Xfers has successfully concluded a pilot test to demonstrate how the XSGD stablecoin can enable the transfer of event risks via Zilliqa blockchain-based smart contracts. In this video, I am going to explain the significance of this project.
The pilot was conducted for Swiss fintech company Cerchia and serves as proof-of-value to gear up operations on the Zilliqa blockchain and alternative use cases for XSGD investments and settlements.
What does Direct Risk Transfer mean? Risk transfer traditionally refers to shifting the risk of losses or damages due to events to or from a third-party agency, contractor, vendor or supplier, for instance via a contract.
Today, smart contracts are emerging as an efficient tool to digitise event risk transfer management
Cerchia’s flagship product - Direct Risk Transfer is a bilateral financial agreement between any protection buyer and protection seller to transfer event risk. It is fully automated on the blockchain with smart contracts.
The test was conducted from 9 April 2021 to 24 April 2021, and case study was risk transfer in the environmental sector, using the Central Singapore Air Pollution 24H Index (PSI) as the metric.
If PSI reached 101 (“unhealthy”) levels, the notional payment would be triggered to the buyer. If such level was not reached until deal maturity on 24 April 2021, a notional payment would be triggered to the seller.
In the test, the PSI was not triggered and hence, the notional payment was sent to the protection seller. This test demonstrates how blockchain technology, oracles and stablecoins can be used to better facilitate risk transfers.
DRT has inherently no counterparty credit risk as all notional (amount of protection) is securely locked in escrow in the smart contract.
With the smart contract powered by the Zilliqa blockchain, which boasts a short block time and low transaction fees, transactions can be confirmed quickly. With XSGD, deals can be settled instantaneously and converted at a 1:1 rate back into Singapore dollars.
This use case is a great example of the power of using blockchain and oracles to disrupt an industry and evidence of what can be considered to be actual digital transformation. This partnership between Zilliqa, Xfers and Cerchia might be the start of an amazing journey of real use cases for Zilliqa.
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