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Moline, Illinois-based Vibrant Credit Union is partnering with San Francisco-based distributed ledger technology company Metallicus to explore how to adopt the company’s products and learn more about use cases in the financial services industry.
Interest in distributed ledgers and digital assets often supported by technology has had its ups and downs over the past decade, before the highly publicized fall from grace of Sam Bankman Fried, co-founder of the now-defunct cryptocurrency exchange FTX, has seen many cutting-edge tech executives hold out or retreat. But how regulators of banks and credit unions Looking to regain lost ground, leaders of financial institutions are renewing their interest in DLT-based products and the companies that develop them.
In late 2023 and into this year, Metallicus has developed research agreements with individual financial institutions looking to learn more about distributed ledgers and has built integrations with leading vendors like Jack Henry to facilitate adoption. Now, the company hopes to capitalize on this work through the launch of a new collaborative effort.
Metallicus launched its Metal Blockchain banking innovation program in January. The company’s subject matter experts work alongside banks and credit unions to develop roadmaps for adopting a distributed ledger system while remaining compliant with regulatory guidelines. Other credit unions that have joined the program include $1.9 billion in assets Meritrust Credit Union in Wichita, Kansas, and assets of $4.8 billion Fairwinds Credit Union in Orlando, Florida.
Peter Nohelty, chief technology officer of the $1.1 billion Vibrant Credit Union, came across the Metallicus program after exploring the use of distributed ledgers earlier this year to support faster payments for members along with binaries in use with Venmo and PayPal.
“The question is, can we increase them [faster payments] capabilities, in a unique participation with blockchain solutions, which allows us to do this very efficiently with respect to where you make point-to-point connections to each of these services,” Nohelty said. “We can bring all of this into a more collaborative matrix with community banks and credit unions so they don’t have to duplicate services at each individual institution.”
Nohelty, who has been involved early on in the technology council of the Credit Union National Association (now known as America’s Credit Unions) to explore the intersection of DLT and the credit union industry, added that he is also interested in using this type of technology for more complex products such as buying and selling pooled loans and mobile banking platforms.
In the Metallicus program, Nohelty and others are exploring ways to use fintech and possibly build their own systems on top of it.
The program offers participants access to research and development grants as financial support to offset the cost of building the custom chain.
Depending on the intended use of the distributed ledger, ranging from tokenized assets to data storage, external fintech partners and major vendors that a bank or credit union collaborates with can also be brought into the chain to provide additional support through networking nodes. separate property.
“What we know from our years of experience and research in the market is that many banks and credit unions want to implement blockchain solutions…. But the biggest challenge right now is that they don’t have the resources, they don’t know what technology to use and they also have problems with regulators being able to build these programs,” said Frank Mazza, director of blockchain and digital assets for Metallicus.
These challenges, while not new, still represent a significant barrier to entry. Last year, the Federal Reserve has issued guidelines on blockchain and cryptocurrency-based assets that allowed banks to engage in behaviors such as trading and custody, while stating that heightened supervisory scrutiny would be followed consistently, dissuading institutions from getting involved.
“These letters do not provide new guidance and, like the letters issued earlier this year, appear to single out cryptocurrency-related activities as those that pose additional risks and therefore deserve further supervisory attention,” Young Kim, a regulatory lawyer at Clifford Chance, said in a previous American Banker story.
Some institutions have decided to adopt the technology regardless, while also focusing on applications outside of digital assets. The 150 billion dollar asset Northern Confidence in Chicago, for example, uses DLT-based smart contracts to enforce legal agreements and store data from previous transactions.
In December 2023, executives at Dallas-based distributed ledger technology company BankSocial announced they were working with the NCUA to obtain a federal charter for their proposal Challenge the Federal Credit Union. Payment transactions and some operational data, such as member deposit records, would be stored in Hedera’s public ledger.
Becky Reed, chief operating officer of BankSocial, said interest in Web3 tools has started to grow again following Bankman-Fried’s conviction in March as “people are starting to recognize that there is real value in this emerging technology at outside of ‘just’ cryptocurrency,” he said.
The problem hanging over the heads of organizations like Metallicus and other DLT developers is separating the technology from its association with cryptocurrency and allow interested organizations to probe the full scope of what is possible within the scope of current laws.
Through communication and time, many hope that fintechs and financial institutions can achieve this work with regulators to dispel concerns.
“Any help that industry can provide would be beneficial, and that is achieved by developing collaborative relationships with policymakers over time and trying to understand those processes just as policymakers are working to understand new technologies,” said Bryan Hubbard, former deputy controller for public affairs at the University of Washington. the Office of the Comptroller of the Currency and a member of the Metallicus Advisory Board.