Eliminating Counterparty Risks and Inefficiencies from Financial Transactions

https://blog.cosmos.network/eliminating-counterparty-risks-and-inefficiencies-from-financial-transactions-fecfb2488122?source=rss----6c5d35b77e13---4

Introducing the Hold Module, a Groundbreaking Innovation from Provenance Blockchain

In the ever-evolving landscape of financial services, blockchain technology continues to redefine the way we conduct transactions. One noteworthy advancement in this domain is Provenance Blockchain’s groundbreaking Hold Module. This private API has been engineered directly into the protocol, and it’s poised to revolutionize the financial asset lifecycle by reducing the need for smart contracts, resulting in faster and more secure transactions. In this article, we’ll explore the unique capabilities of the Hold Module, its advantages over smart contracts, and its potential to streamline financial transactions for professionals in the field.

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Understanding the Hold Module

The Hold Module is designed to address a fundamental challenge in financial transactions — ensuring that counterparties possess the necessary assets to complete a transaction. It functions in a manner akin to a hotel placing a temporary hold on your credit card when you check in. This hold merely reserves the ability to collect funds if deemed appropriate at the end of your stay. Similarly, the Hold Module places a temporary freeze on counterparties’ assets until it is deemed appropriate to complete the transaction. The remarkable aspect of this innovation is that, and especially for long running transactions requiring additional coordination and checks performed, the assets posted do not need to be in an escrow account. Said differently, no third party sits in the middle (e.g. intermediary or smart contract) of the transaction.

An additional benefit, specifically for long running transactions is that the Hold Module enables the account holder to maintain the benefits associated with their asset while the transaction is in progress. For instance, if the asset owner retains the ability to earn interest on a token while the transaction is in progress.

Comparing Hold Module with Smart Contracts

To complete most financial transactions on blockchain technology requires a smart contract. To appreciate the significance of the Hold Module, let’s contrast it with the traditional approach of using smart contracts.

Smart contracts are business logic written as code and contributed to the blockchain protocol. These contracts define predetermined criteria that, when satisfied, trigger specific actions. Unlike traditional contracts that require human intervention for enforcement, smart contracts automatically enforce the contract rules on behalf of the involved parties.

Smart contracts themselves act as intermediaries, taking control of the your assets during the transaction process, and introducing fees, overhead, and potential risks into the transaction process:

  • Gas Fees: Smart contracts result in incremental gas fees, much like traditional intermediaries. Moreover, they demand additional network resources, increasing gas fees.
  • Security Risks: Smart contracts can introduce vulnerabilities that require costly auditing and maintenance. Immutability of deployed smart contracts can be problematic if there are bugs or vulnerabilities.
  • Upgradability: Maintaining and upgrading smart contract code can be complicated and expensive, posing potential risks related to compatibility and data security.

As a result of acting as an intermediary, smart contracts create an extra transfer step in the transaction process, and may also introduce extra bookkeeping activities.

The Hold Module, on the other hand, eliminates the need for smart contracts to verify counterparties’ assets and ensures that assets remain under their control until the transaction is completed. This novel approach not only expedites transactions, but also minimizes the potential pitfalls associated with smart contracts.

From the perspective of two counterparties during the transaction

From the perspective of a Marketplace or Asset Issuer

Provenance Blockchain’s Hold Module reduces the need for intermediaries, such as the use of smart contracts. By leveraging the protocol directly, users are able to remove complexity, costs, risk, an extra transfer step and any extra bookkeeping required, and streamline the transactions. The Hold Module represents a significant step forward in blockchain technology for financial services, offering a necessary and more secure and cost-effective alternative to smart contracts, aligning perfectly with the industry’s need for reduced risk, greater efficiency, and trust.

Provenance Blockchain is modernizing financial services with properly permissioned, public blockchain technology. Since 2018, leading financial institutions and fintechs have leveraged the purpose-built blockchain to deploy assets cheaper, faster, and safer than ever before. Provenance Blockchain is one of the world’s largest blockchain networks with more than $9B in real-world financial asset value locked (TVL), and more than $30B in financial transactions supported. Learn more at Provenance.io.


Eliminating Counterparty Risks and Inefficiencies from Financial Transactions was originally published in Interchain Ecosystem Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Modernizing Financial Services with Blockchain Technology

https://blog.cosmos.network/modernizing-financial-services-with-blockchain-technology-4715e7c631e7?source=rss----6c5d35b77e13---4

In the fast-paced world of finance, recent innovations have largely focused on delivering sleek and convenient front-end consumer-facing experiences on web and mobile applications. However, behind the scenes, the middle and back-office operations of financial institutions have continued to rely on centralized infrastructure and expensive intermediaries to facilitate transactions.

In this article, we delve into the disruptive force that blockchain technology is becoming in the financial services industry. From revolutionizing stock trading to enabling peer-to-peer transactions, blockchain is reshaping the way financial services work, reducing costs, and enhancing transparency.

The Traditional Financial Landscape

Over the past few decades, the financial services sector has undergone a visible transformation at the front-end, providing consumers with user-friendly web and mobile interfaces, enabling more convenient interactions. But beneath the surface, the back-office operations have continued to leverage monolithic infrastructure and now-dated processes, particularly in the use of costly intermediaries to facilitate transactions.

Let’s explore the role of intermediaries in traditional financial transactions:

  • Credit Card Transactions: Swiping your card at a store like Home Depot sets off a chain reaction involving up to five entities, including your bank, Home Depot’s bank, the credit card company, and others. This results in an incremental cost, typically around 3% in credit card fees.
  • Stock Trading: Consider the example of purchasing public stock shares through your brokerage firm. While your holdings may appear in your account shortly after purchase, the actual settlement process takes two days. Why? Behind the scenes, there’s a complex network of six to seven entities involved in the process of transacting the stock shares, and without blockchain, each entity plays a critical role in ensuring the transaction in accordance with the terms. Each of those entities introduces costs, delays, and settlement risks.
  • HELOC Lending: Home Equity Line of Credit (HELOCs) are a common loan instrument used by U.S. homeowners to access their home equity. Traditionally speaking, the process of funding a HELOC requires 30–60 days. In the middle sit several intermediaries, some of which require in-person events, such as the home appraisal, which is commonly conducted by an independent appraiser, human underwriting review, title report from a title company, and an in-person closing with an independent notary. Each of those activities introduces costs, delays, and the risk of closure.

Blockchain: Trust vs. Truth

In the blockchain and Web 3.0 era, two parties can engage in transactions without the need for intermediaries. As long as one party possesses the required asset and the other has what is desired, the transaction can settle instantly. This revolutionary shift hinges on the concept of “trust vs. truth.” Blockchain technology replaces the need for trust in intermediaries with the truth of transparent, tamper-proof transactions. As a result, bilateral transactions between unknown parties can occur without counterparty risk, marking a transformative moment for the financial services industry and enhancing the customer experience.

TradFi is Already Leveraging Blockchain

Provenance Blockchain, a leading player in this space and part of the interchain ecosystem, has showcased the institutional adoption of blockchain technology. With over $8 billion in real-world financial assets currently locked on-chain, Provenance Blockchain has supported more than $15 billion in financial services transactions. It stands as the second-largest blockchain, following Ethereum, in terms of Total Value Locked (TVL).

Use Cases on Provenance Blockchain encompass a wide array of financial services, including digital money and banking, asset management, capital markets, lending, insurance, and receivables and trade finance. More than 70 financial institutions and fintechs are participating on Provenance Blockchain to enable these use cases.

One example of a use case that has already seen tremendous success on blockchain technology is the Home Equity Line of Credit (HELOC) product in the U.S. Mortgage and HELOC providers leveraging Provenance Blockchain and an end-to-end digital experience have drastically reduced the time from client application to client funding. Previously taking 30–60 days, this process now takes fewer than five days, saving 150 basis points (bps) per loan. These substantial savings not only provide a competitive edge for early blockchain adopters but also benefit both lenders and clients. This is the reason why institutions, including Guaranteed Rate, Movement Mortgage, Homepoint, and others are now digitally-native loans recorded on Provenance Blockchain.

Navigating Regulatory Challenges

While blockchain adoption faces regulatory challenges, particularly in the crypto space, traditional financial activities and securities regulations remain well-defined. Regardless of the technology used, these regulations are expected to be applied. In cases where regulatory clarity is lacking, pathways exist for engaging with regulators to ensure alignment and compliance.

Blockchain technology is revolutionizing the financial services industry. By eliminating intermediaries, enhancing transparency, and reducing costs, blockchain is ushering in a new era of efficiency and accessibility. Infrastructure like Provenance Blockchain, which is built with IBC and Cosmos SDK, exemplify the transformative potential of this technology, offering a glimpse into the future of finance where transactions settle instantly, financial services become more inclusive, and cost savings are passed on to clients. Blockchain isn’t merely a prediction any longer; it’s a reality, and financial institutions and fintech companies are already leveraging it to re-architect how financial services work.

The future of finance is here, and it’s blockchain-powered in the interchain ecosystem.

Recommended next article: Real-World Financial Assets Find Provenance

For more information on the Provenance Blockchain Network, please visit Provenance.io. To learn more about why Provenance Blockchain chose interchain and Cosmos SDKs, visit https://provenance.io/learn/posts/Built-With-Cosmos-SDKs/. Follow Provenance Blockchain on Twitter, Medium and LinkedIn to stay up to date on the latest.

Real-World Financial Assets Find Provenance


Modernizing Financial Services with Blockchain Technology was originally published in Interchain Ecosystem Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Real-World Financial Assets Find Provenance

https://blog.cosmos.network/real-world-financial-assets-find-provenance-181c36181a9c?source=rss----6c5d35b77e13---4

Traditional Finance (TradFi) has entered the new era, already actively leveraging the benefits of blockchain technology across multiple asset classes and financial sectors, including asset management, banking, private equity, trade finance, insurance, and more.

Provenance Blockchain, built with the Interchain Stack, is at the forefront of helping TradFI embrace this new technological paradigm. The ecosystem built around Provenance Blockchain includes over 70 prominent financial institutions such as Apollo Global Management, Hamilton Lane, Guaranteed Rate, as well as innovative fintech companies like Figure and Oasis Pro.

In this article, let’s have a look at why TradFI are choosing to build on(with?) the Provenance Blockchain and how this is driving adoption of the Interchain Stack.

Why Provenance Blockchain

In 2022, tokenization emerged as a buzzword, signifying a significant shift in TradFi adoption. Recognizable financial institutions moved beyond experimentation to tokenize assets and manage digitally-native financial assets on the blockchain. Leading this wave of adoption is Provenance Blockchain, with over $8.2 billion in real-world financial asset (RWA) value securely locked on-chain (TVL) and more than $15 billion in RWA transactions facilitated.

Provenance Blockchain has introduced several groundbreaking achievements, including the first blockchain-native consumer loans, the first asset-backed securitization on a blockchain, and the first bank-minted tokenized deposits in the United States.

As the blockchain of choice for financial services, Provenance Blockchain is part of the interchain ecosystem, constructed using Cosmos SDK. It is exclusively for the financial services and insurance industry. Provenance Blockchain has had a singular focus since inception in 2018, to build a protocol specifically to modernize financial services on blockchain infrastructure. One notable aspect is in the construct of Provenance Blockchain Network, which follows a hub-and-spoke model, consisting of a decentralized and public Mainnet, along with private permissioned Zones. These Zones are permissioned by an operator, function as independent blockchains, yet maintain full interoperability with the Provenance Blockchain Mainnet.

Features and Benefits of Zones

Provenance Blockchain Zones are viewed as a forward-looking and future-proof choice for financial institutions seeking to leverage blockchain technology without compromising control or complying with specific jurisdictional regulations. Zones provide institutions with complete control over who participates in their Zone, ensuring that business and transaction requirements are met. Despite being independent from the Mainnet, Zones enable institutions to seamlessly transfer assets and workflows between Zones and the Provenance Blockchain Mainnet using IBC.

This independence from the Mainnet empowers the operator to control gas prices, participating validators, and governance. Gas fees are only applicable when engaging with the Mainnet. One significant benefit of Zones is that institutions can maintain control over a private blockchain while still gaining access to the open-source tools provided by the Provenance Blockchain ecosystem developer community.

Zones enable institutions to manage their digital asset perfection and ledgering privately on a blockchain while ensuring the integrity of proofs secured by the public Mainnet. This approach guarantees the provenance of their assets, which is crucial when a company brings a portion of these assets to the Mainnet for exchange with third parties.

Moreover, Zones have the capability to selectively disclose certain information to the Mainnet by publishing a special query gateway contract. This allows for the selective disclosure of information onto the public network concerning private assets, which can be used in Mainnet smart contracts. An example of this use case is the aggregate pricing of loan pools, where the volume of update transactions as payments may not justify pushing them into the Mainnet, considering information privacy concerns.

Zone vs. Building with Cosmos SDKs

For institutions interested in Cosmos SDK and IBC, one option is to build their own appchain. However, a key distinction lies in the fact that a Provenance Blockchain Zone inherits all the capabilities engineered at the protocol layer to meet the specific needs of regulated financial services.

The term “purpose-built for financial services” carries significant weight. Beyond interoperability and Zones, the Provenance Blockchain protocol encompasses four additional core capabilities: Smart Tokenization, Advanced Identity, Data Privacy, and Exchange. Each of these is supported by specific modules and features necessary to manage the complete blockchain-native lifecycle of financial assets. Another advantage of Provenance Blockchain is that all developers and participants are driven by one common goal: regulated financial services. This focus has led to a concentration of financial service innovation and a united interest in the development of the chain.

Financial use cases are already finding value in Provenance Blockchain Zones. An equity services use case, for example, leverages the Zone for private equity cap table and asset management. Increasingly, regulatory climates in certain jurisdictions, such as the United States banking sector, are becoming a driving force for institutional adoption of Zones. Banking consortiums and large financial institutions are actively exploring and building Provenance Blockchain Zones.

For more information on the Provenance Blockchain Network, please visit Provenance.io. To learn more about why Provenance Blockchain chose interchain and Cosmos SDK, visit https://provenance.io/learn/posts/Built-With-Cosmos-SDKs/.

Follow Provenance Blockchain on Twitter and LinkedIn to stay up to date on the latest.


Real-World Financial Assets Find Provenance was originally published in Interchain Ecosystem Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.