NAB Launches AUDN Stablecoin
The National Australia Bank (NAB) has introduced a stablecoin, known as AUDN, aimed at enabling its business clients to conduct real-time transactions using Australian dollars through blockchain technology.
This move follows the creation of a similar stablecoin, A$DC, by ANZ nine months ago, designed for purchasing ‘tokenized’ carbon credit units.
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NAB’s stablecoin is fully backed by Australian dollars held in trust at the bank and is set to launch on the Ethereum (ETH) network later in the year. It aims to facilitate various transactions, including trading carbon credits and low-fee international money transfers. Notably, efforts by the big four banks to create an industry-wide stablecoin for the Australian dollar last year failed due to competition concerns and differing cryptocurrency strategies among the banks.
NAB and ANZ are working with regulatory bodies as guidelines for stablecoins are being established. The Governor of the Reserve Bank of Australia (RBA), Philip Lowe, has emphasized the need to prioritize the regulation of stablecoins, holding them to the same standards as bank deposits.
NAB’s Chief Innovation Officer, Howard Silby, expressed optimism about blockchain technology, stating, “We certainly believe there are elements of blockchain technology that will form part of the future of finance. That continues to be the source of some debate. But certainly, from our point of view, we see [blockchain] has the potential to deliver instantaneous, transparent, inclusive, financial outcomes.”
Stablecoins, tied to real currency values, have the potential to mitigate the volatility seen in many cryptocurrencies, playing a crucial role in enhancing the efficiency of blockchain technology, especially in settlement processes.
Stablecoins can be particularly beneficial in carbon trading, allowing for “on-chain” payments and transfers simultaneously with the exchange of carbon credits, enhancing trading efficiency and reducing settlement risk.
Banks are also exploring the use of stablecoins for investors to purchase “tokenized” real-world assets, providing instant settlement for digital asset sales, bypassing the volatility of other cryptocurrencies and risks associated with transferring funds to and from cryptocurrency exchanges. Additionally, stablecoins can contribute to the development of Web3 applications.
Despite challenges faced by the cryptocurrency market in 2022, including the FTX exchange collapse and the arrest of its founder, Sam Bankman-Fried, banks continue to explore blockchain technology for improving financial market infrastructure. This is in contrast to the failed attempt to replace the CHESS system for settling the equity market with blockchain by the ASX.
NAB’s stablecoin, AUDN, has various potential use cases, including repurchase agreements in the bond market and “green deposits” connecting customer savings to environmentally friendly loans. The primary focus is on using AUDN as a settlement token, with NAB aiming to shift from T+2 to T0 settlement in certain markets, leveraging stablecoins for “atomic settlement” and enabling multiple interconnected transactions to settle simultaneously.
This initiative by major Australian banks to create digital currencies responds to the competitive threat posed by technology companies, leveraging their trusted and regulated status in the economy.
Regulators globally remain cautious about the role of technology companies in offering digital money, evident in the concerns surrounding Facebook’s Libra. In the U.S., the largest stablecoin, Circle (USDC), is provided by a non-banking technology company.
DigitalX, an ASX-listed digital asset specialist, plans to use AUDN for its digital asset funds, proving reserves and enabling real-time atomic settlement for Australian equities in partnership with Automic Group, a share registry.
Other Australian companies are also developing stablecoins pegged to the Australian dollar. Novatti, an ASX-listed payments firm, created AUDD, while non-bank Ettle launched AUDE for both retail and institutional markets. The government is considering crypto regulation, and stablecoin regulation has been proposed by Senator Andrew Bragg.
NAB aims to use AUDN for various purposes, including carbon markets, repos, and cost-effective international fund transfers. Internal testing is underway, with NAB anticipating customer availability in at least three months, subject to regulatory approvals.
Other banks like JPMorgan and Wells Fargo have also created stablecoins for internal efficiencies. NAB’s approach differs from the Commonwealth Bank of Australia (CBA), which aims to provide retail access to speculative cryptocurrencies, facing opposition from the Australian Securities and Investments Commission (ASIC).
While bank-created stablecoins could potentially compete with central bank digital currencies (CBDCs), market participants expect them to serve different purposes and be used in parallel. The Reserve Bank of Australia (RBA) is exploring CBDC use cases with NAB and other banks submitting proposals.
NAB views its stablecoin, AUDN, as akin to a “tokenized” deposit, not meant to float in crypto markets but designed for specific use cases. Conversations with regulators have been positive, and NAB is interested in playing a role in the secure storage of digital assets for institutional and high net-worth customers, potentially obtaining licenses under new regulations.
Other Australian dollar stablecoins, including Novatti’s AUDD and Ettle
