39 banking associations in the United States have jointly formed the “BankChain Alliance” to curb their fears of client and capital flight into blockchain-based stablecoins.
Banks compete with stablecoins via on-chain banking
Initiated by the Texas Banking Association, the consortium represents thousands of community and mid-sized commercial banks looking to develop a 24/7, nationwide, bank-governed and permissioned blockchain by the year 2027.
The network would be characterized by security and compliance just like a traditional banking setup. The difference is that the new modus operandi would enable banks to conduct near-instant settlement of digital assets. This, they predict, would be quite appealing to the evolving fintech space that now favors blockchains over legacy infrastructure.
Additional features
The blockchain will feature tokenized deposits for clients to convert standard bank deposits into digital tokens on a shared ledger. This unlocks instant liquidity and transactions, while eliminating the need to withdraw funds from the bank.
Secondly, the banks plan to issue native FDIC-compliant and fully backed stablecoins. This will give clients a regulated alternative to private stablecoins like USDT and USDC.
Thirdly, the new network would embed smart contracts for automatic settlements upon the fulfilment of predefined conditions. The applications for these include escrow releases and supply chain financial management.
The group is now headhunting for a technology partner to construct the network with all the features above.
Interaction with the CLARITY Act
The news comes amid a fierce, high-stakes political standoff in Washington over the CLARITY Act. Banks now seem to be taking advantage of the legislation’s stalling to provide corporations with a compliant blockchain system.
The selection of Kathy Kraninger as interim chair of the consortium is especially significant. This is because she is a former Director of the Consumer Financial Protection Bureau (CFPB). Under her leadership, the BankChain Alliance aims to develop infrastructure that is ever-compliant with the evolving regulatory environment.
The next important events regarding this matter include banking clients’ reaction to the news and next month’s Clarity Act vote.
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