Unlocking Efficiency: Blade Labs’ View on Streamlined Atomic Settlements

Unlocking Efficiency: Blade Labs’ View on Streamlined Atomic Settlements

International transactions have always faced many challenges, such as intermediaries causing delays, high costs, and a lack of transparency. Currently, cross-border payments are carried out through telegraphic transfers facilitated by SWIFT’s network of correspondent banks. However, these transactions are still criticized for being slow and expensive.

The World Bank reportedly estimated that the average transaction incurs a fee of around 6% of the transfer amount. According to JP Morgan, global corporations engage in cross-border movement of nearly US$23.5 trillion annually, constituting approximately 25% of the global GDP. As per reports, these enterprises grapple with exorbitant annual transaction costs amounting to US$120 billion due to what the bank labels as “sub-optimal wholesale cross-border payment processes.” Therefore, these inefficiencies in the current system underscore the pressing need for atomic settlements.

It’s worth noting that the disadvantages of traditional cross-border payments have caught the attention of G20 countries. In October 2020, the G20 countries endorsed a roadmap recognizing the need for improved international payments. The aim is to create faster, cheaper, and more transparent cross-border transactions. It identified four challenges to be addressed:

  • High costs: the challenge of cost comprises various elements, including transaction fees, account fees, compliance costs, applied FX conversion rates and fees, fees along the payment chain, and liquidity costs for prefunding;
  • Low speed: the challenge of speed involves the processing time of a single payment from end to end, including factors such as the time required for dispute resolutions, reconciliations and searches, possible slow processes for funding and defunding, daily cut-off times and closing times, as well as Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) checks;
  • Limited access: the challenge includes limitations for users in accessing services and for payment service providers in accessing payment systems and other arrangements;
  • Limited transparency: limited transparency about costs, speed, processing chain, and payment status presents challenges for end-users and (other than single-platform proprietary services) for providers alike.

 

Blockchain technology is poised to revolutionize the global payments system by overcoming these challenges. It promises to bring about a new era of speed, security, and transparency by eliminating intermediaries and using smart contracts. With blockchain, direct peer-to-peer transactions are possible, significantly reducing processing time.

Blockchain technology innovations offer a game-changing transformation in the way we send and receive funds across borders. By tapping into the potential of Distributed Ledger Technology (DLT) and smart contracts, blockchain is rewriting the rules, eradicating barriers, and introducing a streamlined approach to global payments.

Assets that are considered traditional can be converted into digital tokens and stored on the blockchain network. This process allows for the blockchain to act as a reliable ledger for all transactions made with the tokenized assets, thereby improving the efficiency and transparency of cross-border payments. The advantages of this method are numerous, and it helps overcome many of the challenges associated with traditional payment systems.

Firstly, using DLT, tokenized assets offer fast or even near-real-time transfers on a 24/7/365 basis, allow parties precise control over settlement times, and reduce liquidity risks. Additionally, tokenized assets are “programmable” and have “smart contract” functionality.

On that note, it is pertinent to quote Governor Christopher J. Waller of the Federal Reserve. In a speech in April last year, he reportedly stated that smart contracts “may allow for what is called ‘atomic settlements’”. He further also suggested atomic settlement “to be an additional robust way to achieve delivery-versus-payment (“DVP”) and payment-versus-payment (“PVP”) functionality, such that one leg of a transaction settles if and only if the other leg settles as well.”

In the evolving space of digital finance, atomic settlements are crucial for businesses and enterprises. While it takes days for traditional settlements, atomic settlements reduce transaction time to seconds. And for enterprises that make frequent and large cross-border payments, these speedier transactions mark a significant progression in their businesses.

Moreover, smaller businesses or entities benefit from atomic settlements, given these transactions are less expensive without any role of corresponding banks or other financial intermediaries. Eliminating intermediaries enhances transparency and ensures a much-secured transaction in the long run. Additionally, atomic settlements can help to bridge different ecosystems and increase interoperability.

Keeping up with this digital transformation last year in July, key players like Shinhan Bank, a leading bank in South Korea, and SCB TechX came together to unveil their successful stablecoin remittance proof-of-concept (PoC) pilot. This PoC, which thrives on the efficient and eco-friendly Hedera open-source public network, has ushered in a new era of real-time settlement and foreign exchange integration across the Thai Baht (THB), New Taiwan dollar (NTD), and South Korean won (KRW).

What’s remarkable is that this PoC isn’t just a one-time wonder; it’s EVM-compatible, opening doors for future stablecoin issuers to join the fray seamlessly. This pilot builds upon Shinhan Bank’s earlier 2021 initiative, where they teamed up with Standard Bank, the largest bank in Africa, for stablecoin international remittances, showcasing their dedication to pioneering cross-border solutions.

In that light, Blade Labs emerges as a pivotal player, uniquely positioned to empower businesses and enterprises with a streamlined and efficient infrastructure for atomic settlements. Leveraging DLT, we facilitate seamless cross-border settlements that can drastically simplify business transactions. Our commitment lies in providing a solution that addresses the limitations of traditional methods and aligns with the evolving needs of a dynamic global financial landscape. As the adoption of atomic settlements gains momentum, Blade stands as a reliable partner, offering a transformative approach that enhances speed, reduces costs, and ensures a more fluid financial experience for businesses and enterprises alike. With our dedication to innovation and cutting-edge technology, Blade stands as one of the frontrunners in a new era of financial efficiency and effectiveness in digital payments and cross-border settlements.

 

Kasturi Sharma
Senior Content Writer
Blade Labs

Source List:

  1. https://www.kapronasia.com/asia-payments-research-category/why-atomic-settlement-could-be-a-game-changer-in-cross-border-payments.html
  2. https://www.fsb.org/wp-content/uploads/P131020-1.pdf
  3. https://www.federalreserve.gov/newsevents/speech/waller20230420a.htm
  4. https://libertystreeteconomics.newyorkfed.org/2022/11/what-is-atomic-settlement/
  5. https://thepaymentsassociation.org/article/what-an-atomic-settlements-boom-could-mean-for-the-payments-industry/

 

 

 

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