In an about face, Australia and New Zealand Banking Group (ANZ), has become the country’s first bank to mint an Ethereum-based, AUD-denominated stablecoin dubbed the A$DC, the bank said in a statement on March 23.
The move follows years of skepticism toward crypto from Australia’s banks.
In 2018, ANZ refused to bank businesses operating with crypto. In 2020, local stablecoin issuer, Chrono Bank, revealed that none of the country’s Big Four institutions were willing to provide banking services to the company, despite the project securing the required regulatory licensing.
Banks in other nations, including the U.K. and the U.S., have also been reluctant to provide services for cryptocurrency businesses even as their own research and development arms studied digital assets and introduced new blockchain-based offerings in the marketplace. The shift by ANZ may augur more openness by other lenders to embrace stablecoins or other forms of crypto.
According to The Australian Financial Revenue (AFR), the A$DC was created as part of a pilot program to reduce frictions associated with purchasing digital assets for its client Victor Smorgon Group.
The stablecoin was used to transfer $30M from Victor Smorgon Group, the investment firm of the local billionaire Smorgon family, to digital asset fund manager Zerocap in just 10 minutes. The token was transferred between ANZ and Zerocap accounts with institutional crypto custodian, Fireblocks.
Normally, Victor Smorgon would have been required to convert AUD into USD before making the transaction. AFR estimates that making a transaction of that size would take “several days” via conventional systems.
Australian dollars are held in a trust to fully back A$DC at a one-to-one ratio.
Looking forward, ANZ hopes the token can pave the way for more of its customers to explore digital assets, according to Nigel Dobson, bank services lead at ANZ.
Digital Aussie Dollar
ANZ expects demand for the stablecoin will boom alongside local interest in crypto assets. “We anticipate the digital asset economy will accelerate and a foundational element will be a digital Aussie dollar,” Dobson said in a statement.
“Our customers want to buy digital assets and seeing a digital Australian dollar minted by a large ADI [authorized deposit-taking institution] like ANZ will make them confident they can transact with us, and use the coin domestically,” he continued. “This means they don’t have to flip in and out of US dollar coins, taking exchange risk in an elongated process.”
ANZ added it hopes A$DC will be listed on a local cryptocurrency exchange in the future, but is targeting institutional targets with the product initially.
In response to the high fees associated with transacting on the Ethereum mainnet, ANZ is also exploring launching the stablecoin on other blockchains, including Hedera Hashgraph.
“There is inherently a lot of trust that comes with ANZ, and if the A$DC is traded on open market it should hold its peg as long as the market has confidence the one-to-one backing is there,” Ryan McCall, the CEO of Zerocap, said in a statement.
The smart contracts for A$DC were audited by OpenZeppelin. Prominent blockchain forensics firm Chainalysis has also been solicited to advise ANZ regarding the potential regulatory implications for A$DC.
The news comes as Australia’s federal government is exploring a flurry of crypto initiatives. By the end of 2022, the government has committed to finalizing consultation concerning crypto custody, policy responses to digital asset businesses being debanked, and how DAOs can be incorporated into the country’s legal and taxation regimes
The Reserve Bank of Australia is also studying whether to launch a central bank digital currency (CBDC) for both wholesale and retail use.
But ANZ sees little threat to its stable token from a CBDC. ”We see our digital coin will be programmable for our customers’ needs,” Dobson said.
“Where our coin needs to speak to, or understand, communications from other smart contracts, we have an ability to design that code, to communicate with a tokenized physical asset. We can modify our coin for our customer needs, whereas CBDC is likely to be more generic and focused on person-person payments.”
Despite ANZ’s moves to embrace digital assets, Australia’s Big Four banks have been criticized for stifling innovation in the crypto sector by refusing to provide banking services to local firms.
In September 2021, NAB chief executive, Ross McEwan, told a parliamentary hearing that the bank had not partnered with any crypto firms due to perceived risks and uncertainty as to whether the venture would be profitable. He said that the institution does not maintain a formal policy excluding digital asset firms.
Westpac CEO, Peter King, said that the pseudonymous nature of cryptocurrency wallets makes it “very hard” for businesses operating in the sector to meet the bank’s AML/CTF requirements.
Two months later, Commonwealth Bank announced it would allow 2,000 retail customers to trade 10 digital assets using its app as part of a pilot program. The firm said the move was in response to internal data indicating half a million of its customers are already trading crypto assets.