Datachain CEO Hisada said of the project, “It will be the trigger for a major change in the shape of global finance.”
Japanese startups are trying to bring unprecedented innovation to the world’s financial infrastructure.
On September 5th, Progmat, a company founded by Mitsubishi UFJ Trust and Banking Corporation, NTT Data Corporation, Mizuho Trust and Banking Corporation, and Sumitomo Mitsui Trust Bank, announced that it will build a next-generation infrastructure to enable the transfer of stablecoins*, a digital currency, using the Swift platform (the Society for Worldwide Interbank Financial Telecommunication), which is the sole provider of international remittances.In collaboration with Swift, the company will begin demonstrating the construction of the world’s first international remittance infrastructure using blockchain.
*Stable coin: A cryptocurrency (virtual currency) whose price is designed to be stable by linking it to the price of underlying assets such as legal tender such as the yen or dollar, or commodities such as gold.
In fact, a Japanese startup is playing an important role in this project.Datachainis.
The company has invested in the aforementioned Progma together with megabanks, and is leading the technology development, including the prototype, for this project.Prototype development and demonstration to be completed in 2024, with commercialization planned for 2025The plan is to
Currently, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group are participating in the demonstration.The three major megabanks are participating, and several other major financial institutions, including overseas ones, will join in the future.Prospects.
The market size of international remittances is expected to reach $182 trillion (approximately 29 quadrillion yen) as of 2022. Most of this is sent via Swift, which connects more than 11,000 financial institutions and companies in over 200 countries and regions.
Regarding this project, which will bring innovation to the Swift infrastructure that is the foundation of global trade, Datachain CEO Satoshi Hisada said:
“The shape of global finance will change dramaticallyIt becomes a trigger.”
He said.
How can a Japanese startup take on such a huge project? We spoke to Mr. Hisada about Japan’s unknown innovativeness and the strengths of Datachain.
Japan was chosen for its “advanced” nature and the presence of megabanks
“The most important thing in a payment system is security,” said Hisada. “It is extremely difficult to achieve this with blockchain, and it is even more difficult to make it usable for business purposes. Datachain’s technology has both.”
— Why was this Japanese project chosen by Swift?
I think there are two main reasons. The first is that Japan is at the forefront of stablecoins.
In June 2023, Japan became the first country in the world to enact the revised Payment Services Act (Stablecoin Regulation Act) to regulate stablecoins.
The United States, the United Kingdom, and the EU are also working quickly to put in place legislation, but as of now, this has not been realized. In that sense, I think the achievements of those who have been involved in rule-making in Japan are great.
–Why is there so much attention being paid to the development of laws regarding stablecoins?
This is because it is a digital currency that can be used for payments and international remittances. Crypto assets (virtual currencies) such as Bitcoin and Ethereum cannot be used for payments because their prices fluctuate wildly due to speculative movements.
On the other hand, stablecoins are pegged to fiat currencies and have backing assets (a basis for the price), so their prices are stable.
There are several types of stablecoins, but the most promising as a means of payment are fiat-backed stablecoins that are pegged to fiat currencies such as the yen or dollar. The revised Payment Services Act of 2023 is the first in the world to make these available as an electronic payment method.
Progmat and Datachain also aim to issue and distribute this fiat-collateralized stablecoin.
——What’s the other reason?
The fact that this project is being carried out with global financial institutions, including Japan’s three major megabank groups. Banks are indispensable for remittances. Moreover, the financial giants of the world’s most cutting-edge countries are working together to propose this. I think that’s what motivated Swift.
–Why are banks indispensable?
It is already technically possible for companies to transfer money directly to each other without going through a bank. However, strict checks must be carried out to ensure that money sent internationally is not laundered or used to fund terrorism. Who will do this? At present, only banks can do this.
The receiving bank checks the payment and, if there are no problems, the funds are transferred, but the Swift platform supports the exchange of information such as “There are no problems, so please transfer the money.” Therefore, both banks and Swift are indispensable partners.
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Stablecoin market to hit $18 trillion in the next few years
The international remittance system that the project “Project Pax” aims to commercialize (blue part). Pax means “peace” in Latin. Regarding the reason for the name, Mr. Hisada explained, “It expresses our desire to contribute to the realization of world peace by expanding trade with emerging countries and narrowing the economic gap.”
–First of all, why is it necessary to change the current state of international remittances?
This is because there are various problems, such as it being slow and expensive.
Currently, international remittances are conducted through multiple intermediary banks in each country, known as correspondent banks. This isn’t a big problem since you can send money directly to major banks in major countries, but if you try to send money to an emerging country, it can take 3 to 4 days for the money to arrive, and the fees can be as high as 5,000 to 10,000 yen.
This has been a problem for many years, and the G20 has even set goals to improve remittance costs, speed of arrival, access, and transparency by 2027.
–That will change if this project is commercialized.
Since stable coins can be transferred without going through an intermediary bank, transfers can be made quickly, cheaply, and 24 hours a day, 365 days a year. This will be a major boost, especially for companies doing business with emerging countries, including the Global South, and for people from emerging countries who are working in developed countries.
— Won’t the introduction of new technology make bank and Swift systems more complicated?
Being able to avoid that is one of the major features of this project.
Rather than building a new system from scratch, we will build it by adding stablecoin remittance functionality to the current fiat currency remittance system. This way, neither Swift nor banks will need to build new operations for stablecoin remittances, minimizing investment costs.
I think the fact that this avoids the double-tracking of two lines is the reason why major Japanese banks and Swift feel that this is a viable business option.
–What impact will this have on financial markets?
The total market capitalization of stable coins has grown to more than 25 trillion yen, but it is still only 0.5% of the total legal tender balance. However, as their use in the real economy, such as for international remittances and payments, spreads, it is predicted that the market will grow to more than 400 trillion yen by 2028, more than 15 times the current size.
Furthermore, it is said that 10% of the enormous international remittance market, valued at $182 trillion (approximately 29 quadrillion yen), will be converted into stablecoins in the next few years.
Stablecoins are about to bring about major changes in the shape of global finance, and this project will be the trigger for that.
–The prototype is scheduled to be developed and verified by 2024, with commercialization planned for 2025. That’s quite a fast pace considering it’s such a huge project.
Japan’s advantage in stable coins is only about a year at most. Competition is fierce, so if we’re not careful, this advantage will disappear quickly. Development speed is vital to win in the global x deep tech world.
The only way to realize a decacorn is through “global x deep tech”
“I want to hire as many engineers as possible with the highest salary in Japan,” said Hisada. Meanwhile, he will donate all of his profits from Datachain to build a non-profit startup ecosystem through Soil, a general incorporated foundation of which he is the representative.
——Why did Datachain decide to enter the financial sector?
Datachain was founded in 2018 with the aim of creating a society where data can be shared using blockchain. However, we realized that it was too early to turn data sharing itself into a business, so we spent about five years “diving” into technology development.
After carefully searching for a large area where blockchain technology and business could coexist, we ended up in finance. It was a major epoch-making event for us to invest in Progmat and team up with them.
–Why was it epoch-making?
Our technology was put to good use at a time when it was needed business-wise.
During our time there, we pivoted and focused all our efforts on research and development into interoperability between different blockchains. Among the protocols standardized as communication methods, we began to have a world-leading track record with technology using IBC, the world’s largest and de facto standard, which has never been hacked.
Meanwhile, Mitsubishi UFJ Trust and Banking Corporation, the driving force behind the founding of Progmat, was considering a securities settlement business, such as stable coins and security tokens. To realize this, interoperability technology is essential. That’s why they called on Datachain, the world’s top company.
— It must be difficult to dive for five years unless you have the financial means.
It’s true that I was able to invest funds because I was the founder of a publicly listed IT company called Speee. But what’s important is that I had a strong will to win with “global x deep tech” and continued to focus on technology.
–Why did you focus on “global x deep tech”?
Unlike the era of Web2, the number of problems that can be solved by (Internet) technology alone is decreasing. The focus is now shifting to how to move the real world. This means that it becomes necessary to partner with large companies that already have heavy assets, such as banks and energy companies.
On the other hand, the growth of startups, which are the drivers of innovation, is also essential. It is now said that it is essential to produce decacorns (unlisted companies valued at $10 billion or more), which are bigger than unicorns (unlisted companies valued at $1 billion or more), and the only way to achieve this is through “global x deep tech.”
—— Unicorn companiesThere are about 1,200 companies in the world, but only 7 in Japan.Will a decacorn be born under these circumstances?
Of course, it is true that this is extremely difficult. That is why we decided to combine “global x deep tech” with financial infrastructure.
Is there a chance that Datachain could become a decacorn?
There is plenty of it and I believe it can be achieved.
–Where does that confidence come from?
Think about it. 2022 is the year of Web3, and 2023 is the year of generative AI. But no world-leading players have emerged from Japan.
This is because the protocol infrastructure layer has not been taken care of. In the Web3 era, various NFTs were issued as entertainment content, but that was the application layer. It can only be created with the protocol infrastructure.
The most important thing in any technology, including blockchain technology, is the protocol infrastructure. Infrastructure is important to maximize the impact on society. That’s why I’m committed to Datachain being an infrastructure company, and I think that’s a strength that will allow us to win on the world stage.
Source: BusinessInsider
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