Yesterday on the official Chainlink X profile it was announced a successfully conducted test thanks to which secure exchanges of the new Hong Kong CBDC with an Australian dollar stablecoin were carried out.
The test was part of an ongoing use case within Phase 2 of the e-HKD+ pilot program.
Chainlink has made its technical platform available, but Visa, ANZ, China AMC, and Fidelity International also participated in the test.
The test
The test was described by Visa within a lengthy public report, and it took place within the e-HKD pilot program, the new CBDC of Hong Kong.
During the initial phase of this program, some pioneering companies, including Visa, have explored the use cases of the e-HKD.
In particular, the HKMA has identified three key areas where the e-HKD could add value, namely programmability, tokenization, and near real-time simultaneous settlement of transactions.
In September of last year, the project was renamed e-HKD+ because Phase 2 of the pilot program was launched, which also opened up to tokenized assets.
In addition to Visa, the project also includes Australia and New Zealand Banking Group (ANZ), Fidelity International (FIL), and ChinaAMC Hong Kong (China AMC).
The tested use case aimed to explore cross-border transactions between new forms of digital currency and a tokenized money market fund (MMF). The participants in the pilot project will test how investors based in Australia can purchase tokenized fund shares from asset managers in Hong Kong using e-HKD or tokenized deposits.
Stablecoin: the CBDC of Hong Kong
e-HKD is the new CBDC of Hong Kong.
Hong Kong is part of China in every respect, but it is also an autonomous territory with its own currency, the Hong Kong dollar (HKD).
In October 2023, the Hong Kong Monetary Authority (HKMA) launched a pilot project to explore the potential of a natively digital version of its currency.
Since then, many tests have been conducted on this natively digital version of HKD, called precisely e-HKD, but it has not yet been launched on the markets. It is therefore still only a prototype in the testing phase.
e-HKD will therefore be in all respects a CBDC (Central Bank Digital Currency), that is, a natively digital currency issued by a central bank. The same HKMA is also the central bank of the Chinese autonomous territory of Hong Kong.
The CBDC of China
China, in turn, already has its own CBDC, called the digital yuan.
It was launched several years ago, but it did not achieve great success.
However, if citizens are not very fond of using these natively digital central bank coins, which are absolutely not anonymous and completely controlled by the central banks themselves, the discussion obviously changes a lot when it comes to institutions.
In fact, for those who move large amounts of money at an institutional level, it is very convenient to be able to rely on a solid, secure, and above all certain infrastructure.
It is not a coincidence that the test conducted in Hong Kong thanks to Chainlink involved a tokenized money market fund and asset managers.
The CDBC will most likely continue to be unpopular among private citizens, but they could instead achieve great success within institutional finance.
Stablecoins, beyond CBDC
Stablecoins, on the other hand, are a different thing.
First of all, they are pseudo-anonymous, even though all transactions are public.
Furthermore, they are not managed by a central bank, but by a computer protocol. In the case of networks like Ethereum, it is in fact inviolable and above all unmodifiable, as well as uncensorable.
The stablecoin used for the test with Hong Kong’s CBDC is A$DC, a token collateralized in Australian dollars right on the Ethereum blockchain.
Thanks to Chainlink’s Cross-Chain Interoperability Protocol (CCIP), ANZ’s private blockchain (DASchain) has been connected to a public Ethereum testnet (Sepolia) to conduct the exchange test.
In this way, it was possible to carry out an “atomic” (i.e., simultaneous) settlement of the stablecoin
in e-HKD, without the use of intermediaries, while at the same time reducing counterparty risk by ensuring that both sides of the transaction were settled almost instantly.
Regarding the e-HKD, the classic Ethereum ERC-20 standard was used.
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The role of Chainlink
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The token of Chainlink, LINK, was not involved in the test.
It was carried out on the Ethereum blockchain, although not on the mainnet but on a testnet, and the role of Chainlink was to provide its infrastructure.
In this way, it was possible to carry out the on-chain exchange between A$DC and e-HKD. These were the only two tokens directly involved in the transaction, plus the fees paid in ETH.
From a strictly technical point of view, the procedure was as follows.
First, some Australian investors deposited Australian dollars (AUD) and received the corresponding A$DC tokens on the private blockchain.
At that point, a module of ANZ purchased e-HKD directly from HKMA.
HKMA recorded the transaction and sent the e-HKD tokens to ANZ.
At that point, ANZ minted wrapped e-HKD tokens and transferred them to investors in exchange for their A$DC. It is precisely at this stage that Chainlink’s CCIP was used.
