Eitan Katz

The need for an organization connecting all banks is clear in today’s hyper-globalized economy where funds, goods and services are sent across every corner of the globe. 



So as globalization expanded, our deeply interconnected and centralized financial system triggered the development of SWIFT (Society for Worldwide Interbank Financial Telecommunication) in 1973, a member-owned messaging network for financial institutions to send secure communications as well as verify and settle inter-bank transactions.&nbsp;



SWIFT connects more than 11 thousand financial institutions across 200 countries and territories — long serving as a unified and stable institution amid a complex and volatile world order.&nbsp;



But recently, the exclusion of many sanctioned <a href="https://www.reuters.com/article/idUSKCN1NA1PN/">Iranian</a> and <a href="https://www.reuters.com/business/finance/eu-excludes-seven-russian-banks-swift-official-journal-2022-03-02/">Russian</a> banks from SWIFT prompted <a href="https://www.csis.org/analysis/sanctions-swift-and-chinas-cross-border-interbank-payments-system">China</a> and other nations to launch competing alternative intermediaries. This has led to the wide-scale rethinking of how to structure international finance.&nbsp;



While barring certain institutions from SWIFT due to connections with state-sponsored violence, terror or other criminal activity is appropriate, fractionalizing centralized entities into siloed, competing groups poses a long-term threat to global finance. <a href="https://apnews.com/article/bank-failures-poll-confidence-economy-5915263dd274314030eb055df2463d18">Changing attitudes</a> toward centralized finance and innovative fintech applications further undermine the current financial system and highlight its shortcomings.



Meanwhile, the rise of blockchain-based trading solutions has led those in the traditional financial sector to question the role of intermediaries. There is a growing consideration into how this technology can enhance the speed and frequency of interbank transactions.



After all, the primary goal of Bitcoin and the broader crypto movement was to eliminate what seemed to be an unjust financial order. This order, dominated by large banks and financial institutions, wielded censorship and control over the world&#8217;s population, particularly in the aftermath of the 2008 financial crisis.



Despite being largely opposed to crypto and blockchain until only a few years ago, financial institutions are now embracing blockchain as a technology, crypto as an investment opportunity and DeFi as a sandbox for innovative financial products.



Read more from our opinion section: <a href="https://blockworks.co/news/bitcoin-etf-conservative-portfolios-fidelity">Bitcoin ETFs in conservative portfolios is good for crypto — and Wall Street</a>



This recognition of blockchain’s upside showcases its capability and effectiveness at removing the middleman. Further validating this were recent announcements that SWIFT, in collaboration with more than 12 major financial institutions, is experimenting with <a href="https://blockworks.co/news/swift-tests-chainlink-ccip">interoperable on-chain token transfers</a> and <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">tokenization</a>.



Together with SWIFT’s messaging technology, Chainlink’s Cross-Chain Interoperability Protocol (CCIP) and a public Ethereum testnet are <a href="https://www.swift.com/news-events/news/swift-explores-blockchain-interoperability-remove-friction-tokenised-asset-settlement">facilitating the routing of messages</a> between legacy banking systems. This alone should legitimize the idea that digital assets and blockchains are legitimate infrastructure components that banks should and will adopt.&nbsp;



But it’s not totally clear where this adoption could go from here, as SWIFT’s use of CCIP simply gives an intermediary a new capability in the form of blockchain.



<h2 class="wp-block-heading">What if we could remove the intermediaries?</h2>



It&#8217;s widely acknowledged that blockchain technology has the potential to significantly enhance the financial industry’s efficiency by diminishing its reliance on intermediaries. But this current practicality is hindered by the intricate nature of reforming a deeply entrenched, centuries-old system.&nbsp;



Rather than pursuing an immediate overhaul, the emphasis should instead shift towards making gradual strides in reducing dependence on these financial intermediaries. The path to replacing intermediaries with blockchain technology necessitates the development of use cases, along with achieving interoperability among various blockchains and traditional banking systems.



This requires not only demonstrating the blockchain’s technological benefits — notably its security and cost-effectiveness — in an enterprise setting, but also facilitating interoperability between dozens of unconnected blockchain networks. As siloes of data by design, blockchains are unable to share data or transfer assets among each other. Common mechanisms to boost blockchain interoperability including bridges, sidechains and cross-chain platforms all come with their fair share of complexities, security vulnerabilities and potential compliance challenges.&nbsp;



Ensuring limited interoperability and relying on susceptible smart contracts to link diverse blockchain networks pose significant barriers to embracing the technology for financial transactions. The prospect of all financial institutions unanimously adopting the same blockchain network seems unlikely, given the decades-long history of technological infrastructure adoption. Consequently, the necessity for intermediaries, exemplified by the establishment of SWIFT for facilitating cross-bank transactions, becomes evident.



But that means the fintech industry, which sits squarely between the finance and blockchain worlds, must develop solutions and protocols to link these isolated data silos. A <a href="https://www.ledgerinsights.com/swift-blockchain-interoperability-trial-bnp-paribas-citi-dtcc/">SWIFT report</a> from August 2023 stated that “firms prefer to leverage their existing infrastructure, manage implementations and proven business processes to connect to blockchain ledgers, where tokens are recorded in a way that is both compliant and secure.”&nbsp;



Since financial institutions, understandably, don’t want to abandon their existing infrastructure, the key is to integrate new technologies between systems that use various blockchains. Efficient, loosely coupled integrations among entities and the establishment of a “trusted network” to facilitate the secure exchange of value and data can enable institutions to engage in affordable and convenient transfers.&nbsp;



<a href="https://www.igi-global.com/dictionary/grid-transaction-management-highly-reliable/1736">Atomic-swap transactions</a> play a significant role in ensuring that transactions occur smoothly and without errors, especially when dealing with different blockchains and older legacy systems. They help maintain consistency and reliability throughout the transaction lifecycle.&nbsp;



Moreover, they also contribute to enhancing overall asset transfer security, especially against threats like unauthorized access attempts and manipulation of data. They do this by establishing a secure communication network that supports essential operations like authentication and encryption. This means that the information and transactions within the system are better protected from potential risks.



It’s unlikely that SWIFT’s dominance over the transfer of financial information and messages will be broken soon, but its research into interoperable blockchains and tokenization provides major hope toward reducing the inefficiencies caused by intermediaries — such as delays in transactions, additional costs and fees, dependency risks, lack of transparency and compliance challenges. Recognizing SWIFT as a legitimate and necessary financial institution while building the necessary infrastructure to do what it does but more efficiently, affordably and securely provides the best short-term path toward a future free from middlemen.



Regardless of what comes from SWIFT’s experiments with blockchain, institutional adoption of blockchain technology will continue to grow as <a href="https://www.securities.io/bny-mellon-believes-digital-assets-are-here-to-stay-2022-survey-results-revealed/">97%</a> of institutional investors believe tokenization will revolutionize asset management. Meeting this demand and bridging these two disconnected ecosystems can only be done through interoperability and automation, which can do what intermediaries do but cheaper and faster.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Eitan Katz is the CEO and Co-Founder of Kima. Prior to Kima, Eitan served as a seasoned executive with a distinguished background and leadership roles at the IDF (Intelligence/8200), HP, HPE, and BMC. His list of accomplishments includes building HP’s Global Innovation and Incubation program, leading HPE’s Enterprise Mobile platform, and being a 3X founder, as well as a founding member of Aegis, the first MPC-based bitcoin wallet. Eitan’s training in the Elite Israeli Intelligence Forces along with his experience, has instilled in him a unique perspective on deep technology, leadership, strategy, and execution.</div>


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Blockchain really is better than middlemen

Shalini Nagarajan

The Society for Worldwide Interbank Financial Telecommunication (Swift) on Thursday announced successful experiments of tokenized asset transfers across multiple blockchains.



A new series of experiments revealed that Swift’s infrastructure could potentially eliminate &#8220;significant friction&#8221; hindering the growth of tokenized asset markets.



As a global interbank messaging system connecting over 11,000 banking and securities institutions across more than 200 countries, Swift plays a pivotal role in financial communications.&nbsp;



The organization identifies one of the key challenges facing investors and institutions is the fragmentation of tokenized assets across multiple blockchains.



Among its findings, a lack of regulatory clarity remains a primary obstacle, along with the need for data privacy, which Swift characterized as “fundamental to any commercial solution.”



Swift emphasizes that cross-platform compatibility is essential among these blockchains. Otherwise, financial institutions would be burdened with the complex and costly task of establishing individual connections to each.



In light of these complexities, investment bank Citi <a href="https://ir.citi.com/gps/MG9DEWhoYvQJVWLM9Kr3%2BZmqjoztKJcyNHr83F9Wug2pzAGHPQKfp23RAMrkNts%2FJitXoTNqufOvegUjjXh0IA%3D%3D">projects</a> a booming future for the tokenization market, estimating its potential value to escalate to between $4 trillion and $5 trillion by the end of the decade.



Read more: <a href="https://blockworks.co/news/tokenization-standards-finance-crypto">We’re thinking about tokenization all wrong</a>



In June, Swift announced its aim to link private and public blockchains <a href="https://blockworks.co/news/banks-can-10x-the-blockchain-industry-says-chainlink-co-founder">in a trial collaboration with Web3 provider Chainlink</a> and major financial institutions like BNP Paribas and BNY Mellon.



Now, it says the collaboration has effectively shown its capability to serve as a unified access point for multiple networks, using secure existing infrastructure.&nbsp;



The experiments were conducted on public testnets Ethereum Sepolia, Avalanche Fuji and a private Quorum blockchain.



“It’s now clear that both top global banks and leading market infrastructures believe there will be greater adoption of digital assets across the entire banking industry, and that this adoption will happen using multiple different blockchain technologies at the same time,” Chainlink co-founder Sergey Nazarov said in a statement.



“The collaboration between Swift, over ten of the largest financial institutions, and Chainlink also proved that interoperability across chains is critical to enabling the next stage of digital asset adoption across the global financial system,” he added.



After examining design and technical components with an emphasis on data privacy, governance, and risks, the latest experiments involved simulated transfers of tokens. These transfers took place within a single public blockchain, between different public blockchains, and also between public and private networks.



Swift&#8217;s infrastructure shows potential for facilitating the integration of Central Bank Digital Currencies and other digital assets with both new and existing payment systems.



The organization said it intends to continue exploring various blockchain technologies, concentrating particularly on public permissioned ledgers.



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Swift details findings in tests of Chainlink’s cross-chain interoperability

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

Sebastian Sinclair

Signature Bank has told Binance it will no longer be handling SWIFT transactions for its customers below $100,000 next month in a bid to decrease its reliance on digital asset deposits.



Support for transactions below the threshold from its fiat trading partner would cease by Feb. 1, Binance said in a statement seen by Blockworks. Users will be unable to buy and sell crypto via their Signature bank account using the interbank messaging system following the limitation.



Using one of the other fiat currencies supported by Binance, including euros, and Binance’s P2P marketplace will continue to operate as usual, Blockworks was told. Bloomberg first <a href="https://www.bloomberg.com/news/articles/2023-01-22/binance-says-signature-sets-transaction-minimum-amid-pullback" target="_blank" rel="noreferrer noopener">reported</a> the news.



A spokesperson for Binance told Blockworks the exchange was “actively working” to find an alternative solution. Fewer than about 0.1% of its average monthly users are currently being serviced by the bank, they said.



The change doesn’t affect the vast majority of Binance’s users, who already use national or regional payment rails — such as SEPA in the EU and ACH in the US — to on- and off-ramp local currency to crypto exchanges.



Other banking partners of Binance have yet to follow up with similar announcements, including many across South East Asia — a region heavily serviced by the bank.



Signature, a New York State-chartered commercial bank and FDIC member, is a major partner to many of the industry’s leading exchanges including OKX, Bitstamp, Bithumb, eToro, Huobi and Kraken.



In its statement, Binance said all of Signature’s existing crypto exchange clients would be impacted by the move come February. When pressed, Binance&#8217;s spokesperson told Blockworks the team working on the issue was based in separate timezones and as such were unable to provide evidence to back the exchange’s claim on short notice.



Signature is attempting to limit its exposure to digital asset deposits following a “challenging cryptocurrency environment” spurred on by several bankruptcies and failures last year, Signature said in an <a href="https://investor.signatureny.com/pme/press-releases/news-details/2023/Signature-Bank-Reports-2022-Fourth-Quarter-and-Year-End-Results/" target="_blank" rel="noreferrer noopener">earnings call</a> last week.



Total deposits in the fourth quarter for the bank declined by roughly $14.2 billion to $88.6 billion, primarily driven by its planned reduction in digital asset banking deposits, which fell about $7.4 billion, the bank said.&nbsp;



Blockworks was previously told by Signature it was in the process of decreasing digital asset deposits to between <a href="https://blockworks.co/news/banks-crypto-efforts-undeterred">15% and 20%</a> of the total $110 billion in various assets it holds.



The bank did not immediately reply to a request for comment.



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Signature Bank Limit on SWIFT Transactions with Binance Affects Few

Casey Wagner

<div id="highlights-block_633df1cf263e0" class="highlights">
 <ul>
 <li>SWIFT says it is ready to take on CBDC cross border payments</li>
 <li>The development is a sign that central banks are starting to seriously think about infrastructure related to the roll out of nation-backed digital currencies</li>
 </ul>
 
</div>



Financial infrastructure company SWIFT on Wednesday said it has solved a particularly vexing problem for central bank digital currencies (CBDCs): how to transact between different blockchains. 



The development is one indicator that central banks are, at last, starting to seriously map out the massive, costly infrastructure required to roll out digital currencies backed by countries, according Kenneth Goodwin, Blockchain Intelligence Group’s director of regulatory and institutional affairs. SWIFT’s own outline has been at least eight months in the making.



Goodwin, who also works with Project Hamilton — an economic think tank that works with the Boston and New York Federal Reserves — said SWIFT’s scale adds weight to its blueprint.



“The central banks are basically saying — these governments are saying, ‘How do we have the right network infrastructure that&#8217;s going to prepare us…to actually do these executions on a digital platform that&#8217;s very secure?” Goodwin said. “And that&#8217;s where SWIFT comes into play.”



One reason the research has taken so long, according to Goodwin: the thorny choice between incorporating CBDCs with SWIFTs’ existing payment rails or competing against a crypto-native competitor such as Bitcoin’s Lightning Network.



Lightning Network, a layer-2 payment protocol built atop Bitcoin’s core blockchain, taps the <a href="https://lightning.engineering/posts/2022-9-28-taro-launch/" target="_blank" rel="noreferrer noopener">newly-created</a> Taro protocol for issuing assets such as stablecoins — and potentially CBDCs — on the blockchain, then utilizing Lightning to execute transactions. 



“SWIFT has successfully shown that Central Bank Digital Currencies (CBDCs) and tokenised assets can move seamlessly on existing financial infrastructure – a major milestone towards enabling their smooth integration into the international financial ecosystem,” SWIFT said in a statement.&nbsp;



The team conducted two separate experiments and found that digital currencies and assets can flow smoothly alongside, and interact with, their traditional financial counterparts on the network.&nbsp;



SWIFT is already being used to connect more than 11,500 banks and funds across 200 countries.



When it comes to establishing a CBDC system that works worldwide, “it all has to do with infrastructure, but it also has to do with familiarity,” Goodwin said.



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SWIFT Says It Can Resolve a Major Obstacle to CBDC Adoption

In the latest episode of &#8220;<a href="https://youtu.be/U-FS_Jff8nQ" target="_blank" rel="noreferrer noopener">Empire</a>,&#8221; Weekly Roundup, Blockworks&#8217; Jason Yanowitz and Santiago Roel Santos are joined by Simon Taylor for a deep dive into the very relevant topic of SWIFT.



With recent sanctions placed on Russia, Simon explains what this means for the Russian economy going forward. Simon, Jason and Santiago dispel some misnomers and create a concrete definition of everybody&#8217;s current question: What is SWIFT?



Jason and Santiago also talk about:



<ul><li>Stablecoins as a geopolitical weapon</li><li>Nostro vs. Vostro accounts</li><li>How SWIFT works</li><li>And so much more</li></ul>



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="What is SWIFT &amp; How It Impacts Russia | Weekly Roundup" width="1024" height="576" src="https://www.youtube.com/embed/U-FS_Jff8nQ?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



<h3 class="wp-block-heading">About the show</h3>



&#8220;Empire&#8221; is a twice-a-week show. On Thursdays, Jason interviews crypto industry movers and shakers to talk about their struggles, bold moves and tough decisions. Friday&#8217;s weekly roundup episodes feature <meta charset="utf-8">co-host Santiago Roel Santos and cover the top news from the past week.



For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; as a &#8220;How I Built This&#8221; for the bitcoin and crypto industry.



Subscribe to &#8220;Empire&#8221; today on&nbsp;<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://open.spotify.com/show/4UTePv1CR3APdKOiosR3Iq" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/playlist?list=PLvER9nHSRN3wPkrDGTT5_8VC4Hjcq0f9U" target="_blank" rel="noreferrer noopener">YouTube</a>.



<hr class="wp-block-separator"/>



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<hr class="wp-block-separator"/>

Podcast: What Is SWIFT and How It Impacts Russia | Weekly Roundup

<div id="highlights-block_621edb3f6c7cb" class="highlights">
 <ul>
 <li>The gaming and metaverse giant said it wanted to avoid being &#8220;financially excluded&#8221; for fear of being associated with a sanctioned country</li>
 <li>It is unclear whether the company will block purchases of SAND, the utility token used within a metaverse produced by The Sandbox, Animoca&#8217;s subsidiary</li>
 </ul>
 
</div>



Blockchain and metaverse gaming giant Animoca Brands decidedly cut ties with its Russian users on Tuesday, citing sanctions by Western powers over the Ukrainian invasion as justification.



According to a <a href="https://www.bloomberg.com/news/articles/2022-03-01/animoca-breaks-with-crypto-peers-by-cutting-off-russian-users#:~:text=Animoca%20Brands%20Corp.%20Ltd%2C%20one,to%20the%20invasion%20of%20Ukraine." target="_blank" rel="noreferrer noopener">report by Bloomberg</a>, Animoca will no longer provide its services to customers belonging to the former Soviet power by blocking users and restricting access to its shares.



The move comes as Ukraine’s vice prime minister and minister of digital transformation, Mykhailo Fedorov, urged cryptocurrency exchanges in a&nbsp;<a href="https://twitter.com/FedorovMykhailo/status/1497922588491792386?s=20&amp;t=vpx6bGwfVpJ0KnBJkpRXvg" target="_blank" rel="noreferrer noopener">tweet</a>&nbsp;Sunday morning to block addresses belonging to Russian users.



Crypto businesses have been <a href="https://cms.blockworks.co/crypto-exchanges-weigh-blocking-russian-accounts-as-sanctions-intensify/" target="_blank" rel="noreferrer noopener">weighing up</a> a decision to follow through on the minister&#8217;s request, though most have reportedly <a href="https://www.cnbc.com/2022/02/28/binance-will-not-block-russian-accounts-after-ukraine-request.html" target="_blank" rel="noreferrer noopener">decided not to pursue</a> such measures. Animoca, by contrast, has become one of the few in the industry to comply.



It is unclear whether the company will attempt to block purchases of SAND, the utility token used within a metaverse produced by Animoca&#8217;s subsidiary The Sandbox. Animoca did not immediately respond to Blockworks&#8217; request for comment.



On Feb. 24, Russian troops were ordered to cross into Ukrainian territory by President Vladimir Putin following weeks of US intelligence warnings. The invasion was swiftly condemned by most of the Western world which also moved to sanction major Russian banks, oligarchs and businesses. 



Sanctions extended to Russian financial institutions&#8217; use of the SWIFT interbank settlement system, hindering their ability to operate effectively within the global financial system. 



In an interview with Bloomberg and cited in the report, Animoca co-founder Yat Siu said the company&#8217;s decision would likely affect subsidiaries such as Gamee and blockchain fitness company Lympo, although — given the low population of Russian users — it was unlikely the impact will be substantial.



<blockquote class="wp-block-quote">“The legal advice we’ve been receiving is we now have to impose some restrictions,” said Siu. “It’s a sanctioned country on par with North Korea. The moment we end up doing business in those areas, we might ourselves become financially excluded from the financial system.”</blockquote>



Hong Kong-based Animoca was founded in 2011 with a focus on developing and publishing mobile games and applications. The company, which has since branched out to blockchain and artificial intelligence, has raised a total of $627.7 million in funding, according to data provider <a href="https://my.pitchbook.com/profile/65039-59/company/profile#deal-history/186770-35T" target="_blank" rel="noreferrer noopener">Pitchbook</a>.



The company received $358.89 million of development capital in January via Liberty City Ventures, Delta Blockchain Fund and 10T Holdings, among others, boosting the company&#8217;s pre-money valuation to $5.44 billion.



That, in turn, had doubled from a $267.8 million private equity deal in October where Animoca was valued at $2.2 billion.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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Blockchain Gaming Giant Animoca Brands Halts Services to Russian Users

Sam Reynolds

<div id="highlights-block_61bc6ea326563" class="highlights">
 <ul>
 <li>Russia is accelerating efforts to develop a CBDC in light of possible sanctions on its financial industry from the US and EU</li>
 <li>At the same time, the country is preparing a bill for lawmakers that would have a “zero tolerance” approach to cryptocurrency</li>
 </ul>
 
</div>



With the threat of Russian banks being possibly disconnected from the global financial system, Moscow is working to develop a central bank digital currency (CBDC) in an effort to give its domestic banks international liquidity should this happen. 



As the world waits to see if Moscow intends to invade Ukraine, American officials are reportedly talking to their counterparts in Europe about preparing a broad sanctions package, which could include banning Russian banks from using the<a href="https://www.bloomberg.com/news/articles/2021-12-16/u-s-pushes-eu-to-ready-russia-sanctions-hitting-energy-banks" target="_blank" rel="noreferrer noopener"> SWIFT interbank system</a>. Such a move would curtail Russian banks&#8217; access to foreign liquidity in the form of the world’s major currencies such as dollars, euros or yen. 



The Bank of Russia is cognizant of the risks this presents to the broader stability of the Russian banking system should this occur and is accelerating efforts on <a href="https://www.cbr.ru/eng/press/event/?id=12523" target="_blank" rel="noreferrer noopener">developing a CBDC</a>. According to a white paper published by the bank, a prototype is due by the end of December, with trials expected to begin in January. In the second stage of trials, expected by mid-2022, the Bank of Russia is expected to invite non-banking partners such as exchanges and credit institutions to the network. 



In addition, the bank is expected to make the digital ruble freely convertible to foreign currencies and is encouraging foreigners to own the CBDC. Its whitepaper mentions smart contract-like vehicles to automatically convert the digital ruble into foreign currencies. 



This contrasts with China’s approach to its CBDC, the eCNY, which is not meant to internationalize China’s currency, the CNY, but rather to <a href="https://cms.blockworks.co/experts-chinas-cbdc-is-all-about-finance-control/" target="_blank" rel="noreferrer noopener">wrest control of payments</a> and money supply away from AliPay and WeChat Pay while improving the efficiency of ‘cross-border’ flows of capital between mainland China and its territories of Hong Kong and Macu. 



In addition, the Russian ruble is <a href="https://www.cbr.ru/eng/dkp/exchange_rate/" target="_blank" rel="noreferrer noopener">freely convertible</a> with foreign currencies, a policy first <a href="https://www.aljazeera.com/news/2006/7/1/russia-makes-rouble-fully-convertible" target="_blank" rel="noreferrer noopener">implemented in the mid-2000s</a> to make it easier for foreign companies to invest in Russia and for Russian companies to invest globally. China’s currency is not freely convertible, thus Chinese firms use Hong Kong as a <a href="https://www.deacons.com/2016/03/31/chinese-companies-going-outbound-will-continue-to-use-hong-kong-as-an-investment-platform/" target="_blank" rel="noreferrer noopener">launchpad for foreign investment</a>.   



The effort comes as authorities in Russia are preparing to present a bill to lawmakers that would push for a zero tolerance, total ban of crypto in the country.



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<blockquote class="twitter-tweet" data-width="550" data-dnt="true">12:40:00 &#8211; RUSSIAN CENTRAL BANK TO SEEK BAN ON INVESTMENT IN CRYPTOCURRENCIES IN RUSSIA &#8211; TWO FINANCIAL MARKET SOURCES&mdash; db (@tier10k) <a href="https://twitter.com/tier10k/status/1471460198665666564?ref_src=twsrc%5Etfw">December 16, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The Bank of Russia recently <a href="https://cbr.ru/press/event/?id=12526">banned mutual funds</a> from investing in crypto or creating listed digital asset macro proxies.&nbsp;



It’s not yet known how extensive this ban on crypto would be, or if it would be eventually watered down like India’s supposed ban. In India, what was first called a ban on all “private cryptocurrency” <a href="https://cms.blockworks.co/cabinet-note-says-no-crypto-ban-in-india-only-regulation/" target="_blank" rel="noreferrer noopener">eventually morphed into a ban on private crypto wallets</a>, requiring traders to only use registered accounts on exchanges for KYC/AML and tax compliance reasons.&nbsp;



The other option would be for the digital ruble to become the required on-ramp for crypto, which is something that India is said to be considering for its CBDC. This would satisfy KYC/AML requirements while also giving Russia’s CBDC liquidity via interest from crypto traders living in-country. It would also curb the use of Tether for <a href="https://www.coindesk.com/business/2019/07/30/millions-in-crypto-is-crossing-the-russia-china-border-daily-there-tether-is-king/" target="_blank" rel="noreferrer noopener">cross-border transactions</a> between Russia and China, which is said to have daily volume in the tens of millions because of the lack of international liquidity of either currency abroad. 



The sense of urgency in Russia’s CBDC development might fade should the US not use a SWIFT ban as a deterrent for invading Ukraine. While it is reportedly being considered, there’s also <a href="https://www.ft.com/content/21a9b239-f68c-4821-9586-8d60b8c044f0" target="_blank" rel="noreferrer noopener">concern that this ‘nuclear option’</a> would have undesirable downstream effects — including potentially decreasing the dollar’s global dominance. 



The Bank of Russia did not respond to Blockworks’ requests for comment.



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