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How do Digital RMB smart contracts work? First supply chain finance use cases
September 25, 2023
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ICBC China’s biggest bank and e-commerce giant JD.com have worked together to develop a supply chain finance solution based on digital RMB smart contracts. To date, the emphasis has been on consumer CBDC smart contracts, so this is one of the first business applications. 

This raises an interesting question: how does the broader smart contract ecosystem work, given they trigger central bank digital currency (CBDC) payments? And a much bigger question: What does this mean for the future of banking?

JD.com supply chain finance & digital RMB

Earlier this month, JD.com was involved in the first supply chain finance credit that was entirely automated using digital RMB. CBDC aside, supply chain finance solutions often involve a large company working with its bank to supply credit to its suppliers. 

In this case, large companies pay the funds directly and instantly to the suppliers using CBDC, avoiding bank settlement delays. Combining a CBDC and smart contracts, JD.com highlighted how it’s possible to work directly with multiple financiers without using a third party provider. Later we’ll explore the implications of this.

Meanwhile, smart contracts are pieces of programming code. Given the digital yuan is used only for the payment leg, the majority of the code is around business applications. For example, if someone orders a food delivery and pays upfront with the CBDC, it will lock the currency as a prepayment. But much of the code will involve logging the food order, calculating the amount due, and recording the customer accepting the delivery. Only then is the money released to the restaurant.

How digital yuan smart contracts work

Smart contracts are on a separate system from the CBDC but are used to add payment conditionality and programmability. 

In the same way that banks distribute the centralized CBDC in China, they are also used to access smart contracts. 

The smart contract platform is surprisingly open. It is a little like an open source version of Apple iOS apps. 

Organizations can work with and through the big banks to develop smart contracts based on central bank rules and standards. Then the banks submit the smart contracts to the central platform for review. That’s not dissimilar to submitting iPhone apps to the Apple appstore. 

The review isn’t just technical but also looks at the legality of the smart contract. Presumably that might involve the smart contract platform liaising with other regulators. Once the code is approved, it becomes an open source template so others can re-use it.

While approval is centralized, we’re not 100% clear whether the smart contract would run on the bank’s infrastructure or the central banks’. The platform adheres to the principle of “centralized management and two-tier operation structure,” which might imply that smart contracts are executed on the infrastructure of the big state banks.

Given the banks already implement a layer of security around CBDC transactions, there’s some logic in them hosting the smart contracts.

A year ago, Mu Changchun, the head of the central bank’s Digital Currency Research Institute, outlined the framework for smart contracts. He mentioned that code development needs to be both secure and convenient. And it should take advantage of the expertise of different agencies and institutions. 

He also emphasized the importance of interoperability. This includes interoperability of smart contract systems and external systems, particularly for identity and compliance.

Meanwhile, to use the smart contract, businesses interact via an API.

Is digital RMB programmable money?

The central banks of the EU and England have rejected the idea of programmable money. That means that units of money can only be used to buy specific types of goods or services. In contrast, programmable payments define the business logic for payments.

At its core, we don’t believe the digital RMB is programmable money. However, in conjunction with smart contracts, it looks similar.

ICBC revealed that most of China’s digital RMB ‘red envelope’ giveaways are based on programmable smart contracts. In some cases, the goal was to promote the adoption of the CBDC, but others related to COVID. Often recipients could only spend the red envelope CBDC at certain merchants, and the smart contracts would impose that restriction. Also the red envelopes had expiry dates, so smart contracts reclaim unused currency at the end of the validity period.

Analysis: how CBDC smart contracts impact commercial bank money

In the UK, Barclays recently wrote a paper about the functional consistency of money and the potential digital pound. One of the takeaways was that bank deposit tokens and CBDC might want to share the same (centralized) programmability layer. That helps with full interoperability.

But the key point Barclays was making is that to preserve the singleness of money, different types of money need to have the same functionality. That ranges from the ability to withdraw cash at an ATM to programmability.

In China’s case, to what extent can banks integrate their own payments with the digital RMB smart contract platform? Or is that functionality restricted to the CBDC?

For years, ICBC has already used smart contracts with bank payments. And it recently integrated its existing blockchain with the digital RMB smart contract platform. 

However, smart contracts could still put commercial bank money at a disadvantage. That’s because someone can’t necessarily use RMB smart contracts for a payment from any commercial bank. If they could, that might level the playing field between big and small banks.

Analysis: Does CBDC commoditize banking services?

A second point relates to open source. From a societal perspective, open source is enormously beneficial because innovation is accelerated as people build on each other’s innovations. 

In China, with two dominant financial players Tencent/WeChat Pay and Ant/Alipay, an explosion of code sharing could start to level the playing field. On the other hand, when many services become commoditized, it can benefit those with brands and scale.

How will banks in the West respond to a concept like this? There’s no question that many activities are replicated across every bank with no competitive advantage. For these functions, open source makes sense. However, most have existing legacy systems which they might be slow to upgrade. So the primary beneficiaries might be new entrants. 

And if higher value activities became open source and automated, it could impact competitive advantage.

Finally, the supply chain example appears to demonstrate the potential for a CBDC to disintermediate banks – not just for payments but for other functionality. Often a single bank is the primary conduit for supply chain finance, but in the digital RMB, there are competing financiers. That said, many trade finance platforms already enable multiple lenders to compete on a single platform. Here, it is those platforms that become disintermediated.

A path to narrow banking?

Zooming out to a distant future, one possibility is banks competing for lending opportunities on centralized smart contract platforms – not just for trade finance but for all lending. This looks similar to the vision of narrow banking proponents who see lending as the commercial bank’s primary (sole) role.

It has all sorts of implications for commercial banks and existing platforms for trade finance or other banking services.

Most of all, it raises major questions about the breadth of the role of the central bank.

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4 Fintech Companies 💸& Things To Know About 🤔

The fintech revolution is reshaping the way we manage, invest, and move money, breaking down traditional barriers and empowering individuals worldwide. As financial technology continues to evolve at a rapid pace, a select group of innovative companies are leading the charge by offering groundbreaking solutions that redefine banking, payments, and digital assets. Whether you’re a savvy investor, an industry professional, or simply curious about the future of finance, discovering these trailblazing fintech companies is essential to understanding today’s dynamic financial landscape.

 

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4. NeoTax - Automated Tax R&D Credits

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In an era where technology and finance are increasingly intertwined, these four fintech companies stand out as catalysts for positive change. By driving progress in digital payments, asset management, lending, and decentralized finance, they are not only making financial services more accessible and efficient—they are also paving the way for a more inclusive and empowered global economy. Staying informed about their innovations can help you seize new opportunities and take part in the future of finance.

 

👀Things to know 👀

 

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What is XAH and Xahau?

If you're new to XRP, you may have noticed some of us discussing another network named 'Xahau'.

It's Like XRP ... But Different

The Xahau network was created in 2023, and its starting point was the open-source code for the XRP Ledger. A small team of researchers and entrepreneurs decided to add smart contracts to the network code.


The XRP Ledger has no smart contract capabilities, by default.

To integrate smart contracts, the team decided to use an architecture that includes 'WASM' or 'web assembly' code. Each account can have up to 10 'hooks' installed that are triggered for transactions that match specific criteria. They can run before or after a transaction is processed. This enables a variety of use cases that do not involve the need to change the network's core code.

Hooks

A 'hook' is what is known as a smart contract that can be triggered in relation to a specific account and its transactions.

The term arises from the programming world, where it generally means "code that runs based on triggering conditions." In Xahau's case, it indicates code that is run before, or after, a transaction is processed.
 
Each hook must be installed on a specific account by the party that controls the account - i.e., the secret key holder.
 
What Can XAH Do That XRP Cannot?
 
The primary benefit from the use of hooks, is that the core network code does not need to be changed every time a new use case is identified. This means that additional use cases can be addressed immediately, with no requirement for intervening steps, such as:
  • Community review
  • Community approval
  • Amendment voting
All of those steps are eliminated with the use of hooks; new use cases can be addressed as fast as the code can be developed.
 
To read more about how hooks enables Xahau to handle more use cases than even the XRPL, you can read this article:
 
Key Differences From XRP
 
Other unique differences from the XRP Ledger include:
  • Much smaller supply ~612 million coins vs. 100 billion coins
  • XAH hodlers are rewarded at 4% of their account balance. There are no rewards for XRP.
  • Governance participants are incentivized
  • Payment channels available for user-created tokens (IOUs)
  • URI tokens instead of NFT tokens
Who's Who of Xahau?
 
The list of those that are either founders, or closely associated with the founding organizations, is extensive. Here are the names of three organizations mentioned in the whitepaper, or their current moniker:
  • Xaman (a.k.a. XRPL Labs)
  • Gatehub
  • InFTF (Inclusive Financial Technology Foundation)
There exists a long list of impressive developers, architects, and technologists among the Xahau inner circle. But the three names that people associate most prominently with the leadership of the Xahau network are Wietse Wind, Richard Holland, and Denis Angell. The links to their 'X' accounts are:
 
Friend Or Foe?
 
This topic is one of the most contentious.
 
While Ripple, the company with the largest stake of XRP, showed interest in hooks early on, they ultimately decided to advocate for a different approach; the use of an EVM-based solution (Ethereum Virtual Machine) to handle smart contracts on the XRP Ledger. This decision was met with consternation by the Xaman team that had worked with them for several years to advocate for the use of hooks.
 
You can read more about the 'business politics' part of this topic here:
 
So how do Xahau fans view the relationship between XRP and XAH?
 
The Xahau team - and many of its community members - advocate for the use of a 'dual-chain' solution to implement smart contracts. This can be accomplished by the use of 'listener' software, along with native Xahau hooks.
 
A proof of concept, developed by Denis Angell, has demonstrated that bi-lateral communication can work with a simple approach.
 
From an economic standpoint, every chain that has its own digital asset is a competitor; but the simple way to think about Xahau, is that a 'bunch of XRP geeks' decided to implement smart contracts on their own version of the XRP Ledger.
 
The team emphasized transparency along the way, and initially received support from the primary XRP stakeholder, Ripple. They published Xahau as open-source code that could, in theory, be back-engineered and integrated with the XRP Ledger. You can clearly observe the team's idealistic mindset in early marketing mistakes, where they named their digital asset 'XRP Plus' in an effort to emphasize the way that they viewed their creation. While this resulted in confusion - and even suspicion - in its early days, the team quickly pivoted, and named their digital asset 'XAH', which became its ticker symbol.
 
Synergy effects between the two camps speak to a genuine camaraderie, with many Xahau developers being open and willing to help with changes to the core XRP Ledger protocol. You can find many examples of this open dialogue on the 'X' platform.
 
How To Purchase XAH
 
If you wish to speculate by buying XAH directly, it is available in a variety of convenient locations, depending on where you are located. If you're in a country that is supported by Bitrue, you can directly purchase or trade XAH by using that exchange.
 
On January 20th, 2025, Bitmart announced that it supports trading of XAH for customers in their list of supported countries; And in late March, another major exchange announced that they would be supporting XAH trading pairs: Coinex.
 
If you're located in the United States, you can purchase XAH directly from a vendor known as 'C14'. The xApp for C14 is located in the Xaman wallet.
 
XRP Ledger geeks can also purchase XAH IOUs on the XRPL Dex and then convert them to 'real' XAH using a Gatehub bridge. This is available in countries that Gatehub supports.
 
Which XAH Accounts Should I Follow?
 
On the 'X' platform, there exists two major community groups for XAH fans:
In addition to the Xahau notables I've already mentioned in this article, my advice is to take a look at who is posting in the above two communities. There are many impressive leaders and entrepreneurs included. You should be able to find multiple 'X' accounts that reflect your interests.
 
Xahau Development Roadmap
 
Xahau leaders have published a roadmap for 2025 that lists their various goals for the ecosystem:
 
To read a detailed explanation for each item, refer to this: Xahau Roadmap Super Thread
 
One of the most incredible waypoints listed is 'JavaScript Hooks Implementation.' 🤯
JavaScript!
 
With the 'JavaScript Hooks Implementation', Xahau is making history; it will enable anybody that knows JavaScript to easily create and install a smart contract. While networks like Ethereum are impressive early movers, they require developers to learn a new language and syntax.
 
Xahau will soon open 'crypto smart contracts' to a group of developers that number in the tens of millions.
 
Project L-10K
 
Project L-10K is one of the most important items in the pipeline. L-10K refers to the effort to boost the throughput of Xahau consensus to over 10,000 transactions per ledger! This will benefit hosted projects such as Evernode, and future issued assets. Heading up the effort is Richard Holland, who provided a progress update to the community in late May of 2025:
 
To learn more about this ambitious effort, you can watch his full presentation here:
The Future Of Defi And Payments
 
Once you've seen the extensive list of use cases that XAH easily handles, it's truly inspiring. Xahau is everything that you love about XRP, plus a long list of more things to love. ❤️
 
Be an early adopter of XAH and the Xahau network! Join the community groups listed and follow the accounts that seem to reflect your own interest - speculator, developer, or crypto fan. You have a place in our community, no matter what your background or interests are. Welcome to the future of crypto Defi and Payments
 
Sources:
 
 
NOTE: Payment channels for IOUs is currently in amendment status for the XRP Ledger, authored by Denis Angel here:
 
 

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If you find value in my content, consider showing your support via:

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