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Why Swift may be the path to faster TradFi digital asset adoption
October 03, 2023
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Without intervention, it might take traditional finance (TradFi) ten to 20 years to adopt blockchain, said Olivier Roucloux of Euroclear. That’s partly because some organizations are unwilling to invest. However, if there’s a route with minimal investment, that could be a game changer. Swift is exploring such a path.

In late August, Swift shared the results of a blockchain interoperability trial including BNP Paribas, Citi, the DTCC, Euroclear and several others. Chainlink was the blockchain partner providing its cross chain solution. 

But the work is much more than interoperability between blockchains. It’s just as much about enabling access to DLT in the language institutions speak today, which is Swift messaging.

Yesterday at a Chainlink event, Swift’s Thomas Dugauquier said, “Where I see the power of using Swift messages is in a short window of time to try to unlock trading of digital assets.”

He described an investment bank not connected to blockchain sending a Swift message instructing its custodian bank to buy a digital asset. The custodian can then execute an on chain transaction on its client’s behalf. In a short time, a small number of connected institutions can enable access to blockchain’s tokenization for the 11,000 Swift enabled banks.

Alexandre Kech of SIX Digital Exchange (SDX) acknowledged that the current eight members of SDX neither host their own nodes nor manage their private keys. Instead, SDX uses the FIX protocol for trading and Swift for settlement to ensure seamless integration with current systems. Hence, something like Swift’s solution can enable institutions at different stages of development to reap many of the benefits of tokenization.

As ANZ’s Anurag Soin put it, “If there is any way to get a billion users on-chain, this is one of the ways.”

Fragmentation versus blockchain interoperability

Someone recently noted that the current fragmentation with numerous institutions launching siloed DLT networks is natural for blockchain’s innovation phase. However, as it transitions from exploration to production, there’s a need to address this problem.

Dozens of solutions aim to tackle the challenge, ranging from the Regulatory Liability Network to Ownera’s FINP2P and solutions such as Digital Asset’s Canton Network, and R3 and Adhara’s Harmonia. Swift is trialing Chainlink’s Cross-Chain Interoperability Protocol (CCIP). 

“If the promise (of blockchain) is efficiency, can we move to a model that delivers inferior results?” asked ANZ’s Anurag Soin. “Interoperability is really important to deliver that promised efficiency.”

SDX’s Kech put it a slightly different way. “Our job is not to play with technology,” he said. “It’s to offer services to members that they can use (so) that a bond issued on blockchain has the same value as a bond issued on traditional finance.”

All the panelists believe there will be multiple blockchains. Euroclear’s Roucloux pointed to several reasons. European legislation means you can’t share a DLT with a non EU institution. Most asset classes will reside in separate blockchains. And that includes the digital cash needed for settlement. 

ANZ’s Soin discussed different public blockchains. Executing high value transactions directly on Ethereum might be more expensive, but with a large number of validators, the network is considered more secure. Low ticket transactions could use other blockchains.

Soin also noted the potential for atomic settlement to unlock significant capital. The need for atomic settlement opened up a debate.

Does TradFi want atomic settlement?

To transition banks from off-chain to on-chain, we need to understand their pain points, said Euroclear’s Roucloux. He believes atomic settlement is not one of them. While he didn’t give reasons, that’s likely because netting payments also yields significant efficiencies.

On the other hand, he noted programmability can help automate the life cycle of a bond. However, these are activities that a central securities depository (CSD) such as Euroclear would usually manage. Hence, post issuance the CSD becomes an observer.

That contrasts with SDX, whose parent SIX also operates the primary CSD for Switzerland. It has taken a less conservative approach and embraced atomic settlement. As we previously reported, it tokenizes Swiss Francs and is about to use a live wholesale CBDC for a limited time. However, SDX’s Kech also noted that they are looking at pre-funding solutions, including potentially flash loans and collateral-based borrowing and lending protocols similar to web3’s Aave. 

SDX’s Kech acknowledged atomic settlement will take time to proliferate but noted the direction of travel is clear.

Roucloux argued that many situations involve five or more intermediaries, making atomic settlement extremely hard.

“I do expect that the number of intermediaries will diminish over time because of the technology itself,” said SDX’s Kech. “Blockchain technology can help (by) having those ‘unnecessary intermediaries’ removed from the list of intermediaries and make markets more easily accessible from anywhere in the world. But of course, that will take time.”

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Musk Turns On Starlink to Save Iranians from Regime’s Internet Crackdown

Elon Musk, the world’s richest man and a visionary behind SpaceX, has flipped the switch on Starlink, delivering internet to Iranians amid a brutal regime crackdown.

This move comes on the heels of Israeli strikes targeting Iran’s nuclear facilities, as the Islamic Republic cuts off online access.

The former Department of Government Efficiency chief activated Starlink satellite internet service for Iranians on Saturday following the Islamic Republic's decision to impose nationwide internet restrictions.

As the Jerusalem Post reports, that the Islamic Republic’s Communications Ministry announced the move, stating, "In view of the special conditions of the country, temporary restrictions have been imposed on the country’s internet."

This action followed a series of Israeli attacks on Iranian targets.

Starlink, a SpaceX-developed satellite constellation, provides high-speed internet to regions with limited connectivity, such as remote areas or conflict zones.

Elizabeth MacDonald, a Fox News contributor, highlighted its impact, noting, "Elon Musk turning on Starlink for Iran in 2022 was a game changer. Starlink connects directly to SpaceX satellites, bypassing Iran’s ground infrastructure. That means even during government-imposed shutdowns or censorship, users can still get online, and reportedly more than 100,000 inside Iran are doing that."

During the 2022 "Woman, Life, Freedom" protests, Starlink enabled Iranians to communicate and share footage globally despite network blackouts," she added.

MacDonald also mentioned ongoing tests of "direct-to-cell" capabilities, which could allow smartphone connections without a dish, potentially expanding access and supporting free expression and protest coordination.

Musk confirmed the activation, noting on Saturday, "The beams are on."

This follows the regime’s internet shutdowns, which were triggered by Israeli military actions.

Adding to the tension, Israeli Prime Minister Benjamin Netanyahu addressed the Iranian people on Friday, urging resistance against the regime.

"Israel's fight is not against the Iranian people. Our fight is against the murderous Islamic regime that oppresses and impoverishes you,” he said.

Meanwhile, Reza Pahlavi, the exiled son of Iran’s last monarch, called on military and security forces to abandon the regime, accusing Supreme Leader Ayatollah Ali Khamenei in a Persian-language social media post of forcing Iranians into an unwanted war.

Starlink has been a beacon in other crises. Beyond Iran, Musk has leveraged Starlink to assist people during natural disasters and conflicts.

In the wake of hurricanes and earthquakes, Starlink has provided critical internet access to affected communities, enabling emergency communications and coordination.

Similarly, during the Ukraine-Russia conflict, Musk activated Starlink to support Ukrainian forces and civilians, ensuring they could maintain contact and access vital information under dire circumstances.

The genius entrepreneur, is throwing a lifeline to the oppressed in Iran, and the libs can’t stand it.

Conservative talk show host Mark Levin praised Musk’s action, reposting a message stating that Starlink would "reconnect the Iranian people with the internet and put the final nail in the coffin of the Iranian regime."

"God bless you, Elon. The Starlink beams are on in Iran!" Levin wrote.

Musk, who recently stepped down from leading the DOGE in the Trump administration, has apologized to President Trump for past criticisms, including his stance on the One Big Beautiful Bill.

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

The controversial clause permits a state bank with a regulated stablecoin subsidiary to provide money transmitter and custodial services in any other state. While host states can impose consumer protection laws, they cannot require the usual authorization and oversight typically needed for out-of-state banking operations.

The Conference of State Bank Supervisors welcomed some changes in the GENIUS Act but remains adamantly opposed to this particular provision. In a statement, CSBS said:

“Critical changes must be made during House consideration of the legislation to prevent unintended consequences and further mitigate financial stability risks. CSBS remains concerned with the dramatic and unsupported expansion of the authority of uninsured banks to conduct money transmission or custody activities nationwide without the approval or oversight of host state supervisors (Sec. 16(d)).”

The National Conference of State Legislatures expressed similar concerns in early June, stating:

“We urge you to oppose Section 16(d) and support state authority to regulate financial services in a manner that reflects local conditions, priorities and risk tolerances. Preserving the dual banking system and respecting state autonomy is essential to the safety, soundness and diversity of our nation’s financial sector.”

Evolution of nationwide authorization

Section 16 addresses several issues beyond stablecoins, including preventing a recurrence of the SEC’s SAB 121, which forced crypto assets held in custody onto balance sheets. However, the nationwide authorization subsection was added after the legislation cleared the Senate Banking Committee, with two significant modifications since then.

Originally, the provision applied only to special bank charters like Wyoming’s Special Purpose Depository Institutions or Connecticut’s Innovation Banks. Examples include crypto-focused Custodia Bank and crypto exchange Kraken in Wyoming, plus traditional finance player Fnality US in Connecticut. Recently the scope was expanded to cover most state chartered banks with stablecoin subsidiaries, possibly due to concerns about competitive advantages.

Simultaneously, the clause was substantially tightened. The initial version allowed state chartered banks to provide money transmission and custody services nationwide for any type of asset, which would include cryptocurrencies. Now these activities can only be conducted by the stablecoin subsidiary, and while Section 16(d) doesn’t explicitly limit services to stablecoins, the GENIUS Act currently restricts issuers to stablecoin related activities.

However, the House STABLE Act takes a more permissive approach, allowing regulators to decide which non-stablecoin activities are permitted. If the House version prevails in reconciliation, it could result in a significant expansion of allowed nationwide banking activities beyond stablecoins.

Is it that bad?

As originally drafted, the clause seemed overly permissive.

The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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

💳 PayPal: 
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Dubai regulator VARA classifies RWA issuance as licensed activity
Virtual Asset Regulatory Authority (VARA) leads global regulatory framework - makes RWA issuance licensed activity in Dubai.

Real-world assets (RWAs) issuance is now licensed activity in Dubai.

~ Actual law.
~ Not a legal gray zone.
~ Not a whitepaper fantasy.

RWA issuance and listing on secondary markets is defined under binding crypto regulation.

It’s execution by Dubai.

Irina Heaver explained:

“RWA issuance is no longer theoretical. It’s now a regulatory reality.”

VARA defined:

- RWAs are classified as Asset-Referenced Virtual Assets (ARVAs)

- Secondary market trading is permitted under VARA license

- Issuers need capital, audits, and legal disclosures

- Regulated broker-dealers and exchanges can now onboard and trade them

This closes the gap that killed STOs in 2018.

No more tokenization without venues.
No more assets without liquidity.

UAE is doing what Switzerland, Singapore, and Europe still haven’t:

Creating enforceable frameworks for RWA tokenization that actually work.

Matthew White, CEO of VARA, said it perfectly:

“Tokenization will redefine global finance in 2025.”

He’s not exaggerating.

$500B+ market predicted next year.

And the UAE just gave it legal rails.

~Real estate.
~Private credit.
~Shariah-compliant products.

Everything is in play.

This is how you turn hype into infrastructure.

What Dubai is doing now is 3 years ahead of everyone else.

Founders, investors, ecosystem builders:

You want to build real-world assets onchain.

Don’t waste another year waiting for clarity.

Come to Dubai.

It’s already here.

 

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

💳 PayPal: 
1) Simply scan the QR code below 📲
2) or visit https://www.paypal.me/thedinarian

🔗 Crypto – Support via Coinbase Wallet to: [email protected]

Or Buy me a coffee: https://buymeacoffee.com/thedinarian

Your generosity keeps this mission alive, for all! Namasté 🙏 Crypto Michael ⚡  The Dinarian

 

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