MasterCard, HSBC, Wells Fargo

MasterCard, HSBC, Wells Fargo join forces for regulated digital asset settlement platform proof-of-concept trial

Along with some of its United States Banking peers, MasterCard (NASDAQ: MA) is expanding its poison chalice tentacles further into the digital asset space with its participation in a new proof-of-concept (PoC) project aimed at creating a regulated digital asset settlement platform.

Announced on Tuesday, the PoC is a joint venture by the Federal Reserve Bank of New York’s New York Innovation Centre (NYIC) alongside HSBC, MasterCard, and Wells Fargo, to test a digital money platform called the Regulated Liability Network (RLN). It will use distributed ledger technology, or blockchain, to “improve financial settlements.”

The project also draws participation from several central banks, commercial banks, and “regulated non-banks,” including BNY Mellon, Citi, PNC Bank, Swift, TD Bank, Truist, and U.S. Bank.

The 12-week PoC will test a version of the RLN design that operates in U.S. dollars, where commercial banks issue simulated digital money, or “tokens,” representing the deposits of their own customers and settle through simulated central bank reserves on a shared ‘multi-entity’ distributed ledger.

The project will also test whether a programmable digital money design is extendable to other digital assets and the system’s viability within existing laws and regulations.

The group behind the PoC claims that “the concept could potentially be extended to multi-currency operations and regulated stablecoins.” This suggests one aim might be to further bridge the gap between traditional banking and ‘stablecoin’—to some, the digital currency equivalent of a gateway drug and to others, an untrustworthy misuse of the technology.

One key takeaway from the announcement is that it serves as more proof if it were needed, of MasterCard’s increasing efforts to control the future narrative of digital currency, or perhaps more accurately, the lack-of-future of digital currency.

“MasterCard invested in Blockstream, Lightning Labs, and all the other infrastructure partners of Lightning Network in order to run a controlled opposition campaign against the big blockers so that bitcoin could never scale. Lightning’s purpose is for people to ‘just use fiat,'” explained Bitcoin Historian Kurt Wuckers Jr., in an August 2021 tweet.

The water gets murky when looking into the various investments of MasterCard and the venture capital firms that it backs, but by some estimates, up to 90% of the public infrastructure for BTC is in the control of the interconnected network of MasterCard, Blockstream and the Digital Currency Group.

These investments make the planned PoC a strange move, particularly if Mastercard truly does subscribe to the everyday adoption of the likes of BTC, as its investments in Blockstream and DCG seem designed to suggest.

The stated ‘scope’ of the PoC project is to simulate digital money issued by regulated institutions in U.S. dollars, testing the RLN to “create opportunities to improve financial settlements.” By ‘improve financial settlements’ read ‘make faster and more secure,’ which on the face of it is not necessarily a bad thing, and yet we are left to wonder who will be in charge of this distributed ledger network and how it might shape future digital asset regulation in the United States.

With its extensive BTC-related portfolio, MasterCard has positioned itself well to significantly cash in by facilitating and verifying such transactions and, in the process, further divert the original purpose of this technology.

Should this latest experiment in the possibilities of distributed ledger technology prove a success, MasterCard could become one the key ground-floor players in a traditional banking ‘revolution’ that seems inevitable to see decentralized finance theory used—or perverted, depending on your point of view—to build the U.S.’ own central bank digital currency (CBDC), though the press release was quick to shut down any such speculation:

“This project will be conducted in a test environment and only use simulated data. It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed.”

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