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T. Rowe Price will begin testing financial trade execution and settlement on the blockchain with a new application called Spruce in partnership with Cumberland, WisdomTree, and Wellington Management Group, the firm announced this week.
📢 Today, we're excited to announce our participation in the #Avalanche Spruce testnet along with T. Rowe Price Associates, Wellington Management, & Cumberland!
— WisdomTree Prime™ (@WisdomTreePrime) April 12, 2023
This will enable us to explore institutional trading & settlement use cases with our peers using #blockchain tech pic.twitter.com/xwxBIpNvNQ
The investment manager isn't the first to see potential in the tech – JP Morgan Chase performed its first public blockchain trade in 2017, and KKR & Co. and Apollo Global Management have followed suit by placing a portion of their assets on blockchains.
With the potential for cost reductions and decreased risks associated with DeFi (decentralised finance), the businesses want to test Spruce's valueless token system on foreign currency and interest rate swaps.
According to a recent analysis by Uniswap Labs and USD Coin stablecoin issuer Circle, the cost of international remittances might be reduced by as much as 80% if the US$7.2 trillion global currency market were moved onto the blockchain.
In a Bloomberg interview, John Wu, president of Ava Labs and the maindeveloper behind Avalanche, said, "The tokens are not of a value, but it allows both us to understand the regulatory and financial requirements to do transactions on the chain."
Through Spruce, "regulated buy- and sell-side institutions" may "basically experiment with on-chain finance," added Wu.
OnFi has begun. The process of on-chain finance with top asset managers has started with the Spruce Subnet.
— John Wu 🔺 (@John1wu) April 13, 2023
Watch my full appearance on Bloomberg @technology TV: https://t.co/Pc0Cb2hg99 pic.twitter.com/ufpehFwMDk
Digital wallets affiliated with financial institutions will be issuednon-transferable tokens within the "testnet" version of Spruce as evidence that they have completed verification processes like the Know Your Customer (KYC) process.
Spruce, part of Avalanche's Evergreen subnet, is the company's most recent effort to equip institutions with the means to create their own blockchain networks.
The Evergreen network's mission is to ease the transition to blockchain technology for established organisations, notably in the area of decentralised financial transactions.
Stablecoin Alternative With a Twist
Separately, a crypto startup set up by Goldman Sachs' associates, Ondo Finance, is releasing a new product as a stablecoin alternative that generates returns by using money market funds to purchase US government securities.
As announced in a blog post published by the business on Thursday, investors in the tokenised money-market fund would be given a digital coin called OMMF.
The fund's structure was not mentioned, but Ondo said it would only put money into "low-risk" money market funds like those that invest in US government securities.
President and CEO of Ondo, Justin Schmidt, said: "First-generation stablecoins were created when interest rates were near zero, so designing them to be able to pass on yield was not a focus."
"By tokenising money-market funds, we are able to deliver the price stability and on-chain utility of stablecoins while providing superior investor protections and passing on yield to holders," added the CEO.
Some of the most recent market fluctuations in cryptos have centred on stablecoins. These tokens are intended to have a stable value in contrast to the price volatility witnessed in Bitcoin and other digital assets.
After its issuer, Circle Internet Financial revealed its exposure to the failing Silicon Valley Bank in early March, the value of USD Coin, one of the most popular stablecoins, fell below its intended one-dollar peg.
Furthermore, Binance's stablecoin, BUSD, was ordered by New York's Department of Financial Services to cease issuance by Paxos Trust in February.
Stablecoins like USDC contain cash or other highly liquid assets to ensure their market value is pegged to the value of the stablecoin in circulation. Still, these problems have encouraged some in the market to seek alternatives.
According to Ondo, OMMF is intended to replace bank settlement networks or other stablecoins in settling dollar-denominated deals by OTC desks, exchanges, dealers, and institutional counterparties.
Ondo intends for OMMF to replace stablecoins in various non-trading applications, including as a collateral asset for crypto loans.
According to data compiled by CoinGecko, the entire value of the stablecoin market exceeds US$130 billion.
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