Sebastian Sinclair

ANZ, one of Australia&#8217;s “Big Four” banks, has completed a transaction with tokenized assets utilizing its A$DC stablecoin and Chainlink&#8217;s Cross-Chain Interoperability Protocol, or CCIP.



The development showcased the bank&#8217;s capability to transfer funds across both open and private blockchain networks, furthering experiments being conducted to test the efficiency and security of deploying real-world assets on-chain.



According to a statement by Chainlink on social <a href="https://x.com/chainlink/status/1702265237171212530?s=20">platform X</a>, formerly known as Twitter, the move Wednesday “builds on the lessons learned” from the Swift blockchain interoperability initiative, originally conducted in June.



The effort, a <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">joint venture between leading global banks</a> and The Society for Worldwide Interbank Financial Telecommunication, seeks to test the limits of blockchain interoperability.



Its objective: Offering major financial institutions a centralized gateway to various networks, in a bid to reduce the operational hurdles and investment required to link the global financial system.



Banks involved included BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX), and The Depository Trust and Clearing Corporation (DTCC), in addition to ANZ or the Australia and New Zealand Banking Group.



Chainlink has played a central role in understanding whether banks and the crypto sector can coexist in harmony, challenging commonly held concerns associated with retail CBDCs.



Chainlink’s product, which has so far been well received, serves as a &#8220;<a href="https://blockworks.co/news/chainlink-ccip-launch">universal messaging interface</a>&#8221; for communication between various chains by utilizing its Oracle network.



CCIP works with <a href="https://www.veradiverdict.com/p/ccip">three separate Oracle networks</a>. Two of those networks handle sending/receiving messages and transferring value, while another watches over to make sure those transactions aren&#8217;t risky.



“The bank’s work with its A$DC stablecoin and the tokenization of real-world assets has already provided us with valuable lessons as we continue to investigate enterprise-grade use cases,” Nigel Dobson, ANZ’s banking services portfolio lead said in a statement on Wednesday.



“Based on market activity, we expect the continued adoption of digital assets will result in the proliferation of multiple assets across many blockchain networks.”



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Australian Bank ANZ leveraging Chainlink’s CCIP for cross-chain operability

Bessie Liu

Chainlink is switching on its Cross Chain Interoperability Protocol (CCIP), Monday, with Synthetix getting early access to its mainnet. A testnet will open up to all developers on Thursday, July 20.



The protocol builds upon Chainlink’s extensive oracle network to differentiate it from competitors, while it looks to capitalize on connections forged along traditional financial rails.&nbsp;



As blockchains scale — whether layer-2 networks, sidechains or app-specific chains — these networks will need to communicate with each other.



Existing cross-chain solutions — such as bridges, for example — have attempted to tackle the problem of moving data and assets safely, <a href="https://blockworks.co/news/rethinking-interoperability-after-string-of-crypto-hacks">with mixed results</a>.&nbsp;



Other interoperability solutions such as light-clients such as <a href="https://blockworks.co/tag/ibc">IBC</a>, general message passing like <a href="https://blockworks.co/tag/axelar">Axelar</a> and <a href="https://blockworks.co/news/rethinking-bridges-orb-labs-imagines-world-where-every-transaction-is-free">other hybrid schemes</a> have tried to fill the gaps, and now Chainlink is joining in the effort.



CCIP will first be available on Ethereum, Optimism, Polygon and Avalanche.



<h2 class="wp-block-heading">How does CCIP work?</h2>



In an interview with Blockworks, Chainlink founder and CEO Sergey Nazarov noted that Chainlink will use its <a href="https://blockworks.co/tag/oracles">oracle networks</a> to enable CCIP.



“One oracle network is responsible for channeling messages and value. The other one is responsible for monitoring and determining if the properties of the transactions going through the first one are risky or not,” Nazarov said.



Developers who are interested in building cross-chain solutions can build their products on top of CCIP through Arbitrary Messaging.&nbsp;



This means that a smart contract from Chain X will utilize Chainlinks’ messaging router to send messages to Chainlink&#8217;s decentralized oracle networks (DONs). These DONs will then securely and privately communicate with the destination chain messaging router, which will validate the information and send it to Chain Y’s smart contract.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/gdaXVhxYBRPTI7YJzy-VYSOyb-9zIweNTpHzGHQXPyKIaBLclHHFlimB4tt-ydBR8-71-UoeQ0dEJqUo08BT4DW50OquXiW86ozfG0K1_V8BaE_7rjMSWFw-aU9VzyhtlIqOC5FnKDb-jEDZysF4UaM" alt=""/><figcaption class="wp-element-caption">Source: Chainlink</figcaption></figure>



Beyond having basic communication capabilities, CCIP also has complete token transfer capabilities, <a href="https://docs.chain.link/ccip/tutorials/cross-chain-tokens">according to</a> its documentation, which Chainlink says means that developers for token pool smart contracts won&#8217;t need to write customized code.&nbsp;



A separate Active Risk Management (ARM) network aims to detect any malicious cross-chain activity. When found, ARM will automatically pause services and protect user funds.



ARM operates similarly to how banks protect their customers from fraudulent activity, Nazarov explained.



“If you have been sending money to a friend for years, Venmo, PayPal, very quickly approves it, but if you decide to send money to buy a painting from someone in Eastern Europe, they will have questions,” he said. “The fundamental idea is that you can accurately assess risk based on repeat transactions to known parties.”



<h2 class="wp-block-heading">Targeting traditional finance money</h2>



One of the most exciting aspects of introducing CCIP is its potential to link up DeFi with traditional financial institutions, Nazarov explains.&nbsp;



Swift (Society for Worldwide Interbank Financial Telecommunication) is planning to use CCIP to work with multinational banks across the globe to bring institutional-grade, multibillion-dollar real-world asset tokens into the world of DeFi, Blockworks <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">previously reported</a>.



Among the banks signing on are Australia and New Zealand Banking Group (ANZ), BNP Paribas, BNY Mellon, Citi, Clearstream, Euroclear, Lloyds Banking Group, SIX Digital Exchange (SDX), and The Depository Trust and Clearing Corporation (DTCC), according to a press release.&nbsp;



“When those real-world asset tokens become available, they can go over CCIP into the public blockchain world, which will do two things: It&#8217;ll grow the total industry size of the entire blockchain industry and it&#8217;ll provide diversified collateral,” Nazarov said.



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Chainlink founder says CCIP opens DeFi for business

Macauley Peterson

The Society for Worldwide Interbank Financial Telecommunication (Swift) on Tuesday announced a collaboration between major banks and Web3 infrastructure provider Chainlink to trial connecting private and public permissionless blockchains.



Swift is a global financial messaging system that underpins most international money and securities transfers. In 2022, it initiated tests to explore the interoperability of private blockchains among financial institutions for tokenized assets. Building upon this initiative, Swift is now expanding the scope of its experiments to encompass public blockchains. To facilitate this expansion, Swift will use Chainlink&#8217;s Cross-Chain Interoperability Protocol (CCIP).



“More institutions are beginning to explore how to serve customers on both permissioned and public blockchain networks like Ethereum,” Jonathan Ehrenfeld, head of securities strategy at Swift, said in a <a href="https://www.swift.com/news-events/news/swift-explores-blockchain-interoperability-remove-friction-tokenised-asset-settlement">statement</a>.



The collaboration includes major financial institutions across the globe, including <a href="https://blockworks.co/tag/bnp-paribas">BNP Paribas</a>, <a href="https://blockworks.co/tag/bny-mellon">BNY Mellon</a>, <a href="https://blockworks.co/tag/citi">Citi</a>, <a href="https://blockworks.co/tag/euroclear">Euroclear</a>, <a href="https://blockworks.co/tag/six">SIX Digital Exchange (SDX)</a> and <a href="https://blockworks.co/tag/DTCC">The Depository Trust &amp; Clearing Corporation (DTCC)</a>.



Chainlink is providing what Swift calls an “enterprise account abstraction layer.” Sergey Nazarov, one of the company&#8217;s co-founders, said that he thinks the asset tokenization trend is being embraced by banks and financial market infrastructure institutions alike, which has the potential to “10x the blockchain industry size.” “It shows that the largest financial institutions — even in a down market — are interested in blockchain technology reinventing how the capital markets work,” Nazarov told Blockworks.



CCIP is a “universal messaging interface” for cross-blockchain communications. Its ability to interface with private blockchains, plus security features like an active risk management network, are what differentiate it from alternatives like <a href="https://blockworks.co/tag/axelar">Axelar’s General Message Passing</a> and make it appealing to major financial players, Nazarov said.



CCIP uses the same security model as Chainlink’s oracle network, which has processed over seven trillions of dollars in value, he said.



<h2 class="wp-block-heading">Swift’s goal: Use existing bank systems</h2>



Swift launched its first messaging services in 1977, replacing the prevailing technology of the time, <a href="https://en.wikipedia.org/wiki/Telex">Telex</a> — it was “like a private financial internet before the internet,” Nazarov said. There is a lot of legacy financial infrastructure that banks want to preserve while also gaining the efficiencies that they recognize are available from blockchain networks.



Tom Zschach, chief innovation officer at Swift, sees a <a href="https://blockworks.co/tag/multichain">multichain</a> future, and connecting to hundreds of different chains is not feasible for most banks. Chainlink aims to save thousands of global banks time and money by linking chains through one integration.



“What&#8217;s missing is the ability to send [assets] from a bank chain to a public chain — banks want to do that,” Nazarov said.



“It’s not called chain link by accident,” he chuckled.



The proof of concept will demonstrate how banks can practically interoperate across these networks, both public and private.



For instance, Nazarov said, a bank can issue a security token on its own private chain, using CCIP, then move the token to the chain of a custodian such as BNY Mellon. It can update a proof-of-reserves record on CCIP, and enable a third bank to buy the tokenized security, and transfer it to its own private chain.



In this example, all the chains in question are private, but Nazarov pointed to <a href="https://blockworks.co/tag/societe-generale">French bank Société Générale’s</a> use of public Ethereum as an example where public blockchains can be in the loop.



“In my eyes, blockchains, public and private, will eventually get enough features that they become the same thing,” Nazarov said, likening it to the evolution of various independent networks into what we now call simply “the internet.”



Once the technology is in place to let banks take various securities and move them around easily, they will adapt certain types for use on public chains, he said.



They are too big a market at this point to ignore.



“I think they realize the digital asset class is not going anywhere,” Nazarov said.



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Banks Can ‘10x the Blockchain Industry’ Says Chainlink Co-founder

Casey Wagner

<div id="highlights-block_6303d23ea211f" class="highlights">
 <ul>
 <li>DTCC launches distributed ledger technology platform for settlements</li>
 <li>Tokenization is on the rise, the Bank of International Settlements said in 2020</li>
 </ul>
 
</div>



Clearing and settlement house Depository Trust and Clearing Corporation (DTCC) has launched a private and permissioned blockchain network as an alternative settlement platform.&nbsp;



Project Ion, which leverages distributed ledger technology (DLT), is now processing an average of 100,000 bilateral equity transactions per day, DTCC <a href="https://www.dtcc.com/news/2022/august/22/project-ion" target="_blank" rel="noreferrer noopener">announced</a> Monday. 



“The goal of Project Ion is to ultimately provide a resilient, secure and scalable alternative settlement service to clients, with the option to leverage DLT for those firms who wish to take advantage of the emerging technology,” DTCC said in a statement.&nbsp;



DLT provides a safer, cheaper, and more efficient alternative to traditional settlement methods, Murray Pozmanter, said in the statement. Pozmanter is the managing director and president of DTCC clearing agency services and head of global business operations. 



<h3 class="wp-block-heading">Other blockchain settlement efforts</h3>



A distributed ledger is a record of transactions held between a network of computers, or nodes. The use of DLT generally relies on cryptography to allow nodes to securely propose, validate and record changes and updates to the synchronized ledger without necessarily needing a central authority, as a 2020 <a href="https://www.bis.org/publ/qtrpdf/r_qt2003i.htm" target="_blank" rel="noreferrer noopener">report</a> from the Bank of International Settlements (BIS) explained. 



Researchers from the BIS said that DLT and tokenization of securities could transform post-trade clearing and settlement operations, but the inherent challenges of credit risk and liquidity associated with traditional methods remain.&nbsp;



“To succeed, tokens will need to interoperate with account-based systems, at least in the interim,” researchers wrote in the report.&nbsp;



Financial institutions have become increasingly interested in leveraging DLT in recent years for trading and settlements. Also in 2020, <a href="https://www.credit-suisse.com/about-us-news/en/articles/media-releases/financial-institutions-team-up-to-develop-fundsdlt--a-groundbrea-202003.html">Credit Suisse</a> announced a DLT-based platform for investment funds.



More recently, a consortium of French banks experimented with using a private blockchain<a href="https://cms.blockworks.co/french-central-bank-trades-oats-on-private-blockchain/" target="_blank" rel="noreferrer noopener"> to settle debt securities</a> in Oct. 2021. That followed <a href="https://cms.blockworks.co/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds/" target="_blank" rel="noreferrer noopener">a trial by French bank Société Générale</a> to use public Ethereum and mint MakerDAO’s DAI stablecoin through the issuance of euro-denominated bonds.



Signature Bank customers have been able to initiate real-time Fedwire transactions using Signet, the firm’s DLT payments platform, since April 2022.



BNY Mellon and Goldman Sachs <a href="https://www.prnewswire.com/news-releases/bny-mellon-and-goldman-sachs-settle-first-hqlax-agency-securities-lending-transactions-301589545.html" target="_blank" rel="noreferrer noopener">partnered</a> on HQLAx, a DLT-based securities lending platform. Its first transaction was completed in July 2022.



Project Ion is being designed to adhere to rigorous regulatory standards and deliver the resiliency, volume capacity, security, scalability and risk controls that DTCC is known for, the firm said in the statement.



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TradFi Clearing House Turns to Blockchain to Settle Transactions

Tanaya Macheel

<div id="highlights-block_6074a76337bcc" class="highlights">
 <ul>
 <li>Compared to traditional prime brokerages, crypto providers’ exchanges operate as separate units</li>
 <li>Traditional prime services providers may not be going anywhere anytime soon</li>
 </ul>
 
</div>



Even with more and more<a href="https://cms.blockworks.co/crypto-prime-brokerages-look-to-bundle-services-to-meet-growing-institutional-demand/" target="_blank" rel="noreferrer noopener"> new crypto prime brokerage options</a> on the market, traditional prime services providers may not be going anywhere anytime soon.&nbsp;



Compared to traditional prime brokerages, crypto providers’ exchanges operate as separate units with their own order books and prices. That means investors need to onboard at various different platforms and fund their accounts on each of them, which some in the traditional world might see as costly and inefficient.



“The way that the crypto market works is different from a traditional space,” said Michael Shaulov, CEO and co-founder of <a href="https://cms.blockworks.co/fireblocks-raises-133m-to-scale-custody-platform-double-headcount/" target="_blank" rel="noreferrer noopener">Fireblocks</a>, who spoke at an online event on Thursday hosted by CryptoCompare and BlockFills. “We rely on DTCC or on other market functions that will provide centralized clearing by the finish. The way the [crypto] market operates (and Binance.US is a great example), if Binance needs to operate one leg which is an institutional flow but on the other leg it has retail users that can withdraw those funds at any point in time, the market structure needs to be different.”



While Shaulov said the market is pivoting and prime services providers are trying to provide the services that allow institutional firms to take advantage of what the digital asset market has to offer, not everyone will, according to Lory Kehoe, director of digital assets and blockchain for BNY Mellon (which uses Fireblocks technology for its <a href="https://cms.blockworks.co/bny-mellon-digital-assets-are-coming-of-age/" target="_blank" rel="noreferrer noopener">digital assets custody service</a>).



“Traditional prime brokerage services aren’t going to go away,” Kehoe said during the online event. “There’s still a definite requirement for them. It&#8217;s also going to take some time for regulatory clarity to come through. I expect what we&#8217;ll see is some will pivot successfully and provide services in the crypto space as well as in the traditional space, and some won&#8217;t make that pivot.”



<h3 class="wp-block-heading">Fragmented liquidity and trading</h3>



One reason digital assets trading is so retail dominated is because of the fragmentation of liquidity and trading across geographies and exchanges, according to another member of the online event, Neil Van Huis, partner and director of trading at BlockFills, an institutional digital asset liquidity <a href="https://blockfills.com/">provider</a>.



Prime brokerage in digital assets might look different from prime brokerage in the traditional world in that the crypto community has no problem letting trades settle at the end of the day. “That&#8217;s just something that seems normal to us,” he said.



Trading on an exchange, by contrast, changes the participants with whom you&#8217;re interacting.&nbsp;



“If you want to go and do an institutionally focused trade on a predominantly retail-focused exchange, that is going to be a difficult thing to do, unless you can have a prime services arm that essentially provides credit to everyone that&#8217;s been involved in this type of transaction,” Van Huis said. “That’s typically very costly. It&#8217;s not a capital efficient thing to do.”



BlockFills is trying to disrupt the traditional futures clearing model by creating an ecosystem that focuses on institutional participation so capital efficiency is easier to handle, Van Huis said. It’s building a set of technology, products or services that allow institutional participants to do “about as much as they&#8217;d like to do in the space in a seamless and compliant manner.”



“If you can use blockchain technology from companies like Fireblocks, and you can work with custodians and banks like BNY Mellon, to accomplish some of the things that you&#8217;re doing with other institutionally minded folks that are providing liquidity in your ecosystem, you can actually achieve a result that we&#8217;re talking about,” Van Huis said.



<h3 class="wp-block-heading">An institutional force</h3>



The digital asset industry was largely retail led until about 2019, and there&#8217;s a strong institutional force coming through now.



Binance.US has more retail flow than any other exchange because it has the lowest price point in the US, according to Rena Shah, head of operations and business development at Binance.US, who was also on the event panel. It is, for many, their gateway into digital assets.



“We are getting our first entrance of people doing the first couple hundred, couple thousand dollars, then slowly aggregating larger positions, they want to become high frequency traders — it’s similar to a Wall Street bets situation where people are pulling their own knowledge so that they can move the market together,” Shah said.



On the flip side, she said an increasing number of entities and corporate structures have been adding digital assets to their balance sheets, and while Binance.US has take orders coming in from retail investors, institutions are on its maker side.



“It’s a really interesting ecosystem,” she said. “For once they actually get to trade against each other — it’s not an institution trading against an institution. They want these very attractive retail orders to trade against because they know that there are real people behind, moving the market.&#8221;



“[Institutions] generally prefer to come to an exchange, more so than a traditional prime brokerage because of the perspective we provide,” Shah said. “We are not a team that&#8217;s kind of touches digital assets, we&#8217;re only in digital assets. This is all that we know, this is all that we advise on and I think they kind of appreciate the unique perspective as opposed to having just a fraction.”