Swiss banking giant UBS is developing a new blockchain-based currency "settlement coin" – a digital currency that’s backed by fiat money and fits into the existing regulatory framework.
The new virtual currency will bring blockchain into official financial system. "Settlement coin" will be exchangeable for fiat currency in the ratio of one to one. Thus, users will be able to avoid settlement risks while benefiting from the faster and cheaper technology. UBS also demonstrated the possibility to digitize assets using a distributed registry blockchain.
"We are not ruling it out,” Alex Batlin, Director of Technology and Innovation at UBS, told IBTimes. “There has been a lot of debate about permission versus permissionless; actually it's for purely technical reasons, at least in the short term, where we think permission ledgers may well be more useful. One is because you don't need to do proof of work, so all of a sudden you can have a business model with much higher transaction throughput.” He added:
"The other issue is that given the current regulatory and legal view, you need to know who your payment processors are. So again having a permission chain gives you easier integration into the legal and regulatory framework.”
Batlin also spoke about the development of the blockchain that will support operations with different types of financial assets. UBS considers that there is no need to develop a separate blockchain for each type of asset, while mentioning the Sidechain project from Blockstream that can be used to transition from one type of asset to another. He explained:
"People talk about banks wanting to have permission chains to keep control - that's not true. The key things we need are transaction volume and we need to integrate with an existing legal and regulatory framework."
In order to develop its new virtual currency UBS began a partnership with the London-based startup Clearmatics, which specializes in next-generation clearing machines for financial OTC markets. UBS and several major banks are interested in using virtual securities through Ethereum but see a problem with its lack of scheduling. This is the problem that Clearmatics is expected to solve.
"Our experiment with the smart bonds requires also payment of coupon and we have to create an external schedular to automate the coupon payment, which effectively stimulate the smart contract,” said Batlin. “Clearmatics have a scheduling capability.”
Many also believe that UBS plans to create its own blockchain. But the bank refuted this claim saying:
"We are not looking to create a UBS blockchain - we want to use open standards.”