds."
Account paradigm and Token paradigm are compatible and complementary
In 2018, the article "What Can and Can't Blockchain Do?" (authors Xu Zhong, Zou Chuanwei) released by the People's Bank of China proposed the Token paradigm from a technical level. "Regarding the difference between account and no account, the Bank for International Settlements (BIS) as early as proposed the "flower of money" model, mentioned that the central bank's digital currency can be based on the account or Token paradigm. In fact, there are also in the blockchain boundary. The small boundary is the consensus boundary we often say: the trinity of Token, smart contract, and consensus algorithm. There are two types of interactions inside and outside the blockchain. One is to read information outside the blockchain into the blockchain. Corresponds to the oracle; the second is that the Token in the blockchain represents assets in the real world. These are the two core technical characteristics of the blockchain refined from the economic level." Zou Chuanwei further pointed out: "The essence of Token can be understood as distribution. A mathematical symbol in a centralized ledger or a centralized ledger that has characteristics similar to cash (point-to-point transactions) and beyond cash (which can be divided into smaller units, transactions are naturally cross-border, and clearing is intelligent). The Token paradigm itself is Anonymous, some user identities can be associated, peer-to-peer transactions can be realized without intermediaries, shared ledgers, and cannot be tampered with. Token paradigm has the advantages of good openness, good anonymity protection, and peer-to-peer, and is compatible with the account paradigm , Blending, based on the application of the alliance chain to different scenarios."
Zhang Yutong believes that accountless payment and transaction have two characteristics: (1) Accountless transaction payment actually removes the credit level; (2) After migrating from the traditional payment system to the Token paradigm, no intermediary is required. The reason why we trust the payment of the stable currency paradigm is because: one is to recognize the blockchain technology and to achieve trust through a consensus mechanism; the other is to recognize the credit of the issuer behind the stable currency. "OCC allows banks to use stablecoin technology to make payments. First, because banks issue stablecoins, the credit system will not collapse; second, stablecoin and stablecoin technologies are different. The use of stablecoin technology can achieve 100% payment. For example, 100% of the digital renminbi is prepared for payment to the central bank. Focusing on the payment field, although the Token paradigm is de-trusted, the credit level is still anchored, that is, the Token issuer, so it will bring a series of regulatory challenges. For example, positive XRP, which is facing prosecution by the SEC, is recognized as a security token because XRP has multiple financial attributes: first, as an intermediary for cross-border remittances, it is a payment tool based on the blockchain system; second, selling XRP It is defined by U.S. law as an investment contract, which belongs to the concept of securities, so the SEC defines it as a securities token."
"Account paradigm and Token paradigm are not essential. The real difference between bank assets and blockchain Token assets lies in the different sources of credit behind the accounting system." Zhang Feng believes: "As a financial infrastructure, the two cannot be mutually exclusive. Alternative, but it can be perfectly compatible and complementary. At present, the traditional financial system is still the mainstay. If more assets are attached to the blockchain to carry more financial activities in the future, then the Token paradigm will become the mainstream. Banks are based on blocks. The issuance of stablecoins or other assets on the chain indicates that banks have become part of the blockchain ecology. The issuance of stablecoins by banks is controlled and subject to provisions and supervision. The OCC allows banks to use public blockchains, which helps Promote cross-border payments more convenient, cheaper, and more efficient. On the other hand, blockchain assets can also expand circulation through banks, reach more users, and enhance public awareness of blockchain."
Token paradigm can solve the problems of cross-border payment and digital asset transactions. Gu Yanxi very much agrees that the Token paradigm will become mainstream. He said that the current new payment and settlement system based on blockchain will not directly replace the original system. It is a supplement to the existing system. That is, while ACH and SWIFT are running, a digital currency circulation system is added, which will appear in the future. A situation where multiple forms coexist. However, as more USD stablecoins and stablecoins based on other legal currencies circulate on the new network, the circulation on ACH and SWIFT will become smaller and smaller.
The impact of digital renminbi (DCEP) on cross-border payments
"After the emergence of digital renminbi (DCEP), third-party payments will face greater challenges. From a technical perspective, digital renminbi is safer, lower cost, and faster, so the market tends to use digital renminbi (DCEP) for settlement. Possibility.” Zhang Yutong said: “In fact, for cross-border payment, the only way is different. The essence of digital renminbi (DCEP) is still renminbi, and behind it is the endorsement of the central bank and national credit, top-level design and commercialization. Blockchain tokens and stable currency cross-border payments are different. In addition, the mechanism design is also different. The technical system adopted by the digital renminbi (DCEP) is different from that of other regions and countries. The underlying digital renminbi may be distributed, but not Blockchain systems, and the Monetary Authority of Thailand and Hong Kong are all trying to use the blockchain network to directly create digital currencies. Whether the technology is coupled and whether the connection is smooth will become a technical challenge. Take the Hong Kong Monetary Authority as an example. It is building its own blockchain cross-border payment system, and is cooperating with the Bank of Thailand on a central bank-level blockchain network to achieve cross-border payment transfer between the central bank and the central bank system. These two attempts are still Under the traditional cross-border payment architecture, the use of blockchain and the network as the method of settlement can only be regarded as continuous improvement of the traditional cross-border payment system, not subversion."
Wang Mengdie believes that the digital renminbi (DCEP) as a payment medium will have the following effects on international payments:
First of all, from the point of view of the design principles of the Digital RMB (DCEP), it has high openness and the natural cross-border settlement advantages of peer-to-peer payment, which can effectively supplement the existing monetary system and improve financial efficiency.
Secondly, the digital renminbi (DCEP) contributes to the internationalization of the renminbi. At present, the global currency settlement system is still dominated by the US dollar. Digital RMB (DCEP) can speed up the process of RMB internationalization, or gain more say in overtaking in corners.
Third, potential challenges. In the process of realizing cross-border settlement, the digital renminbi (DCEP) will interact with the sovereign currencies of other countries. For example, to complete KYC, it is necessary to solve the problem of downloading and opening wallets by overseas residents and institutions. Second, the People's Bank of China needs to negotiate on the basis of cooperating with the central banks of foreign countries and respecting each other's sovereign currency.
"For ordinary users, first, the digital renminbi (DCEP) will realize controllable anonymity and better privacy protection based on the completeness of personal information and the difference in credit lines, and it can also expand payment scenarios that require privacy protection. It can be seen from the example of the recent digital renminbi (DCEP) pilot that it has dual offline functions, that is, in the offline mode of mobile phone flight, the digital currency wallet can also be used to realize instant payment and real-time account payment, which greatly expands the offline scenario Payment application scenarios.” Wang Mengdie added.
"Regardless of which country’s central bank digital currency issuance, the premise is centralized, just like the digital renminbi (DCEP) is compatible with blockchain technology, but it will not turn it into a decentralized platform. In mobile payment, payment mode At a relatively mature moment, technology is not a problem in realizing cross-border payments. The key lies in whether exchange, foreign exchange and capital control policies are supported. The essence of digital renminbi (DCEP) cross-border payments lies in whether overseas central banks and currency regulatory agencies publicly recognize Integrating this payment method, including how to deal with the relationship between the central bank's digital currency and their domestic digital currency, will not weaken the influence of the other party's legal currency, in fact, it is a question of how to exchange currency and maintain the stability of the local financial system. Whether it is used or not Blockchain and the future digital renminbi (DCEP) can make payments more secure, convenient and efficient. In the long run, it will also help build China's safe cross-border payment system and reduce dependence on the existing SWIFT system." Say.
OCC relaxes the central bank's intention of digital currency
This has led to the global financial system being constrained by the liquidity of the US dollar, and countries have reached a consensus on reforming the international monetary system. Especially after Facebook announced the launch of Libra in 2019, countries have accelerated the process of developing CBDC. Wang Mengdie said: “Bitcoin, as a new form of currency, realizes peer-to-peer payment and provides a foundation for subsequent digital currency research. In 2020, affected by the new crown epidemic, major central banks around the world are releasing water, and the pressure of the traditional currency system Increasing day by day. In response to the epidemic, the United States introduced the largest economic stimulus bill in history, but faced two major problems: precise delivery and low rescue efficiency. In past rescues, there have been cases where small business funds flowed from banks to some large, high-quality companies. In addition, the relief funds for residents in the United States are mainly completed through paper checks, which take a long time to reach the recipients. The digital dollar can effectively solve these two problems and become a tool for the Federal Reserve’s helicopter money. Therefore, The United States takes advantage of the private sector in the field of digital currency, and waits until it is mature before adopting public-private cooperation to avoid the potential risk of financial disintermediation through private sector or two-tier operations."
"Digital currency started from USDT, and then USDC, PAX, etc. appeared. Distributed methods produce private currencies. The emergence of Libra has driven a wave of small climaxes and stimulated the development of CBDC in various countries." Gu Yanxi also agreed that Libra is The argument of CBDC catalysts in various countries. He added: “Previously, there were two developments, one is a centralized CBDC, and the other is generated by a distributed market. The U.S. policy has undergone significant changes to encourage the market to develop blockchain-based digital dollar stablecoins. This policy is different from the mainstream approach. The European Union clearly opposes the issuance of private currencies. In order to win the support of the European Union, Libra even changed its name to Diem. The recent U.S. President’s Financial Markets Office and OCC opinions have indicated that the United States currently encourages the market to adopt distributed methods Innovate. Now we are talking about stablecoins in the retail market. CBDC may also appear in the future, which is a different field from stablecoins in the market."
"The OCC New Deal is aimed at stablecoins, not central bank digital currencies. The issuing agency is a commercial institution rather than the Federal Reserve. When commercial institutions issue stablecoins, asset custody is still on the balance sheet of commercial banks instead of the Federal Reserve." Zou Chuanwei said: "The central bank's digital currency has different options, one is the retail type issued by the central bank to the public, and the other is the wholesale type that only faces commercial institutions."
The CBDC directly issued by the central bank is called a direct CBDC, that is, the central bank directly faces users. This will face huge technical challenges for the central banks of populous countries and will have a great impact on the commercial banking system. Digital Renminbi (eCNY) is not a central bank's digital currency. The People's Bank of China is advancing this work from the perspective of payment system modernization. The six major banks have the status of quasi-note-issuing banks in the digital renminbi project, and they hold the ownership of the digital renminbi. Digital renminbi is not first wholesaled by the People's Bank to commercial banks, and then retailed by commercial banks to users.
This is because commercial banks directly deal with retail needs for users. Wholesale transactions and data backup are in the People's Bank of China, which helps to alleviate the pressure on the system and reduce the impact on commercial banks. In addition, the central bank digital currency or legally compliant stable currency that people are discussing is actually discussing it as a payment tool rather than a currency tool, because the issuance of all institutions is based on sufficient reserves, driven by user demand, rather than issuance In order to expand their balance sheets, institutions issue central bank digital currencies or stable currencies.