Everyone knows how a dollar works. It’s worth a dollar, and when you spend it, you get a dollar’s worth of goods or services. It’s reliable and it works. That’s what banks worldwide are hoping to do with stablecoins—a cryptocurrency designed to have a stable price pegged to a currency or commodity. Like, say, a $1 amount.
This week, Shinhan Bank—South Korea’s second largest bank—announced it has completed the development of a proof-of-concept, with a global megabank outside of Korea, built on the Richardson-based Hedera network. The proof-of-concept leverages stablecoins and is focused on international remittances.
Shinhan’s project is utilizing the Hedera Token Service and Hedera Consensus Service to test the issuance and distribution of stablecoins in a financial use case that typically has several pain points.
Current cross-border transfers have high fees, take up to a week
With current financial systems, it can be expensive and time-consuming to transfer funds across international borders. Customers must pay high intermediary bank fees—typically around $20 to $80 on top of standard cross-border transfer fees, when sending funds between countries that lack liquidity and a direct network.
And you’d better not be in a hurry—it typically takes three to seven days for the transaction to be completed. While you wait, you’re flying blind. There’s no way to track what’s happening with the transfer.
Solution enables transfers with ‘remarkably low fees’
With the stablecoin solution developed by the two banks, people and companies can send and receive funds in a locally denominated stablecoin with “remarkably low fees,” Hedera says.
According to Cointelegraph, Hedera claims that the average fee per transaction on its network is $0.0001, with an average transaction time of 3 to 5 seconds—both huge improvements over traditional remittances.
“International remittances were a massive market of $702 billion in 2020, with $539 billion going to low- and middle-income countries,” said Mance Harmon, CEO and co-founder of Hedera, in a statement. “There is a massive opportunity to cut out the middleman and make this process dramatically more efficient and cost-effective, getting the most money possible to people who often need it urgently.”
“We commend Shinhan and their partner for developing this solution,” he added, “and are proud that it takes advantage of the economic and speed benefits that only the Hedera network can provide.”
Partnering banks will mint stablecoins backed by their local currency
Shinhan plans to mint South Korean Won-backed stablecoins; partnering banks will mint stablecoins backed by their local currency. Like, say, the U.S. dollar.
Users will be able to buy Shinhan’s Korean-based stablecoins and send them to an account at the partner bank. The recipient will be able to receive the funds in a locally denominated stablecoin and exchange it for the local currency.
The two banks will use the Hedera Consensus Service to track and record transactions, and to confirm the foreign exchange rate at the time of each transaction.
Shinhan Bank is big on crypto
Shinhan is a leader in leveraging distributed ledger technology. Last January, the bank invested in Korea Digital Asset Custody, an industry consortium of businesses providing digital-asset custody services. In March, it completed a demonstration platform for central bank digital currencies, together with LG CNS.
Shinhan joined the Hedera Governing Council in April 2021.
“Joining the Hedera Governing Council this spring has allowed us to significantly accelerate our engagement with other global industry leaders to leverage the power of Hedera’s fast, fair, green public distributed ledger,” Shinhan Bank officials said in the statement. “Cost-effective, efficient international remittance is the perfect, real-world financial use case to build on a network that provides Hedera’s speed and low cost. We’re excited to work with a leading global banking partner to deliver the first of what we hope will be many solutions that drive the next generation of finance and financial inclusion.”
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