Four financial market firms, T. Rowe Price Associates, WisdomTree, Wellington Management and Cumberland, have teamed up with Avalanche’s Evergreen Subnet ecosystem to explore blockchain-based foreign exchange. The collaboration has led to the development of Spruce, which is a subnet that leverages blockchain technology to test on-chain finance innovations. Initially, institutions will use valueless tokens on Spruce to carry out foreign exchange transactions without losing capital. Ultimately, tests will allow the firms to undertake attempts at blockchain settlement, including exploring tokenized equity and credit issuance, trading and fund management. Similarly, interest-rate swaps will be used to test the network’s capabilities.
Spruce is committed to complying with legal regulations and has put in place measures to ensure that institutions follow these parameters. Potential users are required to pass Know Your Customer (KYC) verification, which involves completing the process and receiving non-transferable tokens (NTTs) unique to them on the network. Once their wallet address is whitelisted, they can use the network seamlessly.
Head of Digital Assets at WisdomTree, Will Peck, suggests that blockchain and tokenization will play critical roles in the future of financial services. With Spruce, financial institutions can test and optimize the potential efficiencies and benefits of on-chain trading and settlement. Peck believes Spruce is an excellent opportunity to foster a favorable testing environment for on-chain trading and settlement between institutions.
Recently, Avalanche announced the launch of Evergreen subnet protocol, Evergreen’s subnet protocol is a customisable solution for institutions to create blockchains with compliance features. This addition is in response to financial institutions’ need to operate with increased interoperability, as previous solutions like Corda and Hyperledger were not enough. Two subnets have been launched since Evergreen debuted: Spruce and Intain. Spruce is focused on foreign exchange, while Intain is centered on structured finance.
Experts argue that transacting on a blockchain network could reduce the cost of forex by up to 80%. Tokenization has been proposed as a preventive measure for future financial crises. Ralf Kubli of the Casper Foundation asserts that tokenized mortgages could prevent another housing bubble crisis.
In summary, Spruce is a valuable testing environment for on-chain finance innovations, such as foreign exchange and interest-rate swaps, among others. Institutions, such as T. Rowe Price Associates, WisdomTree, Wellington Management and Cumberland, will use valueless tokens to test the network’s features without losing capital. The goal of successful tests is to explore blockchain settlement, including tokenized equity and credit issuance, trading, and fund management. With KYC verification protocols in place, the network is compliant with legal regulations. The Evergreen subnet protocol is a suitable solution for institutions looking to create customized blockchains. Experts argue that blockchain has the potential to reduce forex costs by up to 80%, with Ralf Kubli proposing tokenization as a preventive measure for future financial crises.
