The ANZ Bank’s Stablecoin Project. Interview with Nigel Dobson, Banking Services Lead, ANZ Bank

Transcript

Nick Abrahams:

Today I’m delighted to welcome to the program, Nigel Dobson, who is the banking services lead at ANZ Bank. Nigel, welcome to the program.

Nigel Dobson:

Hey, Nick. Thank you. Thanks for the invitation. Glad to be here.

Nick Abrahams:

Now, you have a very interesting role at the ANZ. Can you tell us a little bit of more about what is it that you do and your team?

Nigel Dobson:

Sure, Nick. The banking services portfolio at ANZ is an enterprise function. It focuses on delivering all of the payments, services and operations to the bank. But in doing so, we often find little areas of innovation. And this is probably what we are going to be talking about today. But we’ve got a very enthusiastic team of business people and technologists who collaborate around developing our contemporary payment systems, but with that, a great deal of enthusiasm for the digital asset world and the token economy. That’s where we’ve been focusing on recently.

Nick Abrahams:

That’s fantastic. I imagine there’s a lot of energy and enthusiasm in that group. I guess maybe before we start a little bit high level, maybe look at what do you see the opportunities for financial services as a result of, I guess the term is we would talk about Web 3.0 technologies. Tokenization, blockchain, crypto NFTs, the metaverse, all that gathering of technologies. Where’s the future for financial services, do you think?

Nigel Dobson:

Well, I think for financial services, there are many avenues of exploration, I think currently. But for ANZ, for us, it’s really just passing what the opportunities are, understanding what each of the various technologies can enable. And then reflecting on what our business model and operating model demand in terms of improvement, problem solving for our customers and genuinely creating new and interesting assets and business models.

Nigel Dobson:

But for now, it’s really focused on the financial market infrastructure that we know very well. And looking into the Web 3.0 technologies, as you mentioned. Distributed networks, tokenization, digital assets are the areas that we think are applicable to the financial market infrastructure that we currently use and are likely to be better, faster, cheaper.

Nigel Dobson:

Now, it’s a great promise. The only way you can really prove that out is to work with customers on their problems to see if you cannot transform the problem that they might have today in the traditional digital economy to one that is solved more quickly, more securely, or more efficiently with a token-based and distributed network type solution.

Nick Abrahams:

It is interesting that you mentioned there that it’s about solving the customer’s problems because I think one of the things that we’ve seen, probably with blockchain since we first saw it with Bitcoin 13 or so years ago, is it’s been accused of being a solution in search of a problem.

Nick Abrahams:

And so your point there, which is really what the ANZ is about, is about solving customers problems. Which is, I guess, as I understand it, how the ANZ got into the stable coin business because I think there’s parts of the Smorgon family who are quite interested in the tokenized economy.

Nick Abrahams:

And so, maybe it might be great to just get a sense of, I think the very first transaction where the ANZ was, I think it’s correct to say, the first bank in Australia to mint its own stable coin as a result of transaction with, or for the Smorgon good family. Could you talk us through a little bit about how that worked?

Nigel Dobson:

Yeah, sure, Nick. I mean, there was a quite a bit of thinking that led up to that transaction and a very serendipitous meeting in December of 2021, where the three parties, ANZ, the Smorgon family, the private office got together with one of their investment companies, Zerocap, the digital asset exchange. And that prompted a very interesting discussion about the benefits of having an Australian dollar denominated digital coin, which could be used on the Zerocap exchange. Much in the way that the USDC coin and Tether, and those other sort of coins have gained huge prominence and massive utilization in other venues as well.

Nigel Dobson:

We took a lead from that, but we also took a lead from, well, what is the bank’s role in terms of potentially minting a coin like this? And why will we do it? What problem are we solving? The first thing is the fundamental reason we would min to stable coin is to bring participation in the digital asset markets to the bank and give us a role, which we’re very comfortable with. We have the infrastructure, the learnings, the regulation, the technology, and the product capability to deliver a coin or a tokenized deposit effectively.

Nigel Dobson:

And then, the second piece was the Smorgon family had an investment portfolio. They wanted to expand that more into digital assets, but their current workflow to actually get an Aussie dollar fiat deposit into a digital asset was a process that took many steps and many days, traversing fiat currency, different currencies in the US, different assets and all the way back to Zerocap for a transaction.

Nigel Dobson:

Now, that elapsed time of three days, we compressed to about 10 minutes simply by issuing the VSG with a digital Aussie dollar coin, 100% collateralized by a deposit they held with ANZ. And we then used the Fireblocks platform to transmit the coin onto Zerocap for eventual… That could have been used for a transaction.

Nigel Dobson:

Now, at that point, we didn’t use the coin for a transaction, but what we did do was transmit the coin all the way to Zerocap’s wallet so that they could have done that. What we proved was we could issue a coin. We could send it to the right wallet, a whitelisted wallet. That receiver, Zerocap, would receive that coin. And then eventually in the future, they would then buy a digital asset with it.

Nigel Dobson:

What we did, we turned it around and reversed the process, because we also wanted to prove that the coin could come all the way back to its issuer and be redeemed appropriately for fiat currency. Now, that redemption is something that’s incredibly important because right now, stable coins, they’re held in perpetuity by many parties. But when the redemption moment comes, you want a trusted party holding collateral, or at least holding the promise to repay that original fiat backing to the holder of the coin.

Nigel Dobson:

Again, this is where this highly rated commercial bank with a regulatory perimeter as we are, comes into play. And that’s where we think we’ve got a lot of room to move in terms of our stable coin.

Nick Abrahams:

Yeah. I mean, the opportunities seem extraordinary. I guess, just to try to unpack that a little bit so that everyone understands it. Effectively, if you are any organization, I mean, in this case, it was the Smorgon family, but any organization who’s interested in buying some form of digital asset. There’s that on onboarding or transaction friction around, how do you actually get a cryptocurrency, whether it’s a stable coin or a USDC or a Tether, or indeed, another form of cryptocurrency.

Nick Abrahams:

You’ve got to access that and have that, and be ready to spend that to buy whatever digital asset. And so, in your situation, what you were offering for the Smorgon family group was this idea of rather than going and getting Tether and you’d have to buy that with you’d some form of fiat.

Nick Abrahams:

Rather than doing that, they could just, they deposited the money with you with the ANZ. And then the ANZ created this digital coin. And then, Zerocap receipted the coin, and would’ve been able to execute a transaction to buy another digital asset should that have been required. But instead, you just reverse the process to prove that the ANZ coin actually it was redeemable. Is that it in a nutshell.

Nigel Dobson:

Absolutely right, Nick. In a nutshell. And that was a really important part of it is that the idea that it’s much more efficient to settle a digital asset transaction with a digital value coin rather than go off-chain and try and settle it through traditional payment systems. I mean, it’s chalk and cheese in terms of the efficiency and the cost.

Nigel Dobson:

We wanted to be the issuer of a coin that enabled a transaction to happen on-chain matching two digital assets, exchanging value. And in the future, we think that the viability of atomic settlement to mitigate risk, improve security, and also, massively improve counterparty risk, if not eliminate it completely, is something that we’re focused on in the future for digital assets.

Nick Abrahams:

I think, certainly in my experience, I’m sure there’s a number of people who are listening who have the experience where you are waiting on a decent lump of funds to come in from offshore. And it’s all like, well, the banks close at this time in that country. And so, it’s got to get in by that time, and then it’s not going to arrive here. And then we all wait somewhat feverishly to see the money land in the accounts and so forth.

Nick Abrahams:

And I’ve always just assumed that’s normal. And I think what your solution propose is that, rather than waiting that whether it’s 24 hours or three days, we could actually do that in under 10 minutes.

Nigel Dobson:

Well, that’s exactly right. And that settlement anxiety as you describe it.

Nick Abrahams:

Oh, yes.

Nigel Dobson:

We’ve all felt it either personally or professionally. And it is because markets are not 24 by seven. Markets are not well integrated. And the idea that you can have native coins transacting with assets in real time in venues that operate 24 by seven changes the paradigm completely. And really reduces that settlement anxiety down to minutes rather than days.

Nick Abrahams:

Yeah. Yeah. Oh, well, it’s fantastic. Well, I guess you had a proof of concept and then you backed it up only very recently, a couple of weeks ago, where another branch of the Smorgon family used a stable coin to buy some BetaCarbon tokens and Guy Dickinson. And has been on the program earlier from BetaCarbon talking about his fantastic tokenized solution to carbon credits. But could you talk us through how that project extended on the original proof of concept?

Nigel Dobson:

Well, yeah, I mean, it was a natural extension. And we wanted to find a digital asset that was firstly in line with some of our strategic direction in the institutional bank at ANZ. Sustainability remains a very important theme for the bank. Transitioning our clients from the carbon economy to the renewable economy. And we want to participate in that transition.

Nigel Dobson:

And alongside that, we think that the carbon market is immature, it’s early stage. It will become more and more important. And what better market to look at in terms of contemporary infrastructure than carbon credits in Australia? And so, we work with Guy and his team and the Zerocap team and Victor Smorgon team to fulfill what we didn’t quite complete in that first contract transaction, which was in fact, the purchase of an asset, a digital asset on chain natively, having those two digital assets interact and complete. And as I say, so firstly, it was about going all the way through to asset settlement and exchange.

Nigel Dobson:

But also, in a theme that was very important for our ANZ strategy, which was supporting sustainability. And showing perhaps one of the options for future financial market infrastructure, supporting carbon credit transactions, or even just sustainable finance in general. Shining a light on where the operating model may best fit given the current lack of really mature infrastructure that supports those markets.

Nick Abrahams:

Yeah, it is interesting because I think one of the concerns that’s always struck me about tokenized assets is it only really makes sense where there’s some real reason for using the tokenizing technology. And there’s lots of folks who’ve attempted to tokenize real property or cows or other things. And often it doesn’t make sense because there’s already a ready market. And relatively, as you mentioned, a mature infrastructure around facilitating those transactions.

Nick Abrahams:

And I think what Guy and the team at BetaCarbon have found is that it’s actually quite difficult for most folks to be able to be active in the carbon credit market, even very significant and sophisticated players. There’s still lots of issues around that. And so, his business, I guess, using tokenization, really provides a relatively simple on-ramp into an exposure to carbon credit.

Nick Abrahams:

And so what I guess we take, the way you described it earlier. The Smorgon family, you facilitated them getting an ANZ stable coin. And then, that stable coin actually purchased a digital asset, being the tokenized carbon credit, which they now hold effectively. Fantastic.

Nick Abrahams:

What do you see as the future for, I guess, your stable coin? And this, I’m more than happy for you to make this an advertisement for the ANZ, because I think full credit, that ANZ has shown that it is prepared to trial new technologies. But what other sorts of customers would you expect might be interested in utilizing the ANZ stable coin platform?

Nigel Dobson:

Look, I think there are many and varied. But as I say, for now, we are taking a view that we want to learn our way through to a process that’s resilient, for a process that is visible to our regulators. And look, a stable coin, we think it’s just a fundamental digital asset that the token economy just needs.

Nigel Dobson:

And if you have a credible issuer that’s working closely with regulators to guide the regulatory perimeter around that, to ensure that there’s good transparency around really important issues like financial crime, KYC and transaction monitoring, which we’ve also established those service partners. Building up that ecosystem of services around a transaction and around settlement, that is endorsed by and that our regulators are comfortable with, is really part of the initial part of our strategy.

Nigel Dobson:

Now, after that, we think that there’s almost unlimited use cases for stable coins, on the basis that our customers themselves have a tokenization or an automation strategy. An example where we did another POC recently was with a distilling industry. And we worked with another partner called Convergence.tech and along with KPMG. And ultimately, that was a government funded piece of work where the ATO participated because they were interested in receiving a highly automated process of extracting excise tax from the distilling process.

Nigel Dobson:

Here’s a physical asset. It’s manufacturing alcohol. The alcohol’s obviously used in distilling. And at various points in that production process, excise tax can and should be payable. And with the use of smart contracts and various barcodes and information transformation, you can monitor the consumption of a physical asset, like alcohol. You can flag its consumption and the event driven excise tax through a smart contract, which can then communicate with an ANZ coin to pay the requisite amount of excise tax to the ATO, who can arguably receive that stable coin payment in their wallet.

Nigel Dobson:

It’s a forward-looking example of how you can transform very analog processes, which have lots of different actors. And as long as you have the right standards of communication, then you can achieve quite significant uplift in automation or operational efficiency. And the point I make around standards is not to be lost because we were, to our knowledge, one of the first banks in the world to issue a coin on a public permissionless blockchain.

Nigel Dobson:

There have been a number of experiments with private permissioned. But when we went the extra step, which is where we think the innovative leadership is emerged is that we went into the Ethereum network. And we went there because standards were emerging or had emerged. ERC-20 is now a commonly used standard for a range of digital assets.

Nigel Dobson:

There’s a range of NFT standards, 1155s, and a whole range of things that are emerging because the developer concentration around the Ethereum network is significant. And that’s where progress is being made on that all important standard setting. And for anyone who’s been in traditional finance, you’ll know very well, standards matter.

Nigel Dobson:

And there are a range of things like the SWIFT Standards of SWIFT messaging standards that we’ve all grown up with, that really set the language for financial markets and financial infrastructure. This is very similar, but it’s just happening with a set of tokenized protocols, as opposed to the digital protocols of Web 2.0. We are seeing that play out. And those standards are going to be what drives the interoperability, the communication across chain, and a range of new capabilities.

Nigel Dobson:

And each of those use cases will probably need different types of distributed ledger networks. Some will need very, very secure and potentially permissioned. Some will need very, very high throughput, like payments. And some will need very low cost as well. Well, most of them will need low cost in the future, but let’s be honest.

Nigel Dobson:

Getting to the scalability and security and cost are the really, the triumvirate of success. If you can get successfully distributed networks with really good scale, security and cost, then you’re really onto a transformational proposition. And we see those developing today. Not all of the traditional blockchains are as scalable and cost effective as we’d like them to be, or need them to be for future transactions.

Nigel Dobson:

But as that inevitably happens, that cost curve is plummeting. Efficiency’s improving. We think that staging a whole range of traditional transactions on distributed ledges with tokenization in the future is more than likely, if not probable.

Nick Abrahams:

Yeah. That is lots to talk about there. I think your point around standards is absolutely critical. I think some of the work that we’ve been doing around the private blockchain work. Much of that work is just trying to get the commonality around the standards upon which the individual players within that private blockchain network are going to operate.

Nick Abrahams:

And so, you think that’s a degree of work which is good, but ultimately, if we can get that out into the public blockchain space. And you’ve got very well understood and agreed upon standards for interoperability, very, very big opportunity there.

Nick Abrahams:

I’m fascinated by your distilling example because I think we’ve talked about this notion that by utilizing smart contracts, you can have a number of players at all stages of the transaction. And so, fascinating to see the ATO. I mean, I’m not surprised they’re interested, but it is good. Because I mean, obviously if we can take the processing time and add to efficiencies, then everyone wins out of that.

Nigel Dobson:

Well, that’s exactly right, Nick. And that what you’ve just summarized is that is the problem solving aspect of it. What’s better? What’s cheaper? What’s faster? And in order to get real momentum behind the token economy, we need to show that there are genuine material measurable benefits. And we’re still being secure, we’re still being regulated, we’re still being transparent. All of those things we can achieve.

Nigel Dobson:

And the tailwind of government interest and government support is really important. We are part of the digital finance CRC, for example. That’s a 10 year funded piece of work. There’s a range of public sector, regulators, private sector players in that. And some really good work emerging in that particular space. And we are busy across a range of other areas. But just to see the governmental support, the regulatory interest and really, their interest in maintaining financial market stability. But also, supporting innovation is really important.

Nick Abrahams:

Yeah. And often with entrepreneurs who will call me up, they’re very interested in DAOs and decentralized autonomous organizations. And that part of it, not everyone obviously, but part of it is around this idea that in a decentralized world, we can in some way cut government out of the picture.

Nick Abrahams:

And the reality is, we talked about that at the early stages of the internet, ’97, ’98, ’99. There was this talk about governments will lose control over their citizens, et cetera. And I think that’s a terrible narrative. And it’s not true actually, because what we saw with the internet is governments will always seek to retain sovereignty over its citizens, via its laws and so forth.

Nick Abrahams:

And I think the more that we can work together with government and make sure that they understand that this whole use of blockchain and decentralization doesn’t necessarily mean that government loses out. It just means that we seek to find efficiency.

Nigel Dobson:

I agree. And the idea that completely trustless organizations can operate is not incorrect. But rather, I don’t think the public is ready for that leap of faith right now. Maybe there are a few steps before we get into completely autonomous networks that run certain services. Probably not essential services, but certain services for customers.

Nigel Dobson:

And I think we’ve got to find our way through that. But leaping to that instantly autonomous phase, which is conceptually very interesting and potentially incredibly efficient. I think it’s too big a leap. And neither do I think that it is necessarily a straight stepping stone process between traditional finance, digital finance, and in fact, the digital economy and the token economy. I think the two will actually be more of a convergence path and they’ll meet somewhere in the middle where trust still has value, where regulation is still required, but also desired, because that’s where you get trust. Citizens see governmental support in most open economies as the underpinning of that trust and regulation serves a purpose. It’s recourse. It’s a claim on doing things better and ensuring that there is a right of appeal should you not agree with an outcome, where we’ve seen in other very contemporary, decentralized markets that that recourse, that governance is not as strong as it perhaps needs to be given some of the events that have occurred.

Nick Abrahams:

Yeah. There’s an attraction around that techno-utopian ideal of complete decentralization, but I think you’re right. At the end of the day, that’s all fine, but when something goes wrong and you are on the receiving end of it, I think the human condition is such that you would like some recourse.

Nigel Dobson:

True.

Nick Abrahams:

Just back onto the stablecoin, where does stablecoins head from here? I think we’ve seen, well, the collapse of the algorithmic stablecoin proposition with Terra Luna. Who knows where that ends up, but just in terms of stablecoins and particularly backed stablecoins like the ANZ’s project, are we going to have a world where there’s 1,000 stablecoins? Will every bank have a stablecoin? Will it be just a couple of leaders? How do you see that world panning out?

Nigel Dobson:

That’s a really good question. A$DC is the first Australian dollar stablecoin on issue. We’ve got a lot of people asking to use it in various venues in various use cases. There’s nothing stopping any other institution issuing one, but I think it comes back to what is the redemption value of that. You probably trust a bank to redeem your coin as you do redeem your deposit.

Nick Abrahams:

Yes.

Nigel Dobson:

They’re quite highly. I think that we also have a large customer audience that is very willing to work with us and then also an equally large regulatory audience, which is working with us. We’re uniquely positioned and we have trust. We have business models that are well-established in terms of holding collateral and working with customers on financial transactions. Got a very strong operational set of practices that support our obligations for regulators, and therefore, I honestly think we’re well-positioned to work in the mainstream. Now, is there a winner take all? I don’t think there is, but neither should every bank be issuing their own coin, because then you’ve probably gone back to 300 years to where banks were issuing their own bank notes. There’s been books written about that. Doesn’t end well because of credit quality and a whole range of interoperability issues. Now, clearly, we’re not dealing with paper anymore, but certainly in a world where the user is so confused, the number of choices they have about an Australian dollar or a US dollar or a New Zealand dollar, probably isn’t a good thing.

Nigel Dobson:

We think leadership is important. We think that creating liquidity around our A$DC will give us that market presence that might also attract other banks to potentially issue that coin as well or use that coin. The future is it’s uncertain, but also, then there’s the CBDC discussion that is also emerging in parallel, perhaps more slowly in some cases, but that is a genuine economy-wide coin. If that gets traction in a range of use cases, particularly wholesale, arguably, even retail, then that might answer the question around how many stablecoins there are. What we try not to do at ANZ is to think about coins and payments. What we’re trying to think about is the foundational nature of the digital coin, but in relation to digital assets. We just think a digital coin will be one of the digital assets our customers hold in the future and it’ll be useful for moving and transacting in them and exchanging them. It’ll be an underpinning type of asset rather than a dominant asset.

Nigel Dobson:

Rather, customers will be exchanging property, cars, whatever, anything that’s tokenized, certainly digital assets, and the means by which they will do that and settle those transactions will be a coin. I think that what we’ll find is that the conversation that we might have in two years time, Nick, should we still be talking about this, will be much less about, tell me about your coin. It’ll be, tell me about, what marketplace or venues? What wallets are we using? What are our customers doing with these digital assets? Who’s tokenized what recently and why? I think that’s the kind of conversation we’ll have.

Nick Abrahams:

Yeah. I agree. Maybe I’ve drank the Kool-Aid a bit too much. No, but it does strike me that in two or three years time, we’ll look back on this time and think, well, of course, digital assets are a thing and it’s tokenizing value. I think one of the problems is I think because of the, I guess, stigma of cryptocurrency and where that has come from in the public consciousness, and then NFTs, which really only rose to prominence the last 12 or 18 months, and that idea of the Bored Apes, CryptoPunks people paying seemingly exorbitant amounts of money for what is, in effect, just JPEGs, for people, they look at this digital asset space and think, “Oh, well, it’s all a fad.” From your point of view, do you think that in a few years time, we’ll see most people in organizations have some form of digital assets in their portfolio?

Nigel Dobson:

Yeah, I do actually. There’s a couple of examples where I think the NFT is particularly applicable and very useful. For example, going back to carbon in the carbon credit market, there is an Australian carbon credit unit, which is a generic carbon credit unit, which is now the result of a range of projects that deliver that carbon credit to the economy and then that is appropriately verified on a registry. Now, we think we can look through though the ACCU, the Australian carbon credit unit, all the way through to the project. Now, you can look through to the project and say, well, what is that? Is it a Northern territory, indigenous carbon credit and network project? Is it a savanna or is it whatever? There’s a whole range of different types of carbon credit originators.

Nigel Dobson:

If you can look right through to the project right from its point of origin, create an NFT on that, which distinguishes it from a generic carbon credit, you might create this market, which says, “Well, you know what? I want to hold that carbon credit because I can identify it. I particularly want that for a range of reasons that may be personal to me, or maybe part of the purpose of our company,” or whatever it may be. But the idea that you can actually look right through to that point of origin and document and tokenize the providence of that along with the asset, that information’s really valuable. I think we’ll get a really interesting gradation in the carbon market because of that transparency, rather than just having a generic ACCU. There could be a whole range of NFTs that are specific to projects. That’s just one example where NFTs are just a little bit more useful than perhaps the JPEG, as you say. They bring information around providence and certainty that people are looking for around the assets that they’re buying.

Nick Abrahams:

Yeah. No, it certainly would seem to make more sense than an indifferent looking ape. For those listeners, if you haven’t listened to the interview that we did with Guy Dickinson from BetaCarbon, we go into more detail around ACCUs and how carbon credits are actually created in Australia. So do listen in on that. Nigel, what you are saying, it lifts my heart and I’m incredibly enthusiastic about what it is that you and the team at the ANZ have been doing in this space, but it does seem like a very adventurous project for a big bank. Can you give some advice, I guess, to people listening out there who would like to be perhaps taking their organization on a trip into these sorts of technologies? How do you manage that within an organization of the size of ANZ?

Nigel Dobson:

Yeah, that’s a great question. It is a journey. There will always be a range of already held positions and opinions around what you might be talking about or what people might think you’re talking about, and so the language really matters. And also, the positioning really matters. So we took a view that we would focus on financial market infrastructure. We would focus on operating model of our business. We observed in the DeFi markets that business model was still very much the same, buyers, sellers, lenders, borrowers that we recognized that required risk management and in our world, regulation. So we thought, right, what’s the operating model that’s changing? So the financial market infrastructure that supports all of the transactions in the economy might be better off over time, progressively moving to a decentralized tokenized marketplace and that’s our central thesis, hence you start with a stablecoin.

Nigel Dobson:

Then if you start having that kind of conversation, talking about digital assets, not talking about cryptocurrency, talking about the value of an NFT as I just described it rather than the Bored Ape, so really parking a lot of the noise that makes the headlines and people just go, “That’s just…” People don’t understand why those valuations are even in evidence. But if we keep it going back to FMI, financial market infrastructure operating model and solving problems for customers, “How do I solve a problem for you, [inaudible 00:35:19], and for you distillery industry, for you the carbon buyers?” that’s where we get the proof points. Then you show cheaper, faster, better, or any one of those three, ideally all three, but where you can achieve one, two, or three of those attributes where you’re saying, “I’m more efficient. I’m saving money. I’m mitigating risk,” that’s compelling. If you then talk about that in a institutional context, which we are very comfortable dealing in right now, we don’t want to project our current earnings into the retail space because I think it’s too early, our regulators are much more happy with us learning and building our capability through our institutional franchise, which we think is also the right way to go as well. But it’s all about the narrative, Nick. It’s about what you say and what you don’t say, giving people confidence through proof points.

Nick Abrahams:

Yes, yes.

Nigel Dobson:

Through all of the … Delivering operational risk assessments, delivering key controls, and financial crime metrics, and all of the things that are required for traditional transactions. It can all be done with the service providers that surround the token economy. And and one last thing I’d say is that one of the great benefits of the token economy is that the service providers, the enterprise-grade service providers, which we use, are already in production.

Nick Abrahams:

Right.

Nigel Dobson:

We didn’t have to build it.

Nick Abrahams:

Yeah.

Nigel Dobson:

Right?

Nick Abrahams:

Yeah.

Nigel Dobson:

And so when you talk about cost and overhead and efficiency, we didn’t have to build the infrastructure for custody, for the wallets, for financial crime. It’s all as a service, variable cost. It’s a little bit like people talking about cloud 10 years ago.

Nick Abrahams:

Right.

Nigel Dobson:

Why would I go to cloud? Right? Oh, you don’t have to have a data center. You don’t have to have machines. You don’t have to do all this. So, very similar kind of narrative to say, I can draw these services that are reliable, high quality, enterprise-grade, and I’ll pay variable costs and I don’t need to run them. I don’t need to be an expert. I need to be able to connect with my customers to them and offer those services to them, but I’m working with a range of partners now that enable us to very quickly move to deliver tokenized services to our customers at a very low-cost price point.

Nick Abrahams:

Yeah, yeah. That final point … I mean, all the points were fantastic. That final point is really powerful though, because I think you use fire blocks, and I see fire blocks sort of coming up … They’re very popular, and you think this might have been a different proposition pre-fire blocks. They’ve really taken that enterprise market a step ahead. So, yeah. That is … It’s a great point that, yeah, the service provider industry has sort of come out slowly. It’s been a few years sort of the blockchain world as it evolved. But you are … That’s a great point that actually you can utilize a whole range of service providers that are high quality and can be trusted.

Nigel Dobson:

Yes.

Nick Abrahams:

And I’ll certainly take your point around that, don’t mention the cryptocurrency word. It’s best to stay away from that. I’ll take that on board with my own discussions with management here.

Nigel Dobson:

You get a lot of emotional reactions to the term. And not always good, right?

Nick Abrahams:

Absolutely. It’s very much that sense of, yeah, well, Nick, if we need cryptocurrency to buy drugs on the dark web, we’ll come and see you, but otherwise don’t be talking about that, so. I know it has some backstory to it that we should leave behind. Maybe just as a final question, I mean, a lot going on, and congratulations on, you talked about delivering proof points, and not always easy. Things don’t necessarily always work. Phenomenal that you’ve had three significant projects. You talk about the two [inaudible 00:39:23] projects and then the distillery project. So I imagine there’s a degree of confidence coming within the organization. Are there any … What’s the future in this space look like and where do you take these technologies from here?

Nigel Dobson:

Well, I think we are preparing for scale right now, right? The transactions we’ve done have been single point-to-point transactions. They’ve been much, much more efficient compared to the base-case transaction. However, we need to work on our off-chain, on-chain communications. We need [inaudible 00:40:01] blockchain agnostic. We still are searching for a range of future partners and current partners and future partners who can deliver the scalability and efficiency that we need for financial market-type transactions at low cost.

Nigel Dobson:

So, the first part is automating our own off-chain proposition regarding request to mint and redemption, the whole life cycle of the coin; ensuring that the communication between our technology and the fire blocks platform is highly automated, that we can then operate at the scale much like a genuine payment system; ensure that our financial crime monitoring through chain analysis is appropriately scaled as well and is as real-time as possible; and then we want to create liquidity, right? Because this is the game of creating liquidity for a coin for a range of use cases. And as I say, we continue to be quite focused on the marketplaces that are less mature, that have less mature financial market infrastructure, and again, carbon comes into that frame quite quickly.

Nigel Dobson:

Helping to mature that market because of our own A-and-Z strategy, but also because we think there’s a need to uplift that. And then the … Look, I think there’s a whole range of projects that will emerge as our customers better understand the value of tokenization of their assets or parts of their supply chain. So, it’ll be a number of conversations, but for now, doing what we do better, more automated, focusing on sustainability, and then also working with blockchains of the future.

Nigel Dobson:

One of the ones we’ve been working with is the Hadera Network. That has a great deal of promise, and we see some attributes there that very attractive for us in terms of speed, transaction per second, and also the low-cost nature of the current network. And also it’s governance, right? It’s governed by a range of very large organizations that host the nodes for that network. So, it’s quite a unique governance group that, again, gives us comfort that that might be one of the choices we make in the future as well.

Nick Abrahams:

Great. Well, that’s a great piece of alpha, to use the terminology of, I guess, the crypto world. But interesting that you’re looking at that network. I’ve certainly been seeing a lot more about that. I think what are the great comments that you made there, too, was around focusing on carbon, where obviously for the bank, big focus on the transition out of carbon, and I think for any innovator within an organization, to try to align the innovations with broader strategy is always a comfortable place to be rather than sort of being a standout saying, “We should innovate because the technology is there.” Rather you’re saying you see that energy transition is important to the bank and what we can do here using these technology can support that. So, brilliant.

Nigel Dobson:

Oh, look, I think you’re right, Nick. I mean, swimming with the current within an organization is always easier than swimming against it. And so when you are comfortably swimming with a current, then the enthusiasm around what you might be able to offer from an innovation point of view, I think, just by its very nature moves more quickly, gets more stakeholder interest, and more supporters. Yeah.

Nick Abrahams:

Yeah. Well, we could talk for hours. I should let you get back to your day, Nigel.

Nigel Dobson:

Thank you.

Nick Abrahams:

I thank you very much for spending the time with us today. Congratulations, once again, to you, to the team, and to the bank, because this stuff is not simple to achieve. So acknowledge that, and congratulations. We look forward to watching with interest as you work, as you continue to develop in this space. Thanks very much.

Nigel Dobson:

Thank you. Nick. It’s been a pleasure. Many thanks.