Japan’s three largest banks, MUFG, SMBC, and Mizuho, are involved in Project Pax, a cross-border payment system that aims to use stablecoins to replace correspondent banks. However, to ensure that corporate customers can trigger trade payments in a traditional way through their banks, Swift payment messages will be integrated with a stablecoin system based on Progmat. Therefore, clients do not touch the stablecoin.
Considering the efficiency of stablecoin payments, the aim is to support payments 24/7, in response to the G20 goal of faster, cheaper and more transparent cross-border payments. . Stablecoins have a market capitalization of $170 billion, primarily using cryptocurrencies, but are also used for P2P payments.
Meanwhile, Progmat is a DLT-based tokenization network founded by MUFG, with Mizuho Bank and SMBC as joint venture partners, along with other institutions. Additionally, there is also the Progmat Coin solution, which is primarily used for trust-based stablecoins with ring-fenced assets.
Progmat has been working with Datachain for some time on an interoperability solution to connect permissioned Progmat networks using the Corda enterprise blockchain to various non-permissioned networks. These include Ethereum, Avalanche, Polygon, and Cosmos. Additionally, Datachain has founded TOKI, a cross-chain bridge that runs a DeFi-style liquidity pool for exchanging various currencies and blockchain stablecoins. These solutions will be used as part of Project Pax, a joint venture between Progmat and Datachain.
Given the work already done, they aim to start testing the prototype “soon.” Pax members also plan to work with Japanese and other financial institutions to have it operational by 2025.
When it comes to Swift integration, the message instructs you to settle the payment via the blockchain network. This is seen as addressing operational issues for banks, and businesses will no longer have to deal with the unfamiliar concept of wallets and keys. It also addresses AML and other compliance concerns.
Other stablecoins and DLT initiatives
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Progmat already has several collaborations around stablecoin payments. Last year, MUFG and DRW Cumberland began exploring Japanese yen and US dollar stablecoins for crypto payments for institutional investors. This includes Japanese wallet provider Ginco issuing the XJPY and XUSD stablecoins.
It has also partnered with the existing Japanese stablecoin JPYC and Standage, a Japanese export payment specialist company.
Taking a step back, other DLT efforts target cross-border payments. Of course, there are also Ripple On Demand Liquidity solutions that use XRP as an intermediate currency and are used by remittance companies.
On the institutional side, JP Morgan, DBS Bank and Standard Chartered are involved in Partior, which uses DLT to facilitate correspondent bank payment processes. This allows banks connected to the network to make cross-border payments 24/7. Customer banks can make instant payments, but payment banks still need to settle between banks using traditional methods. SMBC and Mizuho both have some kind of collaboration with Partill.
More recently, BIS launched Project Agorá, which has similar goals to Partior. Its main advantage is that it involves seven central banks that can offer wholesale CBDC. This avoids the problem faced by Paltior, where payments need to be made between payment banks as in the past.
Project Pax is one of a growing number of projects in the field of stablecoins, tokenized deposits, and DLT payments.
