The Federal Reserve’s forthcoming instant payment service FedNow will be connected to Metal Blockchain, according to a May 11 announcement from the Metal Blockchain team. The announcement said that the integration will allow Metal users to instantly convert funds to stablecoin and back again using FedNow’s “send/receive” function.
FedNow is an instant payment system developed by the United States Federal Reserve. It allows for round-the-clock, near-instant payments between banks. Currently, U.S. residents can only make instant payments domestically through third-party apps such as PayPal and Venmo, or crypto wallets. The Federal Reserve has stated that the new service will launch in July.
Metal Blockchain is a crypto network developed by Metallicus, based on a fork of Avalanche's code. It was created to offer compliance-friendly options for decentralized finance (DeFi) developers. In the May 11 announcement, Metal developers claimed that the network is “built on the foundation of BSA [Bank Secrecy Act] Compliance,” implying that it has identity verification and Anti-Money Laundering features built in.
According to its documents, the network features a subnet called “X-Chain” that allows developers to enact rules for transferring assets. For example, a token can be issued with the rule that it “can only be sent to US citizens” or “can’t be traded until tomorrow.”
Cointelegraph couldn't verify what criteria FedNow will use to decide who can integrate with the payment system. However, most blockchain networks use pseudonymous addresses as user identities, which means that they could be seen as not complying with the Bank Secrecy Act. This may explain why Metal is one of the first blockchain networks to be listed as a FedNow service provider.
In a conversation with Cointelegraph, Metallicus co-founder and CEO Marshall Hayner said Metal's connection to FedNow could enable the formation of interconnected “bank chains,” creating a larger blockchain ecosystem that is secure and does not rely on oracles. This will allow banks to communicate with each other to process payments and handle settlements while staying connected to the FedNow system.
He stated that it will also allow banks to prepare for an eventual central bank digital currency (CBDC), as well as for “bank issued stablecoins that can interact within a basket of stablecoin currencies.”
FedNow has been criticized by some U.S. politicians, including Florida Governor Ron DeSantis and U.S. presidential candidate Robert Kennedy, Jr., who have alleged that it is a first step towards a blockchain-based CBDC that they say will infringe privacy. The Federal Reserve has denied that FedNow is related to a CBDC.
When asked his opinion of the controversy, Hayner dismissed these criticisms of CBDCs.
“I believe this controversy is unfounded, [...] as the same rigor that is applied to the banking system will be applied to CBDC,” he said.