For multi-national companies conducting business in numerous jurisdictions, multi-currency settlements are common place. Here such large institutions require intermediaries to financially engineer contracts between companies in order to settle trade arrangements. Most of these contracts require financial institutions, lawyers, accountants and other service providers to ensure that obligations and terms are satisfied. The layers of intermediaries naturally inflate the cost of trade and increase the systemic dependencies on trusted institutes. Through blockchain innovation such execution inefficiencies and intrinsic dependencies can be alleviated.
Foreign Exchange Exposure
An added complication in multi-national trade agreements is the exposure to national currency settlement by either party. Most of the time, entities in trade engagement are settling in currencies that are not favourable to either party, but are rather pragmatic currency solutions to their independent supply chains. This results in companies requiring financial products to hedge for the foreign exchange and volatility exposure.
SDR denominated tokens can alleviate the risk of adverse foreign exchange price movements, particularly when large volumes are of concern, and provide a smooth payment rail.
Stability Achieved via Indexing
One of the key utilities of the SDR token comes from the inherent stability of the underlying reserve asset basket. Here, like traditional indices, volatility is partially neutralised through diversification and negative correlation between currency pairs. The SDR exhibits higher stability over traditional currency pairs; hence as a stablecoin alternative, its superiority is clear.
Supply Chain Settlement
For large international corporations, SDRs can directly address the multi-currency needs of intermediaries, suppliers, clients and employees. In addition, for global enterprises, trade is often conducted between entities of similar size and scope (i.e. pharmaceuticals, mining, transportation and government organisations), hence the opportunity to deepen the adoption if SDR tokens can be accepted as means of settlement.
Secured on Blockchain
The use of the ERC-20 standard allows important infrastructure components of, or related to, the Ethereum network such as wallets to be able to interact with such tokens in a consistent way. SDR tokens are based on ERC-20 smart contract standards and utilise the speed, security and transparency of the blockchain.
Disintermediation and Cost Savings
Through utilising blockchain and solving one of the most difficult problems associated with foreign exchange volatility, SDR users can benefit from a range of cost savings associated with the disintermediation of multi-national trade settlements. For the first time, institutions can engage directly with a multi-currency reserve asset with the speed and efficiency brought by blockchain technology as a proxy for settlement.