Crypto regulation in the Western world: towards more global uniformity?

| 24-1-2020 | Carlo de Meijer | treasuryXL

In my last Blog I suggested that regulation of the crypto markets would be one of the main issues for 2020 and beyond. There seem to be urgent need for more clarity on many cryptocurrency issues. The EU Fifth ALM Directive came into effect early January, while ESMA announced its plans to develop a legal framework for cryptocurrencies in 2020. In the US the Crypto Currency Act of 2020 is being discussed in the House of Representatives. My prediction that a growing number of regulators worldwide would more prominently enter the crypto stage this year will come true. Main question is: will this lead to more uniformity in the regulatory approach worldwide?

European Commission consultation on EU crypto framework

In December last year, the European Commission launched a public consultation on the future EU framework for markets in crypto-assets. It thereby seeks stakeholder views on, among others, the usefulness, means and features of future crypto-assets classification.

The Commission notes that the lack of any comprehensive classification of crypto-assets leads to uncertainty in the markets, as to whether (and potentially which) such assets fall within the scope of EU financial services legislation by means of being MiFID II financial instruments.

The Commission also seeks stakeholder views on the importance of specific benefits related to crypto-assets and also specific risks related to its use. The Commission notes that while crypto-assets can bring about significant economic benefits in terms of “efficiency improvements and enhanced system resilience”, they can also cause potential challenges for their users.

The consultation document includes detailed questions designed to assess legislation applying to security tokens and including, but not limited to, MiFID II, Market Abuse Regulation, Short Selling Regulation, Prospectus Regulation, Central Securities Depositories Regulation, EMIR and UCITS.

More broadly, the Commission seeks views whether a tailor-made EU regime for crypto-assets would “enable a sustainable crypto-asset ecosystem” and whether the use of crypto-assets in the EU would be “facilitated by the greater clarity as to the prudential treatment of financial institutions’ exposures to crypto-assets”. The current consultation remains open until 19 March 2020.

The consultation paper: Three main parts

This consultation paper consists of three main parts: (1) Classification of crypto-assets, (2) Crypto-assets that are not currently covered by EU legislation; and (3) Crypto-assets that are currently covered by EU legislation.

a. Classification of crypto-assets
The Commission acknowledges that while there is a wide variety of crypto-assets in the market, there is no commonly accepted way of classifying them in the EU. There is still a lack of a single and broadly accepted definition.  For the purpose of this consultation, the Commission defines a crypto-asset as “a digital asset that may depend on cryptography and exists on a distributed ledger”.

b. Crypto-assets not covered by EU legislation
The consultation document includes specific questions focused on service providers related to crypto-assets, and in particular the issuance of crypto-assets, trading platforms, exchanges, provision of custodial wallet services for crypto-assets and other service providers.

The Commission notes that such activities and services providers remain – with some exceptions – outside the European (and national) legislative and regulatory framework and considers that “regulation may be necessary in order to provide clear conditions governing the provisions of these services.”

c. Crypto-assets covered by EU legislation
The Commission considers “security tokens” as crypto-assets “issued on a DLT and that qualify as transferable securities or other types of MiFID financial instruments”. For activities concerning such security tokens qualifying as MiFID II investment services/activities, authorisation is required.

In summarising trends concerning security tokens, the Commission admits “the limited evidence available at supervisory and regulatory level” and that “existing requirements in the trading and post-trade area would largely be able to accommodate activities related to security tokens via permissioned networks and centralised platforms”.

Fifth EU Anti Money Laundering Directive

The Fifth EU Anti Money Laundering Directive  that took effect from 10 January 2020 puts a regulatory framework for all 28 EU members to date. Even the United Kingdom has decided to implement the law despite its decision to leave the EU.

The new Directive defines crypto-assets as “digital representation of a value that is not issued or guaranteed by a Central Bank or a public authority and that does not have the legal status of a currency or money, but that based on agreement or practice is accepted by natural or legal persons as means of payment or exchange or is used for investment purposes and that is transferred, stored and traded electronically”. This is to specifically exempt digitally stored and transferred fiat money, but include both payment and security tokens.

Among the most notable changes are that cryptocurrency service providers will have to follow Know-Your-Customer (KYC) rules. Cryptocurrency platforms and wallet providers are required to identify their customers for anti-money laundering purposes. All transactions will have to be monitored, and companies will need to file Suspicious Activity Reports (SARs) with law enforcement. The new KYC mechanism would require personal ID when opening an account on EU-operating exchanges. The proof-of-identity would serve as insurance, for not making any illicit financial operations.

The New Regulatory Framework is mandatory for all EU-based crypto exchanges and custodial wallets. Every crypto exchange operating on the European Union market must meet the legislation in order to continue its operation in the EU. They had to achieve compliance with the rules already by 10 January.

Worldwide exchanges must undergo an AML/KYC upgrade for the EU market, as until now, there were no rules about implementing such mechanisms.  However, meeting those regulations would streamline the EU market to become competitive to other regulated markets, such as the United States.


For firms buying and selling crypto assets, the Fifth Anti-Money Laundering Directive will require them to register with national financial regulators. The way exchanges and crypto-oriented companies must verify they are KYC-compliant, is via appropriate licensing in every jurisdiction. It also states minimum requirements for AML processes, similar to what we see with traditional asset classes.

Unless any company wishes to leave the EU, they should comply in full. Because the Directive requires crypto-related firms to register with their national regulators and comply with a variety of AML guidelines, it’s likely that some firms may struggle to adjust to the new regulatory environment. European crypto exchanges and companies are still far behind the “KYC-ready” state that the Directive requires.

While U.S.-based exchanges have the expertise to deploy AML/KYC protocol updates to comply with the EU Directive, crypto exchanges in the EU however have shown mixed readiness for KYC upgrades to their platforms. The majority of EU-operating exchanges have taken a so-called “procrastinating” approach. That could be very bad for those as, if the services do not comply with any of these requirements, they will have to pay fines and penalties, or even risk being shut down.

And while the Fifth Anti-Money Laundering Directive suggests a “harmonized regulatory framework,” there are significant differences in the ways the Directive is being implemented across the European Union.

ESMA aims to develop legal framework for cryptocurrencies in 2020

Early this month ESMA published its 2020-2022 priorities list, noting that EU capital markets are facing new risks from digitalisation. ESMA wants market participants to acknowledge and prepare for these apparent risks. In its Strategic Orientation, the regulatory agency also revealed its plan to bring a legal framework for digital currencies and related products.

“The dangers of cyber threats to the financial system as a whole and a sound legal framework for crypto-assets are increasingly becoming areas of focus for ESMA together with the other ESAs, the ESRB, the ECB and the European Commission.”

“The new Strategic Orientation sets out how we will exercise our new powers, and meet our new responsibilities, in pursuit of our mission of enhancing investor protection and promoting stable and orderly financial markets in the EU,” Steven Maijoor, chairperson of ESMA

The European agency had already been watching the digital asset industry for a while and has been grappling with the question of how to regulate cryptocurrencies and securities in the space. Last year it issued an advisory on initial coin offerings (ICOs) and crypto-assets, highlighting that some crypto-assets may qualify as MiFID financial instruments.

US Crypto Currency Act 2020-2022

But also in the US more crypto regulation is arriving, triggered by the possible launch of Facebook’ s Libra. The introduction of the Cryptocurrency Act of 2020 is seen as a vital move in regulating crypto markets. The goal of the new legislation is to provide additional clarification on digital asset regulations to the market and create a framework for cryptocurrencies, thereby countering the negatives of crypto investing.

The Act has now been introduced in the US House of Representatives. The bill has some wide-ranging regulations that, if voted into law, could reshape the crypto landscape moving forward – at least in the United States, but also elsewhere.

The objective of the Act is to enforce regulations and to force crypto companies to play by the same rules. The Cryptocurrency Act 2020 categorises digital assets into three main groups: crypto-commodities, cryptocurrencies, and crypto-securities. The draft bill thereby contains broad definitions of the types of digital assets. It further determines the various regulatory bodies that will oversee the crypto currency space and will be responsible for the creation of regulation and legislation. The Act thereby seeks to clarify the power of each government agency to regulate the crypto space.

Up till now multiple government agencies have been competing to regulate the crypto space, leading to a confusing mixture of laws. This is suppressing the crypto space, since crypto companies can be attacked by multiple federal agencies.

Additionally, rules will be established with the goal of tracing all crypto and digital currency transactions, in addition to the personal facilitating the transacting, similar to other traditional currency transactions, securities fraud, corporate auditing and other financial activities.

Digital assets: Three main groups

The most interesting change is how digital assets are to be split up into three main categories. A distinction is made between cryptocurrencies, crypto-securities, and crypto-commodities.

a. Cryptocurrencies
The draft bill puts cryptocurrencies in a separate category of digital assets. They are defined  as “representations of US currency” synthetic derivatives backed by smart contracts or collateralized by other digital assets (resting on a blockchain or decentralized cryptographic ledger).

The crypto class includes Bitcoin, Bitcoin Cash, Litecoin, and any other cryptocurrencies that don’t fall under the current securities regulations. Smart contracts and oracles fall under the cryptocurrency category as well. Furthermore, the role of stablecoins will be scrutinized, as not all of these currencies are created equal.

The Financial Crimes Enforcement Network (FinCEN) is to overlook cryptocurrency regulations, on behalf of the Treasury secretary. FinCEN will thereby need to collaborate with the Secretary of the Treasury to enforce AML and KYC protocols in the market. Primarily, regulators want to develop a way to trace all cryptocurrency transactions, which seems highly questionable.

b. Crypto-commodities
The bill defines crypto-commodities as all digital assets, regardless of who produced them, stored on a “blockchain or decentralized cryptographic ledger”. A key aspect of these tokens is the fact that they contain some form of substantial fungibility. Fungible assets are interchangeable, such as the USD.

The Commodity Futures Trading Commission (CFTC) is to be responsible for regulating crypto-commodities. The group will need to develop the framework for these tokens from the ground up if the legislation passes. Due to the rise of cryptocurrencies, it is expected crypto-commodities will play a major role in the space going forward.

c. Crypto-securities
Crypto-securities, the most comprehensive of the three types of digital assets, “include all debt, equity, and derivative instruments that rest on a blockchain or decentralized cryptographic ledger.” These tokens are simply any coin that “fails the Howey Test”. What the Howey test defines is whether or not an asset will be categorised as a security by financial regulators.

The draft bill’s exceptions to crypto-securities are as follows: “A synthetic derivative operating as a money services business and registered with the Department of the Treasury; and, or Any security that operates in compliance with the Bank Secrecy Act “and all other Federal anti-money laundering, anti-terrorism, and screening requirements of the Office of Foreign Assets Control and the Financial Crimes Enforcement Network.”

In the Cryptocurrency Act 2020 security tokens are to be overlooked by the Securities and Exchange Commission (SEC).

Growing need for crypto compliance professionals

The fast evolvement of crypto regulation worldwide as well as the – sometimes very – different approaches ask for a large number of regulatory and compliance professionals. There is still a great lack of knowledge of future crypto compliance and governance, so finding, recruiting and hiring these people may become a big challenge especially for smaller firms. Bigger companies generally will likely have the necessary procedures and processes already in place needed for crypto from working with other asset classes.

The news of “pending” clarity of new government regulation is mobilising a growing number of professionals (crypto accountants, tax professionals and compliance officers) to study the various compliance issues that are arising from these mostly different crypto regulations. They are working together to use any available information to accurately meeting the new reporting and compliance requirements for 2020 and beyond.

Towards a global regulatory framework?

The year 2020 should be seen as the start of a regulatory revolution for cryptocurrencies. Regulatory initiatives in both the EU and the US could trigger new cryptocurrency regulations around the world, to attribute regulatory clarity to the global crypto market.

A global regulatory framework for cryptocurrencies however will not be easy to implement. Bringing a complex and fast evolving area like cryptocurrencies into a global framework is going to be a difficult and lengthy process.

In countries all over the world, governments have been struggling to develop laws and guidelines regulating the use of cryptocurrencies currencies. This has resulted in a patchwork of different regulations.

But while the approaches of other governments may initially remain quite different, most experts however believe that, triggered by the regulatory approaches in the EU and the US  such a global framework will be a reality at the end of this decade

Carlo de Meijer

Economist and researcher


Blockchain Information Event

| 17-01-2020 | by RBS |

Here is your reminder to join the free event: Blockchain, What is it and what does it do for your supply chain? The event will take place on January 27th, 2020 at the Rotterdam Business School, Kralingse Zoom 91.

Blockchain is a new disruptive technology that together with Artificial Intelligence (AI), Internet of Things (IoT) and Big Data promises to change the way we do business today. It seems to have a major potential to make supply chains more efficient and transparent by cutting out middlemen and creating possibilities to do trusted peer-to-peer transactions on a global scale. However:

  • What is Blockchain exactly and how does it work?
  • What can Blockchain be used for?
  • Are there proven user cases?
  • How can blockchain be used to create value?

These and other questions related to Blockchain will be answered at the event.

January 27, 2020

16:00 – 20:00 




15:45 – 16:00    Welcome with coffee

16:00 – 17:00    Blockchain in the supply chain: financial and sustainable solutions

Victor van der Hulst, Blockchain expert Windesheim University of applied sciences

17:00 – 17:10     The logistics applications of Blockchain

Ron van Duin, professor of applied sciences, Rotterdam University of applied sciences

17:10-17:30        Best blockchain thesis award

17:30-17:45        A proven blockchain user case: Dutch & Belgian government: Waste transportation

Martijn Broersma LTO Network

17:45 – 18:00     Coffee break

18:00 – 19:00     Break out sessions

      1. Blockchain and the food chain
        Chair: Josanne Heeroma ten Katen (RUAS)
      2. Blockchain and supply chain finance
        Chair: Luca Gelsomino (UASW)
      3. Blockchain and fashion
        Chair: Chris van Veldhuizen (TMO)
      4. Blockchain and the off-shore industry
        Chair: Arthur Fellinger (RUAS)
      5. Blockchain and paperless document flows
        Chair: Martijn Broersma (LTO Network)

19:00-19:30        Wrap up

19:30-20:00       Social drinks


The event is a cooperation between the Masters of International Business the SIA-RAAk project Blockchain for SME’s and the National Blockchain Thesis Table. It’s aim is to disseminate knowledge acquired by applied research and stimulate the cooperation within the triple helix: business, research and education. For questions contact:


What may we expect for blockchain and the crypto markets in 2020?

| 3-1-2020 | Carlo de Meijer | treasuryXL

2019 was a remarkable year for blockchain technology. A lot of things, some unexpected, happened. But now it is time to bring our attention to the New Year 2020. Just like last year, and the year before, we try to predict what awaits the blockchain industry. So, let’s look at what does 2020 have in store. What are the most expected events that will shape the blockchain ecosystem in 2020 and beyond?

The year 2019

By all measures 2019 was a transformative year for the blockchain and crypto space with a more realistic approach. Overall, our 2019 predictions worked out pretty much as expected. It was the year where the blockchain industry translated the hype of previous years into more practical use cases and further advancements in the field of blockchain and distributed ledgers.

Both corporates and customers were significantly increasing their understanding of where blockchain technology makes sense and where it doesn’t in terms of a solution for real business problems. The most memorable thing about 2019 for the blockchain space was the speed and sustainability with which it has regained recognition and legitimacy in the eyes of governments and institutional players. We saw the birth of new blockchain alliances, new next generation blockchain start-ups entering the market, the introduction of new infrastructure projects and a plethora of blockchain protocols matured and expanded in growth.

More spectacular was what happened in the cryptocurrency markets. New cryptocurrency trading products were launched and we saw the growth in the number of stable coins. We have seen an increase in governments, regulators and central banks engaging with crypto in general. Many central banks are paying close attention to the benefits of blockchain and the need for their own digital currency. This was mainly triggered by Facebook’s plans to launch its Libra crypto currency.

Gartner Hyper Cycle

But before going into my own predictions it is interesting to look at the Gartner Hype Cycle. According to Gartner during 2019 blockchain has passed the ‘trough of disillusionment’. The industry has learned some tough lessons regarding the difficulties surrounding widespread adoption of this technology. It showed that they were much ahead of its technical and operational maturity. During this stage most enterprise efforts remain stuck in experimentation mode, with very few meaningful applications for blockchain in the real world. As a result, interest has waned as most experiments and implementations failed to provide expected results. As a result earlier start-ups were forced to end their operations.

We are now on the peak of the slope of enlightenment, when corporates and customers really learn and begin to use the technology for practical, useful purposes that will change how companies, applications and users interact. According to Gartner, the 2020s will be the decade when blockchain technology will leave small-scale proof-of-concept projects behind, and makes its way into the operational structure of multinational corporations. Over the next couple of years it will expand into a number of pragmatic use cases in payment processing, data sharing, equity trading and contract/document keeping and tracking. Blockchain will be fully scalable by 2023, according to Gartner.

What to expect for 2020

Looking forward to the New Year 2020, there are several notable trends and movements in the blockchain and crypto currency area to watch. Some of the key trends we outlined this year will persist in 2020. Users of blockchain and distributed ledger technology will further focus on operational matters, deployment flexibility and, interconnectivity. They will look for enhanced services and tool offerings that meet their business needs.

Blockchain will enter the stage of more realism

1. Many blockchain start-ups will not succeed

A first prediction is that in 2020 many blockchain start-ups will not succeed in the market race for their blockchain production projects. An ordinary start-up with the use of the blockchain will not be able to get as high support as it happened before. The race will be difficult and only a few will survive the stiff competition, failing to provide expected results.

The problem does not lie with blockchain itself. There is the lack of uniqueness by these start-ups. Many repeat similar projects during the implementation of the blockchain. They create another alternative, rather than something conceptually new. Many start-ups will be just a simple waste of money since enterprises will not invest in a platform they are not confident about. Specialists and large companies are aimed precisely at finding new business opportunities for blockchain deployment. They will take a wait-and-see attitude. So it will last until the best use of this technology appears.

2. The token market will be cleaned up

Another expectation for 2020 is that the market for tokens will be cleaned up. As exchanges are forced to increasingly professionalise and investors gradually shift their focus to quality, so-called ‘zombie tokens’ for projects that are far from market-fit will be more aggressively delisted. New tokens coming to market will be few and will all be more mature. It is expected that the majority of publicly listed tokens will be delisted and/or cease trading. So from existing 2500 tokens actively traded today not more than 1000 tokens will be remain by the end of 2020.

3. Blockchain technology will become more mature

Blockchain itself, however, is far from a failure. What we have seen in 2019 is the increased maturity of the technology. And this trend will continue in an accelerated way in 2020 and beyond. Next year will mark the start of more mature and usable networks creating decentralised applications, building an increasingly competitive landscape for projects to “battle it out” in order to become mainstream.

Going forward, in order for blockchain platforms and the apps built on top of them to stand a chance of making their mark, the focus should be much more on improving usability and finding product-market fit. 2020 will see the launch of multiple ‘third generation’ blockchain projects, with a greater variety and reach of applications being built on top of the DLT ecosystem. Multiple large chains will be releasing significant technology upgrades such as Ethereum with ETH2.0 and NEM with Catapult, both in early 2020.

4. More realism will enter the blockchain market place

More realism is expected coming into the market towards blockchain and its implementation. Those responsible for blockchain projects will take a more informed and strategic approach. The effect will be that in 2020 there will be a more realistic and pragmatic approach to blockchain projects. Enterprise DLT teams will thereby focus on realistic use cases that might deliver a particular benefit and bring existing projects closer to, or into, production.

We will see a shift away from so-called R&D-type exploratory proof-of-concepts (PoCs) run in isolation to a focus much more on the end-to-end process to which blockchain/DLT will apply. This means more emphasis on how frameworks perform and how well they integrate with existing systems and, potentially, each other. As a result of this approach we will see more successful implementations of blockchain technology, whereby there will be improved ties between blockchain and business management solutions. .

Growing blockchain adoption by enterprises

Though scepticism will remains (for the time being), and many enterprises will take a wait-and-see attitude towards blockchain adoption, the increased maturity of the blockchain technology will certainly trigger adoption in the coming year(s). More and more enterprises will understand the added value of distributed ledger technologies (DLT), including transparency, immutability, and decentralization.

A Deloitte report revealed that 34% of companies have already initiated a blockchain deployment, while 86% of leaders are confident that its mainstream penetration is inevitable – results which are clearly indicative of the continued maturation of the market. But before seeing real widespread adoption blockchain technology will need to mature further, not only technically but also as a part of a more complete ecosystem.

1. Finance industry will continue to lead blockchain adoption

Once blockchain overcomes the initial hurdles, it will be a game changer for many industries with finance expected to be the “leading takers” of the blockchain technology. Unlike other traditional businesses, the banking and finance industry will not be extremely reluctant in adopting blockchain.

According to a recent PWC report, by 2020, 77 % of financial institutes are expected to adopt blockchain technology as part of an in-production process. Financial corporations are more likely to embrace blockchain for more traditional banking operations owing to the plethora of advantages it has to offer. Blockchain will more quickly take root in financial services for security and management of identities – first for businesses and later for consumers.

2. Enterprises outside the financial sector are more reluctant

Enterprises outside the financial sector however show a more reluctant attitude towards blockchain adoption. But moving into 2020, they may change their attitude towards a more positive but realistic one. Over the next 12 months, these companies will first need to analyse their business models, and ask how (as opposed to whether) blockchain is going to disrupt their industries.

With the growing maturity of this technology blockchain will become another piece of enterprise technology that helps an organization become more secure and efficient, even enabling new business models that grow the business or enable net-new businesses (some completely decentralized). Positive measurements of the value derived from blockchain in enterprise production environments will encourage a much broader uptake. With giant companies such as Amazon or Microsoft committing to building services around blockchain, we will begin to see accelerated adoption by enterprises and customers as they tackle the issues that have long time being hurdles for mainstream adoption – with real world solutions coming into play from 2020.

3. Further government integration of blockchain

Although governments around the world remain centralized, there are opportunities for them to incorporate decentralization into certain aspects of their activities. There are several countries, including the US, Japan, Denmark and even Estonia, that are already practising blockchain implementation in government agencies. Countries such as China and Estonia are utilizing blockchain to manage citizens’ healthcare data and create digital identity systems respectively.

In 2020 we may expect other governments actually accepting blockchain advantages and begin to use it to optimize financial and public services. We will certainly see further government integration of blockchain technology in order to process large quantities of data between agencies, services and administrative bodies each having their own database. Distributed ledgers will be crucial to streamlining interaction and information sharing between these entities. The adoption of blockchain technology for effective data management and the introduction of a distributed registry will greatly simplify this procedure and will improve the functions of government sectors.

4. Battle between private and public blockchains

In 2020, the battle between private and public blockchains will further heat up and the debate will reach corporate executive teams. Though enterprises often prefer to operate in their permissioned blockchain network and at first will be sceptical of public ledgers, this stance will change over time. The permissioned versus public network debate will see blockchain/DLT-based applications falling into two main categories: a. consumer-focused DApps, which will usually use public (permissionless) blockchains; b. enterprise applications, built almost exclusively on private (permissioned) networks using enterprise DLT frameworks.

While it’s not realistic today to support complex enterprise use cases at scale on a public blockchain, concerns about interoperability between multiple chain silos have already resulted in discussions about the role of public blockchains in enterprise processes. With multiple networks already existing for some of the most popular use cases (such as supply chain or trade finance), proliferation will continue.

5. Enterprises will utilize hybrid blockchains

As the hype around blockchain cooled, and corporates turned back to a more realistic approach, non-technical challenges and interoperability hurdles have emerged. Permissioned blockchains, while great for B2B uses, don’t connect with consumers who need an open ledger accessible by any mobile device via an API.

For this reason, many companies are looking for ways to close that gap and make the best of the decentralization of public blockchain networks on one side and the additional security of private networks on the other. Tech companies such as IBM and blockchain platforms like Corda and Ripple, are already responding with enhanced offerings and will continue to build these out to meet enterprise demand.

The International Data Corporation (IDC) reports that it is time for hybrid cloud initiatives to focus on IT goals, in addition to business objectives. 2020 is expected to be the year when we will start to see growing offerings of so-called hybrid blockchains. Hybrid blockchains, are a combination of a private or permissioned blockchain and public blockchain. According to surveys it is expected that more than 80% of future blockchain deployments will be hybrid or multi-cloud — or both. Especially networks with stringent data sovereignty and confidentiality requirements will clearly have chosen frameworks that support hybrid or multi-cloud models.

6. Interoperability will move center stage

In 2020, enterprises will increasingly focus on operational matters, demanding deployment flexibility and interconnectivity between networks. In 2020 the call for interoperability between the many blockchain networks and the various (and also distinct) protocols that have been launched will intensify. We still see a lot of private PoCs, often testing different blockchain technologies for the same purpose: to weigh the pros and cons. Each blockchain has varying levels of security, performance and privacy.

We have witnessed the emergence of multiple networks addressing the same use case. Already several networks cover identical or similar functionality, including: trade finance, invoice factoring, shipping documentation. Participants in these networks are keen to understand whether, and how, these various chains will be able to interact. These are all reasons we predict that the future will involve more focus on getting these to interoperate.

As networks expand, nodes will distribute across multiple cloud providers. This will apply even if a network leverages its managed blockchain offering from a service provider. Cross-blockchains pilots are expected to see live in 2020. The move of Hyperledger Besu to Linux Foundation Hyperledger, should be seen as a “definite” sign that permissioned Blockchains might start to cross. There is a thorough research conducted on how digital assets on various chains might co-exist.

7. Growing competition between blockchain platforms

Progressing to 2019, many enterprises joined existing consortiums around the most popular use cases. Most of these consortiums are now looking to go into production in 2020, thereby solving specific use cases including identity and document management, supply chain management, trade finance, IoT applications, etc.

For 2020 we expect more customizable permissioned networks forming as well as growing competition between blockchain platforms. Not only between the main existing blockchain platforms, Corda, Hyperledger, Ethereum and others, but also from new comers that could upset the existing balance. Who will become the market leader is still open. We also expect several integrations with other blockchain frameworks. Such as Digital Asset that is now firmly focused on its smart contract modelling language, DAML, integrating it with other frameworks. We will a number of interesting combinations emerge.

Blockchain communities will increasingly recognize the importance of good governance and will prioritize it in order to stay competitive and stand out from an increasingly crowded field of competing platforms.

8. Internet of Blockchains

Another development, may be not yet for 2020, but certainly for the coming years is the development of an Internet of Blockchains, just like the existing Internet. The next generation of blockchains will be a flexible system of a multitude of independent/sovereign yet cooperative entities with different applications, philosophies, and validator. The ecosystem will be an open, sovereign, secure network of interconnected blockchains, that will be able to interoperate made possible by interoperability protocols like Inter-Blockchain Communication.

Continued crypto currency confrontation

1. First national digital currencies will be launched

The Facebook Libra announcement has provoked a lot of debate at central banks throughout the word. From a recent survey 80% of countries are concerned about the popularity of uncontrolled financial assets. There is a consensus around the world among central bank governors and governments at large that they want to maintain control of money and money supply. A number of countries have already come with plans for launching their own national digital currency.

In 2020 we will see the launch of the first national digital currencies. It is thereby very likely central banks will focus on the wholesale market leaving the retail market for regulated institutions. China is pursuing its the Digital Currency/Electronic Payment (DC/EP) initiative and next year we will see the People’s Bank of China roll out its digital yuan. Russia’s Central Bank is also considering possibilities of issuing its own crypto Rouble in the near future, which would take the status of a national cryptocurrency. In addition, the World Bank, and the International Monetary fund have recently launched a private blockchain and quasi-cryptocurrency. The digitization of national currencies will continue its momentum in the coming years as more central banks and governments warm to the idea. Experts assumed that by 2022 at least five countries will issue a cryptocurrency.

2. Crypto currency market will be regulated

In 2019, there has already been a lot of talk about regulation in the blockchain industry and this will continue in 2020. The industry is evidently ripe for regulation granted the number of projects operating in the space. But the urgency for regulation has intensified. Government leaders and regulators worldwide are now wrestling with how they will handle blockchain technology and crypto currencies as we enter a new decade. The possible launch of Facebook’s Libra in 2020 forced regulators to take cryptocurrency seriously, and triggered many regulators to come up with more stringent regulation for crypto currencies, but without frustrating innovation. In order for blockchain and crypto to mature, enterprises and individuals need to feel completely comfortable leveraging this technology, secure in the knowledge that their government and legal systems support them.

3. Crypto currency market revised

In 2019 we saw many crypto projects failed and stopped their activities. As the crypto ecosystem matures, every project needs to have a viable use case, strong funding, strong community, and an experienced leadership team to succeed. It is expected that in 2020, this “weeding out” of poorly executed crypto projects will continue. Some even predict that “98% of crypto projects and their currencies will go to zero or have no viable exit for their holders”. In 2020, we may expect mergers and acquisitions to accelerate in the cryptocurrency sector across both exchanges and technology. In order to achieve full compliance and trust in the industry, exchanges have to work diligently to regulate themselves. In a similar way, we do believe exchanges will work more harmoniously toward regulation and pricing.

The trend we saw from the last few years that issuers are tokenizing fiat currencies and using them as easier exchange mechanisms on cryptocurrency exchanges will continue. There will be a clearer distinction between forms of currencies as payment tokens, utility tokens, asset tokens and security tokens. We will also see increased adoption of stablecoins, mostly fiat-backed, and driven from trading on exchanges. Another development will be the shift of major altcoins from being just a utility token towards more high-value transactions, even as a store of value. We see this shift will increasingly noticeable in 2020 as altcoins mature and demonstrate additional use cases to stakeholders and the investment community.

4. Banks will enter the crypto currency market

After the tumultuous 2019, the digital asset market will mature and crypto currency prices will continue to stabilize. As a result of this increased maturity it is expected to see more and more institutional investors enter the crypto markets in 2020 as education around digital assets improves. In 2020 we will also start to see other cryptocurrency payment systems gain momentum that do not come from legacy banking institutions. It is expected more banks to enter the crypto currency market in 2020, partly in a move to defend their positions. In this regard, we will see more big names in the financial industry coming into the blockchain and cryptocurrency sector.

Earlier this year, the US-based J.P. Morgan already announced the launch of a proprietary digital coin JPM Coin during 2020. Other examples are Fnality’s stablecoin, while the Japanese bank Mizuho announced its own crypto launch already in early 2019.

Integration Blockchain with other technologies

In 2020 we will also see the further integration of blockchain with other technologies such as the Internet of Things (IoT) and Artificial Intelligence. According to the IDC, many IoT companies are already contemplating the implementation of blockchain technology. According to them more than 20 percent of IoT deployments enabled blockchain based services by 2019 and this process will continue in 2020 and beyond. The IDC suggests that global spending on AI will reach $57.6 billion by 2020 and 51% of businesses will be making the transition to AI with blockchain integration.

Firms will gain measurable benefits from blockchain in conjunction with IoT and AI. Blockchain technology provides a secure and scalable framework for communication between IoT devices. Blockchain conducts much faster transactions compared to other platforms owing to its distributed nature of work.

Forward looking

As we recap, 2020 is going to be a pretty exciting year for blockchain in enterprises. If all these predictions come through and will be realised it may become a historical year for both blockchain and the crypto currency market, improving the attitude to this technology by corporates and consumers alike.

The focus will shift to integration and interoperability, from irrational exuberance to realistic assessment. So it looks like it is about to be THE year for new opportunities and achieving goals in a decentralized manner.

Blockchain projects and digital assets are set to grow in adoption with the like hood of rising breakthroughs in mainstream use cases. Potentially we will start to see some new business models because of the technology.

The future of blockchain is thus promising but there will still be stumbling stones in the initial stages of its journey. But leaving behind the concerns related to this technology, it seems that this innovation will gain the community’s trust.

To ensure the longevity of the blockchain and crypto industry into the next decade and beyond, key players need to work together to prioritize education, ensuring adoption continues to occur on a wider scale.

By the way, I wish everybody a great 2020.


Carlo de Meijer

Economist and researcher


Recap of the SCF Forum and Awards event 2019

| 23-12-2019 | by treasuryXL |

On the 28th November 2019, treasuryXL attended the SCF forum Europe 2019 in Amsterdam – an annual event. Here is our review of the day.

So, what is Supply Chain Finance (SCF)?

It is a series of processes, both financial and technological, designed to improve business efficiency and reduce financing costs by providing bespoke short-term funding solutions for both buyers and sellers, with a view to improving and enhancing working capital and liquidity for both buyers and suppliers.

There are three parties involved – buyers, suppliers and financial providers. Traditionally, banks acted as the provider of funding but, with the advent of fintech other non-bank firms are also offering solutions.

The ultimate purpose of SCF is to improve the cashflows for both buyers and suppliers.

Participants included banks, fintech, academia, together with companies that use SCF solutions such as DFDS, Airbus and Jumbo supermarkets.

The forum started off outlining the major themes surrounding SCF that needed to be considered:

  • Data collection and analysis
  • Education
  • Financial Flows
  • Procurement
  • Logistics – the missing link
  • Inclusiveness
  • Sustainability

Time was given to highlighting the awareness needed to form a true collaboration with all participants – intra firm, inter firm as well as the supply chain itself. No one department can successfully implement SCF on their own – it requires the input from a wide range of departments.

Rabobank gave a talk about trade and its impact on poverty. Between 1900 and 1950 Europe and the USA moved ahead, economically, from the Far East and Africa. Since the financial crisis of 2008 the middle ground of Europe and the USA has been squeezed and whilst poverty has decreased worldwide, the levels of inequality between income and wealth had risen back to the levels of the 1920’s.

Whilst trade tariffs are on their way down, trade barriers have been rising.

Politically the near future is likely to bring about new confrontations on world trade:

  • USA – China
  • Brexit
  • Capital controls to counter tariffs
  • Restrictions on foreign ownership

DFDS – case study

DFDS are a Danish shipping and logistics company, focusing also on ferries and door-to-door solutions. From an environmental view they have big concerns about the impact of logistics on world climate. Their aim for the future is to be smarter, cheaper and to have less impact on the environment. On the logistics side they must be more cost efficient as they operate in a market with small margins and large competitors.

As data has grown exponentially, they have embarked on an extensive SCF programme that has seen their return on invested capital improve from 5% in 2012 to 19% in 2017.

Major challenges are still to be faced – especially because of Brexit as 45% of their business goes through the UK. Hauliers in the UK are especially worried. This sector of the industry is best suited to younger truck drivers (there is a 73% satisfaction rating amongst drivers between 18-24 year olds), but problems are evident in the lack of female drivers and an average age for drivers of 50 years old and rising all the time.

DFDS strives to help hauliers via SCF by paying early with discounts. This had led to both an improvement in working capital fo DFDS as well as hauliers – one was able to purchase 10 extra trucks by being paid early.

Jumbo – case study

Jumbo is the second largest supermarket chain in the Netherlands with a 21.6% market share. Their growth in turnover has been impressive – from EUR 120m in 1996 to EUR 8.5bn in 2019. There is a strong impetus to manage the needs of both the suppliers and the company. Whilst Jumbo has grown rapidly a lot of their small suppliers had trouble keeping pace especially with the terms and conditions that existed before the implementation of SCF solutions. As and when Jumbo grows, their suppliers need to follow and 80% of their suppliers are defined as SME (Small and Medium Enterprises).

Jumbo has implemented a variety of different solutions to meet the needs of their suppliers, such as reverse factoring, dynamic discounting etc. It was important for Jumbo that the suppliers got on board with the programme – they have more than 1000 small suppliers. There was a 63% pickup in the first few months.

Moodys – word of warning

One of the main instruments used in SCF is reverse factoring, which differs markedly from traditional factoring. Reverse factoring is initiated by the ordering party – the buyer. As they are normally the larger party to an agreement their credit standing is of a higher order than the supplier – hence their interest costs are lower than for the supplier. With reverse factoring suppliers get paid early and buyers can delay payment to the factor (financial counterparty). However, the liability rests with the buyer.

Whilst it is increasing in popularity as a source of financing it can lead to a weakening of liquidity. Rating agencies are grappling with the legal consequences and lack of disclosure of reverse factoring. Now there is no legal requirement to disclose how much reverse factoring is on the books. This can lead to an incorrect picture of the financial health of a company. Companies that embraced Reverse Factoring but eventually suffered as result include Carillion, Abengoa and Distribuidora International de Alimentacion.

Big Data and AI

With the advent of ever more computing power it has become possible to analyse increasing amounts of data. This will lead to big changes in SCF through the use of Artificial Intelligence such as:

  • Traditional SCF
  • Fintech solutions
  • AI powered SCF solutions
  • Blockchain and Internet of Things

However, whilst embracing technology solutions we must not lose sight of old axioms such as “garbage in is garbage out”. It will be necessary to truly understand the flow of data, the variables and the output. Modern history has plenty of examples of large sources of data and experts, leading to losses and mistakes as well as profits and rewards.


  • A truly collaborative arrangement both internally and externally
  • Greater understanding of the business drivers
  • Improved early payment for suppliers
  • Chance to delay payments for buyers
  • Mutual transfer of knowledge and requirements for both parties
  • Improved relationships
  • Need to onboard all relevant departments

The opening quote at the forum was “Bridging physical and financial supply chains”. The one area that I, personally, felt was missing was the impact on the circular economy. Whilst there was talk on sustainability and global climate, I wished to hear more about how to increase the effective use of assets – trucks going to clients full and then returning empty, etc.

Maybe that can be a “hot item” for next year’s forum.






Lionel Pavey

Cash Management and Treasury Specialist


Blockchain | what is it and what does it do for your supply chain?

| 09-12-2019 | by RBS |

Rotterdam Business School will host a blockchain information event on January 27th, 2020 at the Rotterdam Business School, Kralingse Zoom 91

Blockchain is a new disruptive technology that together with Artificial Intelligence (AI), Internet of Things (IoT) and Big Data promises to change the way we do business today. It seems to have a major potential to make supply chains more efficient and transparent by cutting out middlemen and creating possibilities to do trusted peer-to-peer transactions on a global scale. However:

  • What is Blockchain exactly and how does it work?
  • What can Blockchain be used for?
  • Are there proven user cases?
  • How can blockchain be used to create value?

These and other questions related to Blockchain will be answered at the event.

January 27, 2020

16:00 – 20:00 




15:45 – 16:00    Welcome with coffee

16:00 – 17:00    Blockchain in the supply chain: financial and sustainable solutions

Victor van der Hulst, Blockchain expert Windesheim University of applied sciences

17:00 – 17:10     The logistics applications of Blockchain

Ron van Duin, professor of applied sciences, Rotterdam University of applied sciences

17:10-17:30        Best blockchain thesis award

17:30-17:45        A proven blockchain user case: Dutch & Belgian government: Waste transportation

Martijn Broersma LTO Network

17:45 – 18:00     Coffee break

18:00 – 19:00     Break out sessions

      1. Blockchain and the food chain
        Chair: Josanne Heeroma ten Katen (RUAS)
      2. Blockchain and supply chain finance
        Chair: Luca Gelsomino (UASW)
      3. Blockchain and fashion
        Chair: Chris van Veldhuizen (TMO)
      4. Blockchain and the off-shore industry
        Chair: Arthur Fellinger (RUAS)
      5. Blockchain and paperless document flows
        Chair: Martijn Broersma (LTO Network)

19:00-19:30        Wrap up

19:30-20:00       Social drinks


The event is a cooperation between the Masters of International Business the SIA-RAAk project Blockchain for SME’s and the National Blockchain Thesis Table. It’s aim is to disseminate knowledge acquired by applied research and stimulate the cooperation within the triple helix: business, research and education. For questions contact:


Using Blockchain for Legal Entity Identifiers or LEIs

| 19-09-2019 | Carlo de Meijer | treasuryXL

In one of its reports, GLEIF, the Swiss-based organisation which coordinates the management of the global Legal Identity Identifier (LEI-) system, suggested to use blockchain technology for identifying financial legal entities, as that would not only improve transparency and security but may also lead to broader global acceptance of the LEI.

This however raises a number of questions such as: Why could blockchain be of use for LEI and its users? What role could smart contracts thereby play? What benefits could blockchain bring for the LEI? And what does the most recent blockchain-based projects for the LEI tell us?

What is the LEI?

But first, what is the LEI? According to their website definition, “the Legal Entity Identifier or LEI is a 20-digit, alpha numeric code based on the ISO 17442 standard. It connects to key reference information, allowing clear and unique identification of legal entities participating in financial transactions. Each LEI contains information about an entity’s ownership structure and thus answers the questions of ‘who is who’ and ‘who owns whom’”.

In other words a LEI is a uniform way of keeping track of financial legal entities. They are global and have no borders at all for accurate and trusted identification of companies around the world. Looking in that way, the publicly available LEI data pool can be regarded as a global directory, which may greatly enhance transparency in the global marketplace.

The management of the LEI system is coordinated and supported by the above mentioned Global Legal Entity Identifier Foundation (GLEIF), while registrations are performed by so-called LOUs or Local Operating Units.

GLEIF and Blockchain

In their report on the LEI to the Financial Stability Board (FSB) in 2012, the GLEIF stated that “the design of the global LEI system would be premised on a ‘logically’ centralized (meaning not physically centralized) database that will appear to users to be from a single seamless system”.

GLEIF however recently recognised that the organizationally federated operating model used for the LEI in 2012, could be upgraded to a technically federated operating model: the distributed ledger model (DLT). This upgrade could potentially provide the same DLT platform for both the LEI and the UPI (Unified Payments Interface), of which the GLEIF is supposed to be the natural repository. This distributed design has always been a longer term goal for the global LEI system.

Present challenges for LEI

The LEI provides a global standard for the representation of identity as well as a standard validation rule set. Both elements however are subject of a very detailed compliance program in order to ensure proper issuance and maintenance of LEI and data quality.

Nowadays collection and storage of data is conducted in multiple country or regionally located operating units (LOUs). Each has their own databases (there are more than 30 at present in the LEI system and a large number of separate ones for each trade repository), and send their data daily in batch overnight processes. LEI data is sent to the GLEIF. Trade repositories send their data to multiple regulators and to central collection facilities depending on the jurisdiction. All regulators and trade repositories maintain their own data copies of identifiers for products and counterparties, and for trades.

This method bears in it a number of challenges, in terms of non-optimal transparency, security and risk issues where blockchain could be of help.

Blockchain and Identity Management

When it comes to use cases for blockchain, security is one of the serious items that comes in many minds. Identity management is one sector of industry that is supposed to provide high-level security to those who rely upon it to keep their data safe. But in reality security is not always what they get. The digital age has introduced new challenges in terms of preventing identity fraud and other criminal abuses for private people but increasingly also for corporates.

Nowadays there is an increased need for strong, multi-step security that identity management services should bring. The widespread adoption of blockchain technology to ensure that any number of these centralised databases are ‘not compromised’, should give enough arguments for the identity management industry to embrace this technology.

Some use cases for identity management

There are a number of interesting blockchain use cases in the identity management field. These include issues like identity verification, non-custodial login solutions, self-sovereign identity, secure identities for the decentralised web etc. These use cases have all proved their usefulness in such an environment.

Identity verification

Blockchain’s multi-step, multi-factor identification processes have proven to work and are already implemented by a number of companies. Admittedly, it is hard to imagine why the blockchain authentication model has not (yet) gained more mainstream adoption, especially considering the stakes of stolen identities and credentials.

Non-custodial login solutions

With non-custodial logins based on the blockchain, there is no longer need of a central entity who holds the power over user names, pass words, and the database that controls them. By removing the custodian of these credentials and replacing them with public and private keychains for logins, the former centralised entity can still ensure that ‘those logging in are who they say they are’, without holding a central database that hackers can easily acquire and use as ransom money.

Reduce third parties’ involvement

Blockchains could also help reduce the number of third parties while still maintaining a user’s identity. One solution could be that a user would store their data and identifiers on a blockchain which they could use throughout the internet, instead of granting each site or service their personal data and credential time. A second proposal is built on a similar blockchain containing the user’s data but allow third parties to access the data with their consent.

Smart contracts for Identification services

Using blockchain for the identification services including the LEI would preferably be in the form of so-called smart contracts. These contracts are ‘included and coded’ applications and data representing the life-cycle processes of a trade. It is stored and activated across a networked database – the distributed ledger – which itself is networked across the Internet.

In other words, a smart contract is self-actuating, based on standardized contract terms that is translated into standard trade life-cycle processes imbedded in coded applications. The smart contract acts on standardized data sets, setting its outputs in conformity to each participant’s processing requirements.

A smart contract requires data standards, including the LEI and its reference data for each participant in the supply chain; the UPI (Unified Payments Interface) and its reference data; and the UTI (Unique Transaction Identifier). It also requires process standards for each event in the life-cycle of a trade.

How could smart contracts be used for the LEI?

But how can smart contracts be used for the LEI? The central point of using smart contracts for the LEI is to treat a single record for any entity to be identified by some key as ‘atomic’. This in the sense of being administered as a single unit of data, by the authority that assigns the keys. Then the representation of a single ‘atomic’ record can be considered as a state for a single smart contract.

Each such contract would offer a method for accessing the representation, and a dynamic data structure that holds ‘revisions’ of the representation. That is, when the record changes globally, its new representation would be added to the state of the contract. Such contract can hold many revisions of the representation, bound only by the capabilities of the network’s global storage, called ‘entity contract’. Together with entity contracts, someone can devise one or more ‘master contracts’, that keep track of individual entity contracts and make accessing an easier process.

What approach for the LEI?

The use of permissioned and private blockchains or distributed ledgers for identity management purposes such as the LEI will require mapping between real world entities. This is hosted via cryptographic algorithms creating public/private keys pairs linked to reference data. The owner of the private key can write into the chain.

This however raises a number of major issues: Firstly, are we going to see multiple digital IDs depending on the application or are we going to use one ID to access all applications. And second, what is the appropriate management for all these IDs.

There are a number of possible scenarios:

One could use identity labels i.e. unique keys in the blockchain/DLT application. That means using the LEI in a distributed ledger system for tracking financial instruments. This is de facto the standard approach due to legal and regulatory requirements.

Another scenario is using blockchain/DLT for managing the LEI creation and management itself. This however should be seen as a longer term project. There are still many open questions but this approach bears interesting aspects for the further evolution of the LEI system.

MakoLab LEI.INFO and Graphchain Proof of Concept

An interesting project that should be taken seriously for further development is the MakoLab LEI.INFO system. Polish-based MakoLab, a Digital Solution Agency for the industry, last June announced the deployment of their production grade Blockchain-based LEI system.

This was the result of two Proof of Concepts (PoCs) for a radically new blockchain LEI system, based on the private Hyperledger Indy blockchain, using the innovative GraphChain database that is much more flexible than any standard existing system available today. These PoCs allowed MakoLab to investigate deeply the possibility to construct a system which represents the ‘highest level of both technological and organisational security’ and is completely decentralised.

Hyperledger Indy Framework

Given the vulnerability of the data, the suggested architecture for LEI is that of a so-called consortium type of blockchain that works on Hyperledger Indy. This is a blockchain model where the consensus process is controlled by a pre-selected set of nodes. The network of Hyperledger Indy nodes thereby runs as a private, permissioned blockchain for the Global LEI System.

In this model different nodes are used. User nodes that participate in the global blockchain as passive users. They can see all the data stored in it, but cannot create or edit anything. Registration nodes having all the properties of the User nodes plus the ability to provisionally add new LEIs to the system. However, such newly added LEIs are not visible on the system until the LOU nodes confirm them through the ‘Proof of Authority’ mechanism. And LOU nodes that have all the properties of the Registration nodes plus the capacity to confirm the new or modified LEIs as valid. Application of the blockchain technology with LOUs running their own nodes, would make the LEI system much safer and more reliable.


End June MakoLab announced the full production version of the innovative GraphChain for the LEI.INFO infrastructure. They thereby created a conceptual proposal how the entire LEI system could run on GraphChain. GraphChain should be seen as a new innovation of creating a blockchain compliant distributed database. The main idea behind GraphChain is to use blockchain mechanisms on top of an abstract RDP (Resource Description Framework) graph data model, that is used for data publishing and interchange on the web.

GraphChain is thereby defined as a linked chain of named graphs specified by the GraphChain ontology and an ontology for data graph part of the GraphChain; a set of general mechanism for calculating a digest of the named RDF graphs; and as a set of network mechanisms that are responsible for the distribution of the named RDF graphs among the distributed peers and for achieving the consensus.

The data graph model describes the semantics, or meaning of information and stores these data as a network of objects with materialised links between them, thereby managing highly interconnected data. It thereby uses graph structures with nodes, edges and properties to represent and store data.

LEI.INFO system

The new functionality allows cryptographic verification of the accuracy or usefulness of the underlying LEI data. The LEI.INFO system uses the RDF graph data model to express LEI reference data as semantic data, that can be verified against the network of Hyperledger Indy Blockchain. This LEI.INFO platform allows to get instant access to the database of entities holding LEI’s and as a result to find a reliable supplier, partner or customer.

LEI.INFO offers a wide range of LEI-related services including a new LEI registration process, resolution of the LEI codes for both humans and software agents, Data Analytics Solutions and integration services for KYC and financial information consolidation applications.

What may blockchain bring for the LEI?

From what is said before, it should not be difficult to see how blockchain and a single database that could be updated in real-time, securely maintained through encryption technology, distributed and shared by all of the participants could benefit those organisations who use the LEI. The reconciliation of the various copies of what is intended to be identical data sets could be done in real-time.

Managing LEI on blockchain delivers transparency and ensures the necessary trust and certainty optimal for combatting financial crimes, streamlining various administrative processes like onboarding, and truly knowing corporate customers, partners, and other businesses. This could ‘revolutionise’ the oversight of the financial industry. As a result of this all, it may lead to firmly reduced resources and costs of the validation process required for conducting due diligence about those entities.

McKinsey, the global consultancy estimates that the largest financial institutions alone can each save $1 billion in costs through a simplified portfolio of data repositories. ISDA members, many being the largest of financial institutions, are envisioned as direct beneficiaries of such savings.

Going forward

Blockchain technology could be of great help for the Global LEI system. The MakoLab project is thereby a very interesting one that deserves further investigation.

This LEI.INFO project however is just a first step in their research and development process with this technology. Taking into consideration the growing potential of the solution, MakoLab is “working on further-enhancing the LEI resolver with other top-class solutions – semantics particularly – as well as translating blockchain into other business areas” .

In the end such an architecture of the new LEI system will enable ‘thousands of registration authorities from multiple countries to participate in the new LEI creation’, thereby opening the path for the true global adoption of the system.

Carlo de Meijer

Economist and researcher


CSDs have a role to play in a blockchain environment

| 12-08-2019 | Carlo de Meijer | treasuryXL

There is a broad consensus amongst the post-trade industry that blockchain technology will revolutionise the securities post-trade world and could radically change how assets are maintained and stored by custodians and central securities depositories (CSDs).

Blockchain technology may enable real-time settlement finality in the securities world. This could mean the end of a number of players in the post-trade area, such as central counterparty clearing houses (CCPs), custodians and others. For a long time, also central securities depositories (CSDs), as intermediators in the post-trade processing chain, thought they also could become obsolete.

This idea however is changing. While CSDs are making up their mind on their future position in the blockchain world, they are increasingly considering blockchain as enabler of more efficient processing of existing and new services, instead of a threat to their existence. But what will be their future role?

Complex/fragmented post-trade infrastructure

As we all now, the current post-trade infrastructure is highly complex and fragmented. Much of this complexity and fragmentation is the result of the various intermediaries needed in the post-trade process. They include players like banks, brokers, stock exchanges, central counterparty clearing houses (CCPs), central securities depositories (CSDs), real-time gross settlement (RTGS) systems and custodian banks.

In the current set-up of the post-trade environment, important record-keeping functions, such as those relating to the issuance, settlement, registration and safekeeping of securities, are performed centrally by different specialist intermediaries. Intermediaries also perform the post-trade servicing of assets, such as crediting dividend payments or bonus issues to client accounts, or managing rights issues and takeovers.

They are thereby dealing with siloed outdated legacy systems and technologies each having their own ledger that are not good communicating with each other.  Consequently, they spend much time and resources on reconciliation and risk management. As a result settlement currently takes two or more days in many places, involving high risks and high costs for transacting parties.

The present role of CSDs

Situated at the end of the post-trading process, CSDs are systemically important intermediaries. They thereby form a critical part of the securities market’s post-trade infrastructure, as they are where changes of securities ownership are ultimately registered.

CSDs play a special role both as a depository, involving the legal safekeeping and maintenance of securities in a ‘central depository’ on behalf of custodians (both in materialised or dematerialised form); as well as for the issuer, involving the issuance of further securities by issuers, and their onboarding onto CSDs’ platforms.

CSDs are also keeping a number of other important functions, including: dividend, interest, and principal processing; corporate actions including proxy voting; payment to transfer agents, and issuers involved in these processes; securities lending and borrowing; and, provide pledging of share and securities.

Blockchain: disruption in securities post-trade

DLT offers the prospect of rationalising and combining post-trade activities in one single action, offering safer and cheaper record-keeping, as well as more seamless securities issuance. They thereby may create significant cost savings and efficiency gains across the securities market’s post-trade infrastructure.

  • Blockchain is linking trading partners directly. That means everything will be in place in the ledger at the time of the transaction.
  • With DLT, all of the complex systems and processes to transfer cash and equities from one account to another are not required. Everything can be embedded into the blockchain.
  • Institutions will no longer have to maintain their own databases, as with DLT there will be only one database for all participants in the transaction (so no more fragmented islands of information).
  • This will heavily ease the reconciliation process, allowing increasing transparency and efficiency in a presently highly fragmented industry.
  • It could permit the direct or real-time settlement of transactions between accounts, the simultaneous verification of transactions and the registration of ownership, and the direct and automated payment of entitlements to accounts.
  • As a result, buyers and sellers can match transactions in seconds and all parties are aware a transaction has been done.

On the other hand, DLT has the potential to heavily disrupt existing post-trade processes in financial services. Shared ledgers of ownership promise to revolutionise the post-trade infrastructure, Thereby impacting the business model of a number of intermediaries.

Use of a blockchain network would automate the process further, with completely integrated authentication and transparency of the transfers themselves. As a result, clearing and settlement can be transformed into a single process, in which digital and digitised assets are delivered against payments instantly, thereby removing the need for a market infrastructure provider to hold a security, or token in its own physical or electronic vault.

The extent to which blockchain will disrupt existing processes in financial services is still unsure. Some say a complete disintermediation of middle and back office processes is under way, removing most (or even all) intermediaries from the post-trade processes.

Others however say the impact of this emerging technology will be less forceful, with a (limited) number of existing intermediaries to play an important though somewhat different role.

CSDs changing attitude

What is sure is that for some actors in the securities post-trade world, DLT will completely replace their businesses or even make the work of some intermediaries such as CCPs and custodians redundant. Others will still be needed, but they should question what will be their added-value within future DLT services, such as CSDs.

CSDs are changing their viewpoint on DLT including blockchain. Instead of seeing blockchain as a threat to their existence, they are now also considering them as (potential) enabler of more efficient processing of existing and new services.

“CSDs could have an important role to play in a blockchain-based settlement system. As ‘custodians of the code, CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts.” Euroclear Report

CSDs are believed they will continue to perform an important role as trusted, centralised financial market infrastructures (FMIs), providing gatekeeping services and oversight of the relevant blockchain.

How are CSDs reacting?

Recognising the threat as well as the opportunities of blockchain to their current services, a group of CSDs across the world has been working together and with regulators to define their future role in the blockchain post-trade environment. By working together they will ensure that CSDs from each region are represented, potentially unleashing (unimagined) network effects.

Aim of this cooperation is to explore how blockchain could be used for post-trade processes, identify, define and develop use cases in the securities depositories’ industry (including smart contracts and digital assets), and identify how existing standards could support it.

Another  group of 30 central securities depositories (CSDs) in Europe and Asia are researching possible ways to “join hands” in developing a new infrastructure to custody digital assets. The CSDs will attempt to figure out how to apply their experience in guarding stock certificates to security solutions for crypto assets.

“A new world of tokenized assets and blockchain is coming. It will probably disrupt our role as CSDs. The whole group decided we will be focusing on tokenized assets, not just blockchain but on real digital assets.”

These CSDs clearly see an opportunity to apply their knowledge and skills to the crypto currency space, where “losing your private keys means losing your coins forever”. The group’s focus is looking at how to protect these keys for crypto investors, and how the tokenization of “everything stands to change everything”. The next phase of the research will also involve some large custodian banks.

CSDs future role in a blockchain environment

There are various reasons why CSDs may continue to play a role in the post-trade bklockchain environment. That is not that strange as the primary functions of CSD may run parallel to many of those that emerge from the blockchain technology. CSDs are aware that some of those roles will neatly fit into their natural infrastructure. But there will also be some activities that will become obsolete.

Looking at the roles that could be suited for CSDs, those would be anything around safety, notary and governance.

1. Notary function
Blockchain may enable tokenisation of assets and the use of smart contracts. All these are new components in the value chain. This may mean that a digital actor will be needed to manage this tokenisation, and creation and maintenance of smart contracts, overseeing the entire securities token ecosystem. CSDs could fulfil this notary function.

1a. Asset tokenization
Asset tokenization is the representation of assets on the blockchain in the form of tokens, which are designed to be unique, liquid secure, instantly transferable, and digitally scarce – and therefore impossible to counterfeit.

In a world where securities and other assets become tokenised, some have argued that an intermediary will still be needed to issue them and create rules. Tokenised assets exchanged on a distribute ledger may still require CSDs to hold the equities, which the token represent. They would thereby fulfil the crucial notary function, both as tokenising agent and as operator of the escrow accounts in which the real assets are hold.

1b. Custody of private keys
There may also be a need for secure maintenance of personal encrypted keys. Adopting blockchain technology would allow individuals and companies to have complete control over their assets and data, accessed through a set of private keys that must be kept secure.

Emerging technologies like decentralized key recovery will allow more and more individuals to secure custody of their own assets, thereby removing the artificial and expensive separation between legal and beneficial ownership in most asset markets.

Some will choose to take that responsibility themselves, but many investors may choose to outsource the custody of their private keys and token wallets to the companies and CSDs that can provide an independent and secure safekeeping service for these private keys.

2. Record of title for securities
CSDs could  also be of value to record of title for securities. In many cases, the law mandates how title to property transfers. EU regulations state that for “any financial instrument to be transferable and tradable”(i.e. takes place on a trading venue, exchange or multilateral trading facility), securities must be recorded (registered) in book entry form in a CSD.

Under the current law, to enable having a blockchain-based system of transfer of title to securities, the blockchain would need to be the system that the CSD operates, which is not truly distributed.

Or one would need to create a new legal regime that recognizes that the transfer of title on a blockchain is effectively a transfer of title to the relevant property, and allows that in the context of securities trading. But that would take a lot of time to realise.

As a solution, the blockchain technology can be implemented through a hybrid model in which the CSD can either operate a blockchain platform itself to perform the book entry role. Or it can continue to perform this role off-chain, with the third- party blockchain platform accessing those records held by the CSD via an API (application programme interface).

3. Governance
CSDs could also play the governance role in a DLT based system – to ensure that what happens within their systems is unchallengeable. The movement from a post-trade system based around the existing infrastructure to a DLT-based system, without updating the regulatory and legal regime, could introduce a new systemic risk into the financial system. Regulators and legislators are unlikely to be comfortable in allowing the wholesale replacement of the existing infrastructure with DLT-based solutions.

CSDs are best placed to retain a ‘policing’ or governance role in a blockchain framework. This role should be the management of an insolvency of a party, particularly if there is a position that is not settled and the relevant contract is not yet completed. The involvement of CSDs in a governance and operational role could help increase trust of investors, and raise the quality of the blockchain ecosystem infrastructure underpinning these new asset classes.

4. Trusted gatekeeper: Authorisation and administration
CSDs could also be of help as trusted gatekeeper to DLT networks. While regulators will set the standards for admission to the network, the admission tests are likely to be administered by other parties. The most likely candidate for that role of trusted gatekeeper to DLT networks are the CSDs.

They are already the “first home of financial assets issued, and guardians of the integrity of every issue they accept”.

“The regulators are unlikely to want to immerse themselves in the operational details of the authorisation process.” “They will sub-contract that work to a trusted intermediary (read CSD).”

5. Other roles

A. DLT proxy voting system
One role in the post-trade environment that is already intensively investigated by CSDs is the management of a DLT-based e-proxy voting system. This would include providing general meeting services and give shareholders an easy, user-friendly and secure tool for voting remotely.

There is potential for improvement for instance in respect to the depots of voting rights. The system would automatically allow (or disallow) voting privileges for members based on what voting rights they had within a particular organization.

By using open source blockchain technology the efficiency and integrity of the Annual General Meetings and shareholder voting processes can be increased. Given that it is an end-to-end solution – from the time a meeting is announced and all the way through the voting process to the publishing of results – it means that all stakeholders will truly benefit within the process.

“By leveraging blockchain, we are able to reduce friction in the voting and proxy assignment process and also ensure that all information is transparent to stakeholders when required and with the proper security, governance and risk procedures in place.

B. Elective corporate actions
CSDs could also have a role to play at elective corporate actions.  Corporate actions recorded by the ledger may include paying out dividends, splits, issue of rights, warrants, pay-ups etc.

The user group for a permissioned blockchain network can choose who should validate these actions. They could simply give validation rights to every node. Getting issuers to publish elective corporate actions, such as rights issues and proxy votes, directly onto a blockchain, however might be a difficult step to realise.

Alternatively, this could be the role of a trusted third party, or a combination of both a trusted party and the nodes. This would imply a logical role for CSDs, creating a common registry of ownership associated with an ID.

C. Reconciliation
CSDs could also be of help in the reconciliation process. Blockchain may certainly help automate other components of the settlement process, such as reconciliation. A DLT-based reconciliation tool, with multiple trading firms participating in a record-based system, however could still occur within the CSD, which may act as the single point of reference for reconciling the various records.

D. Cross-border collateral mobilization
A final area where CSDs could play a role is in cross-border collateral mobilisation. Leveraging blockchain technology could overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient.

“Designed to simplify cross-border collateralisation away from using multiple complex and non-standardised links towards smooth movement across various jurisdictions.”

By using CSDs it could enable a centralised, faster and more efficient allocation of fragmented security positions to cover financial obligations of market participants in multiple jurisdictions.

Concluding remarks

CSDs are likely to play an integral role but important role in any blockchain environment. Their role however will look quite different from we know them today. They can be the logical center of the system, custodying the standards, processes and governance of the system.

CSDs will have the opportunity to be agents of change. CSDs however need to adapt to meet new demands asking for delivering added value services in the new blockchain environment.

But they are not there yet! There is clearly a gap between the long-term opportunities presented by blockchain and the challenges involved in making progress.

Several blockchain initiatives in this area have failed, or are just ended their pilot stage or are very limited in scope. CSDs are also not currently building a single solution. Rather, each group is building its own platform designed to interoperate with the others.

There is thus urgent need to leverage existing business standards for the distributed ledger technology application in order to realise a global infrastructure that can smoothly operate cross border.

Carlo de Meijer – Economist and researcher

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Corda Settler, Ripple and SWIFT: mariage à trois?

| 07-05-2019 | Carlo de Meijer | treasuryXL

My last blog was about the IBM World Wire, a blockchain based platform for global payments. Another competitor in the blockchain payments world I have written about regularly is Ripple. Both are thereby targeting centralised payments messages network SWIFT.

IBM and Ripple however are not the only players in the blockchain payments world. Late last year R3 launched its new Corda Settler platform using Ripple’s XRP. But here it comes. In January SWIFT announced a partnership with R3 were they are collaborating to test Corda Settler, specifically to “integrate gpi with Corda Settler.” However, as Corda Settler depends on the XRP token, the partnership puts SWIFT and Ripple, the two rivals in an indirect connection. Will that result in a love triangle or even a “marriage a trois”? And could that work?

But first: What is Corda Settler?

In December last year, R3 announced the launch of Corda Settler. Corda Settler is designed in such a way to give companies a new fast, secure and reliable way to move crypto and traditional assets on a distributed ledger. The Corda Settler app is an open-source decentralized application (DApp), that runs on the Corda blockchain. It is aimed to facilitate global (crypto) payments across enterprise blockchain networks with Ripple’s XRP as its base currency. Corda Settler thereby focuses on the settlement of payments transactions between crypto and traditional assets within enterprise blockchains.

Corda Settler uses XRP

Both Corda and Ripple are open-source blockchain platforms with a focus on serving enterprise businesses. Therefore, it makes sense that Corda selected XRP, the globally recognized cryptocurrency, as the first and only supported cryptocurrency for settlement on the platform.

“The deployment of the Corda Settler and its support for XRP as the first settlement mechanism is an important step in showing how the powerful ecosystems cultivated by two of the world’s most influential crypto and blockchain communities can work together.” “While the Settler will be open to all forms of crypto and traditional assets, this demonstration with XRP is the next logical step in showing how widespread acceptance and use of digital assets to transfer value and make payments can be achieved.” Richard Gendal Brown, CTO at R3

While Ripple’s XRP is the first cryptocurrency supported by the Corda Settler, in the future it is very likely that R3 will make settlement in other cryptocurrencies possible.

“The Corda Settler is agnostic to which payment method is used. Whether it’s JP Morgan coin, or Wells Fargo coin, or BAML coin, or HSBC coin, it doesn’t matter to us. We have no horse in that race.” “We don’t have any financial incentives one way or another. We’re just trying to get as many people onto our platform as possible.”David Rutter, CEO of R3

How does Corda Settler work?

The platform is still in its first stages of development. Corda Settler supports payments of all sorts to be settled through “any parallel rail supporting cryptocurrencies or other crypto assets”. Also any traditional rail capable of providing cryptographic proof of settlement can settle payments obligations. In the next phase of development, the Settler will also support domestic deferred net settlement and real-time gross settlement payments.

In its current phase, when a payment obligation arises on the Corda blockchain during the course of business, any of the parties involved now have the option to request settlement using XRP. The other party can be notified that settlement in XRP has been requested and that they must instruct a payment to the required address before the specified deadline presented to them.

After they make the payment, an oracle service will ensure the validity of the payment and settle the obligation. Uniquely, the Corda Settler will verify that the beneficiary’s account was credited with the expected payment, automatically updating the Corda ledger.

What does Corda Settler mean for the parties involved?

It is clear that in the transaction initiated by Corda Settler, the receiving party doesn’t need to use Corda to receive the payment. At the same time, it is not mandatory for the sending party to use XRP or any other cryptocurrency.

This means that using the Corda Settler; one can send XRP or dollar and the receiver can accept the payment in an entirely different currency. “Settlement Oracle” will broadcast the actual settlement notification. It can be operated through different entities like exchanges, banks, and others.

It will thus allow banks and other financial institutions to build their blockchain networks with minimum overheads. They don’t need to integrate the R3 technology fully. All they need is to let their clients receive deposits via Corda-enabled services.

SWIFT partnership with Corda

End January SWIFT has announced its partnership with R3’s Corda Settler to launch a proof-of-concept (PoC). The trial would see the interaction of SWIFT’s payments standard framework GPI (Global Payments Innovation) with R3’s trade finance platform.

Following the recent launch of our Corda Settler, allowing for the payment of obligations raised on the Corda platform, it was a logical extension to plug into SWIFT gpi. SWIFT gpi has rapidly become the new standard to settle payments right across the world. All the blockchain applications running on Corda will thus benefit from the fast, secure and transparent settlement provided through the SWIFT gpi banks.” David E. Rutter, CEO of R3

Global Payments Innovation (GPI)

This trial will integrate SWIFT’s GPI Link cross border payments gateway with R3’s Corda Settler platform to enable the continuous monitoring and control of payment flows, settle GPI payments through their bank, and receive credit information.

SWIFT’s GPI is a messaging system based on existing messaging standards and bank payment processing systems. It has rapidly become the new standard to settle payments right across the world. The integration will also support application programming interfaces (APIs), as well as SWIFT and ISO standards to ensure global integration and interoperability.

It aims to provide quick and cost-effective transfers between SWIFT members. Through GPI “SWIFT hopes to assist banks enhance their relevance within the fast-evolving international payments ecosystem – by delivering immediate value to SWIFT’s members’ customers”.

Goal of the SWIFT-Corda Settler PoC

The objective of the PoC-trial is to try out interlinking of trade and e-commerce platforms with GPI – SWIFT’s new standard for cross-border payments and is an extension of other SWIFT trials with blockchaintechnology. These platforms need global, fast, secure and transparent settlement, preferably using fiat currencies.

With the gpi Link, banks will be able to provide rapid, transparent settlement services to e-commerce and trading platforms, opening up whole new ecosystems to the speed, security, ubiquity and transparency of gpi and enabling them to grow and prosper in the new digital economy. Given the adoption of the Corda platform by trade ecosystems, it was a natural choice to run this proof of concept with R3.” Luc Meurant, SWIFT’s Chief Marketing Officer

“SWIFT GPI will integrate directly to Corda Settler, the application that allows participants on the Corda blockchain to initiate and settle payment obligations via both traditional and blockchain-based rails. This will enable obligations created or represented on Corda to be settled via the large and growing SWIFT GPI network”.R3 co-founder Todd McDonald

While SWIFT is keen to experiment with the possibilities opened up by blockchain-based trades, they are much less enthusiastic about using cryptocurrencies such as XRP.


The SWIFT and R3 Corda Settler trial will enable corporates to authorise payments from their banks via a GPI link to their bank through the Corda Settler platform. GPI payments will be settled by the corporates’ banks, and the resulting credit confirmations will be reported back to the respective trade platforms via GPI Link on completion.

By enabling trade platform ecosystems using Corda to integrate ‘GPI Link’ into their trade environments, SWIFT hopes to extend its reach beyond member banks to include to a wider range of corporates and markets.

The first stage of the PoC will work with R3’s Corda blockchain platform, Corda. SWIFT says it will not limit ‘GPI Link’ to R3’s DLT-based trade environment. SWIFT has plans, if the Corda PoC is successful, to extend the trial to other DLT, non-DLT and e-commerce trade platforms. The results of the PoC will be demonstrated – as a prototype – at Sibos in London in September 2019.

Corda Settler: Fiat currencies versus XRP

Swift said it is not (yet) using XRP on Corda Settler!. And that for a number of reasons.

“All trade platforms require tight linkages with trusted, fast and secure cross-border payments mechanisms such as GPI. While DLT-enabled trade is taking off, there is still little appetite for settlement in cryptocurrencies and a pressing need for fast and safe settlement in fiat currencies”. Luc Meurant, SWIFT’s chief marketing officer

According to SWIFT CEO Leibbrandt banks simply are not prepared to use a cryptocurrency as a clearing unit due to its price volatility. It appears that most banks prefer to use Corda’s technology for rapid and transparent settlement services in fiat currency rather than cryptocurrencies. Most enterprises prefer to settle via traditional payment mechanisms, albeit wishing for greater visibility into what is happening to payments and receipts. This leads to the need for trade platforms to have fast and safe settlement in fiat currencies.

“I think that the big part of Ripple’s value proposition is the cryptocurrency XRP. There we do find the banks are hesitant to convert things into a cryptocurrency right now because of the volatility in the currencies.” Leibbrandt, SWIFT CEO

Another reason why SWIFT is hesitant (not willing) to use crypto currencies is because the legal status of XRP and other cryptocurrencies remains unclear due to the current uncertain regulatory environment. Risk averse financial institutions are unlikely to adopt cryptocurrencies until regulations become clearer.

Ripple’s CEO Garlinghouse however argues back that “with SWIFT payments taking days and XRP payments clearing within seconds, SWIFT transfers are actually subject to much greater volatility due to fluctuating foreign currency rates”. At present, the banks take on that volatility risk by guaranteeing the amount sent will match the amount received. Because of XRP’s speed, which executes transactions in a matter of seconds, Ripple says it ‘eclipses’ volatility risk. With near-instant XRP-backed transfers, that volatility risk is actually completed eliminated.

“I hear people talk about volatility and I feel like they’re propagating this misinformation. Mathematically, there’s less volatility risk in an XRP transaction than there is in a fiat transaction.” Garlinghouse, Ripple CEO

Garlinghouse countered SWIFT’s legal arguments saying that every XRP transaction is vetted for Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance. Finally, Garlinghouse added that XRP payments greatly reduce systemic risks to banks in smaller economies, which have to use large amounts of money to prefund international transfers.

Mariage à trois?

With the launch of a universal settler app for payments on the Corda blockchain platform, using XRP as its first crypto payment trail, this may bring the Corda and XRP ecosystems into closer alignment.

Now SWIFT has partnered with blockchain consortium R3, we are in the strange position wherein SWIFT will be possibly be trailing Ripple XRP-powered payments. Through its experimental integration with R3, SWIFT may be indirectly integrating with XRP, though Leibbrandt has no desire to work with XRP directly.

It is still to be seen whether SWIFT will move beyond the proof of concept stage. But that might change. The future of SWIFT and Ripple’s relationship will not lay in the hands of present CEO Leibbrandt, as he will be stepping down as SWIFT CEO in June. His successor may be more receptive for the new world.

It is still speculative  that the proof of concept — or a future trial — could see SWIFT being more interested in cryptocurrency settlement. On the other hand Ripple will do its utmost by leveraging its relationship with R3 to convince (SWIFT-related) banks to take the dive into cryptocurrency via the Corda Settler platform.

For now, the complex links between SWIFT, Ripple, and R3 are sure to trigger continued debate about the future of global finance.

Read the full article here

Carlo de Meijer – Economist and researcher

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The impact of blockchain technology on central counterparty clearing houses

| 23-11-2017 | Treasurer Development | Minor Treasury @ Hogeschool Utrecht | Frans Boumans |

Today’s blog has been written by Youri Toepoel, Romy Steegwijk & Dirk Heesakkers , who are 3 students studying for the minor Treasury Management at the University of Applied Sciences in Utrecht. We welcome their contribution – it is good to see the youth engaging in Treasury matters! Here is their opinion on Blockchain technology and its impact on central counterparty clearing houses.

A central counterparty clearing house can reduce counterparty risks associated with doing business with unfamiliar counterparties in unfamiliar markets. When businesses lack the capabilities, resources and expertise required to reduce counterparty risks, a central counterparty clearing house might be the solution. In recent years new disruptive technologies have been developed. Cryptocurrencies are becoming more known worldwide and the underlying technology, the blockchain, might be able to decentralize current services offered by financial institutions like banks.

Counterparty risk

Counterparty risk is the possibility that someone you do business with is unable to meet his/her obligations with you. Events during the recent credit crunch, particularly with Lehman Brothers, showed that banks and businesses had put too much trust in the credit ratings formed by the credit agencies. Corporates based creditworthiness of counterparties mainly, or even only, on the credit ratings given by credit rating agencies, expecting those ratings to be accurate and trustworthy. This has proven to be wrong and since the credit crunch many businesses started to measure and control counterparty risk based on other factors beside the credit rating received from the credit rating agencies (Treasury Today, 2014).

The counterparties

For the treasury function the counterparty risk is mainly associated with the banks and other financial institutions since these are the parties the treasury function is mostly dealing with. Additionally, also governments are important given they supply the “risk free” government bonds, but as seen with the government of Greece even governments show the ability to get into financial problems. The treasury function will often deal with these parties to attract or repel liquidity, derivatives or long-term loans to support the business’s day-to-day operations. In the end, exposure to suppliers and customers are also important to the counterparty risk.

Central Counterparty Clearing House (CCP)

A central counterparty clearing house (CCP) is an organisation that exists in various European countries to help facilitate trading done in European derivatives and equities markets. These clearing houses are often operated by the major banks in the country to provide efficiency and stability to the financial markets in which they operate. CCPs bear most of the credit risk of buyers and sellers when clearing and settling market transactions (Investopedia).

Blockchain versus central counterparty clearing house

A CCP offers a good solution to the counterparty risk that most companies face when doing business with counterparties. But this service, as it basically provides a settlement between two parties, might be a prey for decentralization by technology based on the Blockchain.

The Blockchain is often simply described as a distributed ledger and has the capability to replace services being provided by central service providers like banks. The unique part is the absence of a trusted third party (a bank that we visit or to which we log in with a key, an, eBay or whoever you know and trust…) (Servat, 2015).

Currently, the only obstacle seems to be regulation since the blockchain already shows numerous application possibilities. Lots of banks and other financial institutions are currently investing big money in the blockchain technology to find out in which way they can use it (or save themselves with?) (Scuffham, 2017).

Whether the blockchain totally replaces or gets integrated by financial institutions like the CCP, these innovations are surely interesting to follow and keep track of (Treasury Today, 2014).


Minor Treasury Management

More information about the minor Treasury Management at the University of Applied Sciences?
Please contact Frans Boumans.

Frans Boumans – Manager Minor Treasury Management @ University of Applied Sciences in Utrecht

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Due to the improved economy and other factors we notice a rising interest in the development of the treasurer as a person. Education, competence development and labour market changes are the most obvious topics this concerning. This is why we started the Treasurer Development initiative. 

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How can treasurers use cryptocurrencies?

| 7-9-2017 | Carlo de Meijer |

Recently I read a blog from Victoria Beckett published in GTNews, titled “How can treasurers use cryptocurrencies”.  Nowadays there are more than thousand different cryptocurrencies in circulation. The dollar value of the 20 biggest cryptocurrencies is around $ 150 billion. While cryptocurrencies soared to unknown levels, also the explosion in Initial Coin Offerings, or ICOs for funding purposes is evidence of their growing attraction. But are these cryptocurrencies suited for corporate treasuries.


In her blog Victoria Beckett said that there are several benefits to treasurers using cryptocurrencies. These may bring various benefits including avoiding paying large transactions fees to banks, realising immediate payments and the ability for transactions to be kept open or private. According to her corporate treasury business no longer need to use mainstream financial regulatory frameworks. Cryptocurrencies could provide business with the ability to move assets outside of the normal banking regulatory framework.

She argued that one of the key benefits to making business payments using cryptocurrencies is that it cuts out banks in the transaction completely, avoiding large transaction fees, while “payments can also get transferred immediately anywhere in the world”.


But there were some critics as “banks have to trade off the operational benefits that the technology may provide against the added cost of needing to buy and sell a cryptocurrency to make a transaction.” “Therefore, the benefits are low when dealing with efficient ‘corridors’ such as US and Europe, but higher when transacting with Zimbabwe” David Putts.

Besides, there are a large number of different cryptocurrencies in circulation with different protocols etc. These are not interoperable/interchangeable.  So when using cryptocurrencies they at some point in time have to be transferred into fiat money. And that also costs money.

I also missed other use cases for corporate treasurers in the article. Just using cryptocurrencies payments would be a very limited use case, given the large number of other activities performed by corporate treasurers.

Risky business

When reading the article I got the impression that the risks of cryptocurrencies were rather  under estimated. Certain features of cryptocurrencies are not backed by any government, have no status as legal tender and rely on network protocols and cryptographic techniques to enable counterparties to transact. This may present various risks.
First of all cryptocurrency exchange platforms normally have no regulation. Thus there is no legal protection. And we have seen the various examples of hacking these exchanges with many people losing their money.
Second, virtual money is normally stored in a digital wallet on a computer. Though these wallets have passwords and key they are still valuable for hacking etc.
Third, there is no protection for funds under EU law when using cryptocurrencies as a means of payment. We still live in a largely fiat-money dominated world. So these cryptocurrencies had to be concerted one day into their own legal currency and that costs money.
Fourth, cryptocurrencies are very volatile. There is no guarantee that the cryptocurrencies will remain stable.  Cryptocurrencies currently lack a derivatives market, which makes them a risky medium for business contracts that last for any amount of timer, especially given their constant value fluctuations. This year for example the exchange rate of the bitcoin climbed from a low of 968 dollar to more than 3000, fell back to 1.800 six weeks ago and climbed to 5.000.
Fifth, due to the untraceable nature of cryptocurrencies, they provide a high degree of anonymity, making them vulnerable to misuse for criminal activities.

Action from regulators across the world

For some, it is a pro that cryptocurrencies in most countries are not regulated, such as for hackers and/or speculators.  That idea is however rapidly changing giving the risks associated. At a global level, there is an urgent need for regulatory clarity given the growth of the market.

All these risks mentioned above are prompting action from a growing number of jurisdictions.

Regulators in China have publicly announced that they will forbid the use of ICOs. And also regulators in other countries like Japan, Singapore, and the US are looking at ways to regulate. The SEC in the US has officially confirmed it was looking into regulation of cryptocurrency ICOs. The SEC is mainly concerned with the risks these ICOs pose. And Singapore will regulate ICO offerings that are deemed to be securities.

But also on a more broader scale Europa there is increased activity by regulators in Europe to reign in the use of crypto currencies. The EU Parliament is expected to pass measures soon to bring certain virtual currency service providers within their AML (anti money laundering) / CTF (counterfeiting) regulation. These measures do not seek to prevent the use of cryptocurrencies, but will require virtual currency service providers to implement customer due diligence measures.

Polish regulators are warning investors and banks to avoid dealing with digital currencies like bitcoin and ether. The regulators clarified that cryptocurrencies are not considered legal tender in Poland.

The Maltese regulatory watchdog (MFSA) also warned traders about the risks associated with the virtual currency. According to them a virtual currency is an unregulated digital instrument and is a form of money that is not equivalent to the national currencies. The MFSA however stressed that It does not (yet) regulate the acceptance of payment of service in regards to the virtual currencies.

Are central banks overcoming their reservations?

Central bankers, from Russia to China, Frankfurt and New York, are increasingly wary of the risks posed by these crypto currencies. I therefore question if central banks worldwide are overcoming their reservations versus cryptocurrencies and really come out in favour of the cryptocurrency.

The recent boom in cryptocurrencies and their underlying technology is becoming too big for central banks to ignore. The risk is that they are reacting too late to both the pitfalls and the opportunities presented by digital coinage.

Bitcoin and its peers pose a threat to the established money system by effectively circumventing it. CBs are well aware of losing control over the money supply, if they don’t react. A solution may be that CBs are issuing digital money themselves to maintain control. Various central banks worldwide are now experimenting with that idea.

Forward thinking

The attraction of virtual currencies is mainly for speculative reasons, rather than for corporates to facilitate treasury. Corporate treasuries are increasingly looking for centralisation of the treasury organisation away from decentralisation. They also are very much focused on reducing the various corporate risks including FX, short term interest rate, cross currency liquidity, etc.

And when it is regulated on a larger scale it is questionable if the described benefits of speed, efficiency or scalability attributed to the use of cryptocurrencies still will meet the costs associated .

The announcement by the Bank of China to put a halt on initial coin offerings or ICOs had a negative impact on the very volatile bitcoin and other cryptocurrencies. In one day it lost almost 15% of its value. The corporate treasurer however does not like volatility!

Carlo de Meijer – Economist and researcher

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