ANZ is minting a stablecoin tied to the Australian dollar called A$DC that is being used as a payments tool as well as to digitize supply chains.
First, on behalf of a large Melbourne-based family office, Victor Smorgan Group (VSG), and centralized digital exchange Zerocap, ANZ is creating A$DC as a payments tool. This will help VSG access global digital assets more efficiently.
Secondly, ANZ is piloting the automation of supply chains in the local alcohol industry, helping a local distillery digitize the payment of excise tax.
DigFin asked ANZ about the big-picture meaning of a bank minting a stablecoin, followed by a look at the two use cases.
Stablecoin design
Nigel Dobson, banking services lead at ANZ in Sydney (pictured, center), says the bank is fully backing the stablecoin with Aussie dollars. The coins are designed for specific client use cases, so the dollars backing them come from those clients’ accounts on deposit.
“We’re not creating private money,” Dobson said. “We’re creating a payment instrument. We do expect A$DC to circulate, but backed by bank deposits.”
Because the A$DC is not money, it is not part of a commercial bank’s power to create private credit, as is the norm in a system of fractionalized reserves. This is fully reserved.
ANZ earns revenues by holding client deposits or collateral without paying them interest – keeping any interest for itself.
In theory, A$DC could be programmed to offer a yield – in which case it would become an investment tool. In theory, ANZ could back different yield payouts with bonds rather than with client cash. A$DC could offer a yield curve in a digital environment.
Dobson says the bank has no intention to do so. “These coins are not for investment,” he told DigFin. “They exist to communicate with other digital assets and smart contracts. They are purpose-led coins, not investment-led coins.”
The coin is built to Ethereum ERC-20 standards – the standard used by Ethereum developers to make fungible tokens that interoperable with other products and services, making it de facto like Eth, the cryptocurrency of the Ethereum blockchain.
Questions
The promulgation of A$DC raises some big questions for the future of banking. What is the role of commercial banks in crypto?
Dobson says the bank is operating where its role is clear. “Some business models are the same [as TradFi]. With DeFi, we don’t fully understand the operational model but we recognize the business model is a marketplace…institutional invesotrs want digital assets and to mainstream their crypto operations. We mint and manage an Australia-dollar stablecoin, within our regulated perimeter.” This removes investors’ reliance on unbacked private coins.
While Dobson says the bank won’t offer returns on A$DC or collateral staking it, he says ANZ will look for opportunities to offer custody and financing, sometimes white-labeling a tech provider to do so.
He believes commercial bank-minted coins will continue to play a role even if the Reserve Bank of Australia issues a CBDC. A CBDC, be it wholesale or retail in scope, is a digital cash payment instrument. A$DC is that too, but it can be programmed to engage with smart contracts, which creates specific outcomes for clients (see use cases below).
There isn’t much difference in theory between A$DC and JPM Coin, except that J.P. Morgan opted to brand its own token, while ANZ did not. The existence of multiple bank-issued coins raises the question of the future: do we want a world fragmented by so many specialized coins?
Dobson says these coins will probably interoperate; this is why A$DC meets ERC-20 standards for smart contracts and is compatible with applications developed on Ethereum. (JPMCoin was developed on Quorum, which is an enterprise-focused version of Ethereum.)
Finally: is helping clients operate in Bitcoin contradict banks’ ESG policies? Dobson acknowledged there is a conflict. “We work to find blockchains designed for enterprise-grade use cases that have a low-carbon footprint.” He says the best blockchain for that today is Hedara Hashgraph, although permissioned blockchains like Hyperledger Besu are also far better than proof-of-work protocols like Bitcoin’s. Ethereum is also proof of work, but ANZ is expecting it to transition this year to a proof-of-stake consensus mechanism.
Case study 1: Victor Smorgan Group
Victor Smorgan Group is the family office of late industrialist Victor Smorgan, whose conglomerate has banked with ANZ for nearly a century. More recently, it has taken a stake in Melbourne-based crypto exchange Zerocap.
Ryan McCall, co-founder of Zerocap (pictured, right), says VSG is looking for ways to engage in crypto trades more efficiently. As an Australian institution, it uses a group like Zerocap for hedging and structured products designed to mitigate the high volatility of cryptocurrencies, as well as to seek returns.
It would be easier for investors to use stablecoins to provide that protection against volatility. The two most liquid stablecoins are USDT (Tether), which has been proven to not back its vast issuance of coinage with cash; and USDC, run by US firm Circle, which is regarded as more reliable. Even safer would be a central-bank digital currency, but Australia is unlikely to issue these in the near future.
Accessing USDC is not straightforward. If VSG has a large amount it wishes to deploy into crypto, today it puts Australian dollars into its local bank account and sends the money to Zerocap’s bank account. Zerocap goes to the FX market to convert the money into US dollars, to be transferred to Zerocap’s US bank account. Because it’s in the crypto business, forex banks charge Zerocap a high fee, and the process takes two or three days to settle. Only then can Zerocap turn its US dollars into USDC, at which point it can now access the crypto market on behalf of VSG.
ANZ’s stablecoin slashes the process to minutes, at zero fees. Now VSG has cash in its deposit with ANZ; it tells ANZ to exchange these dollars in to A$DC, and transfers the stablecoins to VSG’s account at Zerocap (with Fireblocks serving as digital custodian). Now Zerocap can access the crypto market directly, and exchange A$DC for USDC, or go directly into other assets.
“This is just the beginning of a new initiative,” Dobson said, “but we are starting with basic value transfer of digital currency as our foundational step.”
Next ANZ will work to make a “corridor” trade between A$DC and USDC, as the US dollar stablecoin is still regarded as necessary because the global crypto market is priced off US dollars. A$DC needs to grow its liquidity – there is not likely to be much demand for an Aussie stablecoin outside of Australia. If ANZ were to list A$DC on digital asset exchanges and attract other market makers, it might create enough liquidity to support A$DC pairs with Bitcoin, Ethereum or other cryptocurrency – which would help investors reduce their dependence on US stablecoin operators.
“Australians have to pay a premium for crypto because it’s expensive to move Australian dollars out of the country,” McCall said. “It costs more to buy Bitcoin here than it does in the U.S.”
Case Study 2: Australian Distillers Association
ANZ’s stablecoin is also being used in a pilot led by Convergence.Tech, a local blockchain company, and the Australian Federal Government designed to digitize longstanding tax systems for the alcohol and spirits industry. KPMG, part of the pilot consortium, reckons companies in the booze business could recover up to A$45 million annually in tax revenues lost to paperwork.
“We’re tokenizing alcohol,” Dobson said.
Building on Hyperledger Besu, a permissioned, enterprise blockchain, the consortium is issuing tokens to represent the alcohol, with A$DC being used as the means of payment. The A$DC is also programmed to sync with smart contracts built into the booze tokens so that when product is physically moved to a wholesaler (that is, someone buys the alcohol), it triggers a command to pay excise tax. At this stage, the command means ANZ is alerted to a tax event which it coordinates; taxes are still being paid offchain in Aussie dollars.
For ANZ, putting this infrastructure in place is a means to help digitize the entire distillery industry – and using A$DC as the means of payment of taxes, to give the bank new insight into the entire supply chain. It will be able to collect information on inventories and the real-time location of products. That will lead to opportunities to offer financing, to distilleries or their suppliers, either onchain or offchain, Dobson said.
“This isn’t like Zerocap’s pay-to-exchange business,” he said. “”It’s about supply-chain automation.”
For ANZ, the blockchain’s immutable time stamp provides a provenance audit. That will also be useful to the federal government, which is backing the project because it believes it is missing out on tax revenues; meanwhile, distillers also expect a more efficient process will eliminate costs of doing business.
Chami Akmeemana, CEO of Convergence.Tech (pictured, left), said in a statement that the pilot is establishing trust among all of the parties. “Where trust exists you can improve systems for everyone,” he said.
Assuming the pilot will graduate to full deployment, the consortium members expect the use cases to expand. Akmeemana says it has the potential to open new commodities markets, and transform tax and compliance systems from just recording transactions into a potential revenue and capital-generating services.
