Systems and methods for settlement of cross-border and cross-currency payments

Abstract

Systems and methods for settlement of cross-border and cross-currency payments. The system provides at least one bond liquidity provider, at least one depositary, a transferor and transferee, a first and second financial institution, a foreign exchange service provider, a blockchain, and an authority server controlled by a network manager. The transferor specifies a payment amount denominated in a second currency to the transferee who receives it in a first currency. The bond liquidity provider deposits at least one government bond in a first currency into the depositary, the foreign exchange service provider converts the payment amount to a received amount, the first financial institution orders the minting of at least one government tokenized bond (GTB) token, the second financial institution credits the transferee with the received amount after receiving the GTB token, and the authority server broadcasts a transaction on the blockchain authorizing the transfer.

Description

SYSTEMS AND METHODS FOR SETTLEMENT OF CROSS-BORDER AND CROSS-CURRENCY PAYMENTSCROSS-REFERENCE TO RELATED APPLICATION

[0001] The present patent application is based upon U.S. Provisional Patent Application Serial No. 63 / 589,140, filed October 10, 2023, and entitled “SYSTEMS AND METHODS FOR SETTLEMENT OF CROSS-BORDER AND CROSS -CURRENCY PAYMENTS,” and priority to that parent application is hereby claimed, and the specification thereof is incorporated into the present application in its entirety by reference.FIELD OF THE INVENTION

[0002] The present invention relates to the field of cross-border and cross-currency financial transactions, and more particularly to systems and methods for the settlement of cross-border and cross-currency payments involving the fractionalization of government- or central bank-issued bonds through digital assets on distributed ledger technology.BACKGROUND

[0003] Cross-border payments are financial transactions where the payer and the recipient are based in separate countries. They can include both wholesale and retail payments and be made in several different ways. Bank transfers, credit card payments, and alternative payment methods such as e-money wallets and mobile payments are currently the most prevalent ways of transferring funds across borders.

[0004] Over the past few decades, the increased international mobility of goods and services, capital, and people; the sophistication of global supply chains; and the rapid rise of e-commerce and business-to-consumer trade have contributed to the growing economic importance of cross-border and cross-currency payments. The value of cross-border payments is estimated to increase from almost $130 trillion in 2019 to over $250 trillion by 2027. Global payments revenue is also expected to rise from nearly $2 trillion in 2020 to $3 trillion in 2026.

[0005] These and other trends have increased the demand for cross-border payments and the need for end users to have access to cross-border payment services that are as efficient, cost-effective, and safe as comparable domestic services.

[0006] Interbank cross-border payments generally involve two stages: clearing and settlement. Clearing refers to the process of matching and reconciling transaction detailsbetween parties involved in a financial transaction. It involves validating, confirming, and verifying the accuracy of the transaction data, such as the amount, currency, and parties’ details. A primary goal of clearing is to establish the obligations of the involved parties and confirm that the transaction can proceed to settlement.

[0007] Settlement refers to the actual transfer of funds to fulfill the financial obligations established during the clearing process. It is during this second step in the transaction lifecycle that funds are transferred from one financial institution to another.

[0008] During settlement, the agreed-upon funds are delivered to the respective parties involved in the transaction. Settlement can occur in different ways, depending on the nature of the transaction and the payment system used. For example, it can be executed in real-time or involve a delayed settlement, depending on the settlement rules and the infrastructure supporting the transaction.

[0009] Almost 100 countries have domestic payment infrastructures that provide for instant payments. However, these are often not traditionally interoperable with the systems of other countries, causing international payments to be slower. Thus, when transferring funds between jurisdictions, such funds are not physically transferred between the countries.

[0010] Instead, international financial institutions provide accounts for foreign counterparts and have their own accounts with their foreign counterparts. This system enables the financial institutions to make payments in foreign currency. The funds are not sent across borders; instead, accounts are credited in one jurisdiction and debited the corresponding amount in the other. Other payment providers also use this interbank network to provide payment services to businesses and individuals.

[0011] However, not every financial institution has a direct relationship with a foreign counterpart. Thus, these financial institutions sometimes need to transact via an intermediary, or a “correspondent” financial institution. A correspondent financial institution provides accounts for two other financial institutions that do not have a direct relationship with each other. This is known as “correspondent banking” and is an essential component of the global payment system for cross-border transactions.

[0012] Generally, the more intermediaries are involved in a cross-border transaction, the slower and more expensive the transaction will be. For high-volume currency pairs (for example, U.S. dollar and British pound sterling), there will usually be fewer intermediaries. But for conversions between currencies with a lower volume there are usually more correspondent banks involved. The more correspondent banks involved, the longer the transaction will take, and more costs will be involved at each stage in the chain.

[0013] Generally, at each such bank in the chain, processing fees will be deducted, it is verified that payments comply with the financial crime laws and regulations of the local jurisdiction, and balances in the accounts of the incoming and outgoing payees are updated by each bank using its own domestic payment systems, which banks usually only operate during normal business hours. In addition, cross-border transactions usually require that an agent in the payment chain makes the conversion across currencies, increasing risks and costs. In the meantime, the sender’s bank usually will need to hold enough funds to cover these unknown costs until the payment is complete.

[0014] Cross-border and cross-currency payments are still to a large extent addressed via correspondent banking and are almost entirely based on commercial bank money. And existing services that seek to solve the drawbacks with correspondent banking are based on closed-loop systems with intra-firm claims, requiring both payer and payee to be customers of the same payment service provider.

[0015] Generally, payments are made via SWIFT MT or ISO 20022 message standards sent between financial institutions. These messages are used to update the accounts of the sender and recipient and need to contain sufficient information to confirm the identity of parties to the payment and confirm the legitimacy of the payment.

[0016] Data standards and formats vary significantly across jurisdictions, systems, and message networks. For example, some formats only allow Latin characters, and some formats allow more data than others, meaning names and addresses in other scripts sometimes must be translated, leading to divergences in precise spellings. This makes it difficult to send cross-border payments or allow the financial institution to set up automated processes, causing delays in processing and increased technology and staffing costs.

[0017] Additionally, transactions are examined as they pass through different correspondent banks to ensure they comply with local financial crime regulations. These checks help maintain the integrity of the financial network, but they can also create delays. Uneven implementation of regulatory regimes for sanctions and financial crimes screenings can lead to the same transaction being checked several times in multiple jurisdictions to ensure that the parties are not exposing themselves to illicit finance.

[0018] Financial institutions may use different sources for conducting their sanctions and financial crimes screenings, which can lead to payments being incorrectly flagged (for example where entities have similar names to those on sanctions or financial crime databases). This is particularly relevant when transactions are wrongly recognized as a sanctions hit, which results in manual intervention and requires the payment to be paused asthe banking institutions perform additional checks and request further information. This complexity increases with the number of intermediaries (e.g., correspondent banks or agents that act as foreign exchange service providers) in a chain, as the original data provided to meet initial checks may not contain elements needed for checks under other national regimes. This makes compliance checks more costly to design, hampers automation, and leads to delays or the rejection of payments.

[0019] Moreover, balances in bank accounts can only be updated during the hours when the underlying settlement systems are available. In most countries, the underlying settlement system’s operating hours are typically aligned to normal business hours in that country. Extended hours are sometimes implemented, but usually only for specific critical payments. This creates delays in clearing and settling cross-border payments, particularly in corridors with large time-zone differences. This also means banks need to hold enough cash to cover the unknown costs of the eventual foreign exchange rate, which fluctuates during this time, driving up the overall cost of the transaction. This phenomenon is known as “trapped liquidity.”

[0020] A significant proportion of the technology supporting cross-border payment systems remains on legacy platforms built when paper-based payment processes first migrated to electronic systems. These platforms have fundamental limitations, such as a reliance on batch processing, a lack of real-time monitoring, and low data processing capacity. This creates delays in settlement and trapped liquidity. These limitations affect domestic operations but become even more of a barrier to achieving cross-border automation of payments when different legacy infrastructures need to interact with each other.

[0021] Additionally, to enable quick settlement, banks are required to provide funding in nostro accounts in advance, often across multiple currencies, to have access to foreign currency markets. This creates a risk for the banks that they will need to put aside capital to cover, meaning that capital cannot be used to support other activities. The uncertainty about when incoming funds will be received often leads to overfunding of positions, which increases costs.

[0022] Thus, cross-border payments generally lag domestic payments in terms of cost, speed, access, and transparency. In some instances, a cross-border payment can take several days and can cost several times more than a domestic payment.

[0023] The drawbacks explained above make it costly for banks to have relationships in every jurisdiction. Maintaining a single correspondent banking relationship costs around $75,000 per year. With approximately 7,000 banks worldwide maintaining about one millioncorrespondent banking relationships, the aggregate cost to the global economy is substantial. The correspondent banking model results in longer transaction chains, which in turn increases cost and delays as described above, such as creating additional funding needs (including to cover unpredictable fees deducted along the chain), repeated validation checks, and the potential for data to be corrupted through its journey.

[0024] The combination of high costs, complex processes, and limited flexibility has led to a significant withdrawal from correspondent banking relationships by banks and, consequently, a gradual erosion of banks’ market share in some sectors of cross-border and cross-currency payments. This is particularly relevant in e-commerce, online marketplaces, and for small and medium enterprises (SME), the areas with the most accelerated growth in cross-border payments. Users are being pushed to rely on non-banking institutions (which do not provide deposit guarantees) to move their funds cross-borders.

[0025] Also, the rise of privately issued stablecoins such as USDC (issued by Circle Internet Financial LLC) and Tether (issued by Tether Limited Inc.), has underscored the need for central banks to maintain trust in money and protect the financial system’s stability.Although some solutions purport to act as a bridge between fiat currency and cryptocurrency by converting fiat currency into stablecoins and then stablecoins back into fiat currency, there are settlement, trustworthiness, and transparency risks that arise, in particular relating to the reserves that back the stablecoin.

[0026] Additionally, from a legal standpoint, the nature of the claim a holder of a stablecoin has before the stablecoin issuer is unclear. De-pegging events in Tether and USDC show that privately issued stablecoins cannot be trusted to maintain a stable value over time and do not ensure redeemability at par to the currency to which they are “pegged.”

[0027] Central Bank Digital Currencies (CBDCs) aim to address the changing landscape of payments. CBDCs are backed by the issuing central bank and are intended to act as a settlement asset as digital transactions become more prevalent. CBDCs hold legal tender status and ensure convertibility at par with central bank money, guaranteeing singleness over time and settlement in central bank money.

[0028] The financial sector has been experiencing a global transformation. As digital payments gain popularity and the use of cash declines, there is a growing need to ensure the availability of risk-free public money alongside private forms of money. Unlike stablecoins, which may become de-pegged due to extraordinary external events, CBDCs are generally not exposed to the risk of de-pegging since they are backed by a central bank.

[0029] However, CBDCs face numerous challenges. One such challenge is legal or regulatory constraints. Existing legislation in certain jurisdictions may prevent or restrict the issuance of CBDCs. Or, governments may demand changes to existing legislation to require adjustments to regulate specific features of CBDCs like programmability. Additionally, poorly designed CBDCs could disrupt financial stability and impact core banking activities, potentially affecting the broader financial ecosystem and economy. CBDCs also require robust technical infrastructure to address issues such as internet connectivity, interoperability with existing systems, and cybersecurity risks, which not all jurisdictions can afford to implement or support.

[0030] Promoting financial inclusion through CBDCs also necessitates addressing the potential challenge of low financial literacy among the public in order to ensure accessibility and proper utilization of digital services. Moreover, international cooperation is essential to enable interchangeability between different CBDC solutions and facilitate cross-border transactions. Mechanisms would need to be established to allow payments in different currencies and ensure compatibility with domestic payment systems. If left unaddressed, the global CBDC ecosystem risks becoming fragmented with numerous central banks currently developing digital currencies based on different technologies, standards, and protocols. This fragmentation could lead to “digital islands” springing up across the globe.

[0031] Companies and online payment platforms that have emerged to attempt to address some of the limitations described above, such as Wise, Revolut, and PayPal, are often reliant on closed-loop systems with intra-firm claims, requiring both payer and payee to be customers of the same payment service provider. Some consumers and small and medium enterprises (SMEs) have transferred their funds from banks to these emergent entities to try to solve the above-mentioned cross-border payment problems. However, by transferring their funds from banks to these entities, they lose the deposit protection that many jurisdictions provide for funds deposited at a bank. Thus, these consumers and SMEs risk losing their funds if these emergent entities enter into bankruptcy or do not have enough funds to meet the withdrawal requests of a large number of depositors.

[0032] Accordingly, it would be advantageous to provide a cross-border and crosscurrency payment system addressing the limitations described above, that could enable the direct transfer of information and value across borders between instant domestic payment rails.SUMMARY OF THE INVENTION

[0033] The systems and methods described here address the various challenges with cross-border payments described. Existing systems and methods for cross-border payments, such as bank transfers, credit cards, e-money wallets, and mobile payments, have significant drawbacks in terms of efficiency, cost, scale and safety.

[0034] The systems and methods described here rely on the fractionalization of government- or central bank-issued bonds into tokens representing ownership of a certain amount of the bond or a credit right to receive the nominal amount of the bond corresponding to the token the token-holder holds at maturity of such bond, which credit right is backed by the bond itself. For ease of reference, government-issued bonds or central bank-issued bonds will be collectively referred to as government-issued bonds or government bonds.

[0035] To overcome the limitations with legacy cross-border and cross-currency payment systems described above, the systems and methods described here use distributed ledger technology to connect domestic payment rails by tokenizing and transferring government bonds, allowing real-time monitoring of transactions, high data processing capacity, and increased scalability.

[0036] The systems and methods described here also address the fragmentation and divergence of data formats of payment information across jurisdictions.

[0037] The systems and methods described here also allow for the integration of CBDCs, enabling operability between various CBDC solutions and facilitating cross-border payments in various currencies, as well as other high-quality liquid assets.BRIEF DESCRIPTION OF THE DRAWINGS

[0038] FIG. 1 shows a block diagram of an exemplary system for settlement of cross- border and cross-currency payments;

[0039] FIG. 2 shows details of a preferred embodiment of settlement network 103; and

[0040] FIG. 3 shows a chart of process 300 executed in accordance with a preferred embodiment of the present invention.DETAILED DESCRIPTION OF THE INVENTION

[0041] Turning to the embodiment shown in FIG. 1, system 100 is shown comprised of bond liquidity providers 101, depositaries 102, settlement network 103, financialinstitutions 104, users 106, and foreign exchange service provider 107. Bond liquidity providers 101 can be financial institutions, individuals, companies, or other entities that deposit government bonds with one or more depositaries 102, which act as custodians of such government bonds. By doing so, bond liquidity providers 101 cease to be the legal owner of the government bonds before the relevant government or central bank that issued such government bond but continue to be the beneficial owner of the government bonds, i.e., bond liquidity providers 101 are entitled to ultimately receive the principal plus interest of the government bond at maturity.

[0042] Each depositary 102 can be a financial institution such as a bank that also provides other services such as retail banking services to customers. Alternatively, each depositary 102 can be a financial institution that is dedicated to only providing custody services of financial instruments or securities, namely by receiving government bond deposits from bond liquidity providers 101 and operating as a depositary 102 as described herein. Notably, each depositary 102 does not act as a bond liquidity provider for itself. Each depositary 102 is in communication with each financial institution 104 via settlement network 103 or alternatively, via one or more methods already known to persons of ordinary skill in the art, such as through the domestic payment system of such country. There may be one or more depositaries 102 connected to settlement network 103. In one embodiment, every jurisdiction having a unique domestic payment system (or “rail”) has at least one depositary 102 contained within it. In another embodiment, jurisdictions which share a single payments area or which have interlinked domestic real-time payment rails have at least one depositary 102 contained within it. For simplicity, financial institutions that are in the same jurisdiction, share a single payments area, or have interlinked domestic real-time payment rails shall be referred to as being in the same “financial jurisdiction.”

[0043] Financial institutions 104 may be banks or other entities that enable retail or wholesale payments between businesses, individuals, banks, or other entities. Any or all of financial institutions 104 may also act as liquidity providers in that any or all of financial institutions 104 may deposit government bonds into depositaries 102.

[0044] Foreign exchange service provider 107 is a bank with an international presence, an e-money service provider, or other similar entity that can provide currency exchange services to participants.

[0045] Depositaries 102, financial institutions 104, and foreign exchange service provider 107 operate or use servers 105, 106, or 108, respectively. Servers 105, 106, and 108 manage and store the private keys of cryptographic wallet addresses of each depositary 102,financial institution 104, and foreign exchange service provider 107, respectively, discussed further below. Those skilled in the art understand that servers 105, 106, and 108 may include other components not described. In one embodiment, servers 105, 106, and 108 can be highly secure cryptographic servers.

[0046] Financial institutions 104 have users 106 who use the banking services of financial institutions 104, such as retail or wholesale payment services or checking or savings accounts. Users 106 may be individuals, companies, or other entities. Although FIG. 1 illustrates each financial institution 104 as having one user 106, persons of ordinary skill in the art will understand that each financial institution 104 may have a plurality of users 106.

[0047] A detailed embodiment of settlement network 103 is illustrated in FIG. 2. Settlement network 103 contains blockchain 201, software repository 202, authority server 203 and network manager 206. Blockchain 201 can be a permissioned or permissionless blockchain. Permissioned blockchains generally restrict who may join the network, create new blocks containing transactions, or validate transactions, while permissionless blockchains generally do not have such restrictions.

[0048] In one embodiment, blockchain 201 is a permissioned blockchain where network manager 206 operates and controls the permissions of blockchain 201. Advantages of permissioned blockchains include the ability to centrally manage access controls, verify identities of network participants, simplify legal and regulatory compliance, and customize governance rules to reflect specific needs and requirements. In one embodiment of a permissioned blockchain 201, network manager 206 grants permission to depositaries 102, financial institutions 104, and foreign exchange service provider 107 to join the network by, for example, providing software from software repository 202 that may be installed on servers 105, 106, and 108 that enable depositaries 102, financial institutions 104, and foreign exchange service provider 107, respectively, to act as nodes 204 of blockchain 201. Such permission may be granted only to those institutions that join the settlement network 103 via agreement or otherwise.

[0049] In addition to managing settlement network 103 and blockchain 201, network manager 206 also has real-time, or near real-time, knowledge about the various bonds deposited by bond liquidity providers 101 in depositaries 102. Here, “real-time” would include timeframes less than 24 hours. For instance, when a bond deposited by a bond liquidity provider 101 and held by depositary 102 matures, network manager 206 is notified, for example pursuant to a preexisting agreement between network manager 206, depositary 102 and bond liquidity providers 101. Network manager 206 also may have knowledgeregarding other information about the bonds, such as the amount of bonds each bond liquidity provider 101 deposited, when each bond matures, the interest rate for each bond, and the government entity that issued each bond.

[0050] Nodes 204 and authority node 205 are illustrated in FIG. 2 as physically separate from their respective servers 105, 106, 108, and 203, but persons of ordinary skill will understand that when provided certain software, such as from software repository 202, servers such as servers 105, 106, or 108 may act as nodes 204 of blockchain 201. Additionally, persons of ordinary skill in the art will understand that depositaries 102, financial institutions 104, and foreign exchange service provider 107 whose servers 105, 106, and 108, respectively, act as nodes 204 of blockchain 201 each have a digital wallet on blockchain 201 that can hold conforming digital assets, such as tokens conforming to an ERC-20, ERC-223, ERC-721 or similar standard.

[0051] Nodes 204 may, but do not need to, be directly connected to (i.e., be aware of the IP address of) the authority node 205 or with each other. They may have different connections between themselves to trace a route to communicate with each other and / or with authority node 205. In case one of such routes is unavailable, nodes 204 can find other nodes 204 in blockchain 201 either by direct connection to authority node 205 or / and by scanning for IP address ranges of other nodes 204. In the event node 204 finds another node 204, they will share between themselves the complete list of other nodes 204 that are known to them and save those IP address ranges of nodes 204 to connect to them in case of need.

[0052] When describing herein actions taken by participants on the blockchain, reference to the actor may be made alternatively to the actor itself or to the node the actor controls. For example, actions described as taken by authority node 205 refer to actions taken by authority server 203.

[0053] Every participant on blockchain 201 (such as depositary 102, financial institution 104, foreign exchange service provider 107, and network manager 206) has at least two wallets. The first is a wallet that sends and receives digital assets. The second is a wallet that acts as a suspense account (a “suspense wallet”). The suspense wallet is issued by authority server 203 and requires two parties — authority server 203 and the respective participant on blockchain 201 — to sign transactions in order for the transaction to occur, for each participant on blockchain 201 and is a multi-signature smart contract which acts as an escrow account that belongs to the specific respective participant. The suspense wallet is controlled by authority server 203 and the specific respective participant.

[0054] Network manager 206 has two additional wallets, namely a client account wallet and a client account suspense wallet. These wallets operate in the manner of the respective wallets described above, except they send, receive, and maintain funds that belong to clients of settlement network 103, such as financial institutions 104. In an alternative embodiment, a third party has custody of the client account wallet and the client account suspense wallet.

[0055] Any entity with a wallet on blockchain 201 can send digital assets (for example, tokens conforming to an ERC-20, ERC-223, ERC-721 or similar standard) to another wallet on blockchain 201 via blockchain 201 by sending it to that specific wallet’s public address. An entity’s wallet’s funds can be spent only with the entity’s private key. In one embodiment, each financial institution 104 and depositary 102 has self-custody over their respective private keys, meaning that only they know their own private key. In another embodiment, each financial institution 104 or depositary 102 has the option of handing custody of their respective private keys to a trusted third party.

[0056] Each depositary 102, financial institution 104, and foreign exchange service provider 107 has a corresponding node 204. Nodes 204 initiate, receive, and respond to transactions on blockchain 201. Nodes 204 do not have the power to monitor, validate, or authenticate transactional processes, nor do they have the ability to create new blocks on blockchain 201.

[0057] Authority node 205 monitors, validates, and authenticates transactional processes on blockchain 201, and also creates new blocks on blockchain 201 to record validated transactions. Authority node 205 is maintained and controlled by network manager 206, and more particularly by authority server 203.

[0058] Depositaries 102, financial institutions 104, foreign exchange service provider 107, and network manager 206 each have access to a web service that allows them to interact with blockchain 201 and enables communication between existing inter-bank communication protocols (such as SWIFT and ISO 20022) into messages compatible with blockchain 201.

[0059] Foreign exchange service provider 107 provides currency exchange rate information to authority node 205 via blockchain 201. In one embodiment, such information is encrypted with the public key of authority node 205 so that only authority node 205 has access to such information.

[0060] A typical transaction over blockchain 201 would require the sender (such as financial institution 104a) to formulate and digitally sign a message using the sender’s private key and encrypt it using the receiver’s public key. Then, the receiver (such as financialinstitution 104b) verifies the message using the sender’s public key and decrypts it using the receiver’s private key. Once validated, the receiver sends an acknowledgment (or a declination, as the case may be) to the sender. Next, authority node 205 checks for the sender and receiver’s signatures, and validates (or rejects, as the case may be) their authenticity. This validation or rejection is then communicated by authority node 205 to blockchain 201, in which a new block is validated by authority node 205 recording the transaction and validation, after which the block is created on blockchain 201.

[0061] When an entity seeks to sign a message (as described above), its node 204 requests its corresponding server — in one embodiment, a highly secure cryptographic server — to sign the transaction using the corresponding private key. The sender’s corresponding node 204 additionally requests the receiver’s public key from authority node 205, which knows the public key of every member of blockchain 201 by maintaining internally a list of identifiers (similar to internal domain names) each of which resolve to a specific public key, wallet address, and suspense wallet address. Authority node 205 can give this information to participants of blockchain 201 who request it. The sender’s node 204 then broadcasts the message to blockchain 201, where other nodes 204 will transmit the message until it reaches the receiver’s node 204.

[0062] Authority node 205 is the only node that may validate and authenticate messages and thus create blocks in blockchain 201 (i.e., the only node that may send transactions on blockchain 201). When authority node 205 seeks to sign a transaction to add a block to blockchain 201, it requests its corresponding server to sign the transaction using the authority node 205 ’s private key. After validating the request, the server signs the transaction and authority node 205 broadcasts the transaction to blockchain 201, where other nodes 204 use the authority node 205 ’s public key to verify the transaction’s authenticity.

[0063] In one embodiment, blockchain 201 uses a proxy contract (e.g., ERC-1822) for its smart contracts. A proxy contract acts as a middleman between a participant in blockchain 201 and a master smart contract (created, for example, by network manager 206) in blockchain 201 and contains a reference to such master smart contract. In one embodiment, the invention contains two master smart contracts: one controlling the multi-signature suspense wallets and the other controlling the creation of Government Tokenized Bond (GTB) Tokens, which are discussed further below.

[0064] The master smart contracts contain the code that implements the desired functionality whereas the proxy contracts act as wrappers that forward all calls to the master smart contract. The reference to a master smart contract in the proxy contracts can be updatedto another (updated or upgraded) master smart contract without needing the redeployment of the entire contract and without affecting the usage or the underlying state of blockchain 201. Proxy contracts also can alter the public properties of the master smart contract so that, for example, GTB Tokens (as defined below) can be distinguished from one another even though all calls for the creation of such tokens will be forwarded by the proxy contract to the same master smart contract. Thus, master smart contracts in blockchain 201 can be updated or upgraded without causing operational disruptions so that GTB Tokens can remain in active circulation while features of the GTB Tokens can be changed, added or removed.

[0065] An embodiment of the functions of the system illustrated in FIGS. 1 and 2 is illustrated in FIG. 3 showing process 300. At step 301, one or more bond liquidity providers 101 deposit government bonds with one or more depositaries 102, thus ceasing to be the legal owner of the government bonds before the relevant government or central bank that issued such government bond but continuing to be the beneficial owner of the government bonds, i.e., bond liquidity providers 101 are entitled to ultimately receive the principal plus interest of the government bond at maturity. Each government bond typically has an issuance date, a maturation date, a principal amount, and an interest amount. Notably, each bond liquidity provider 101 may deposit government bonds into a single depositary 102 or multiple. For purposes of illustrating this embodiment, a bond liquidity provider 101a (“T-Bill Liquidity Provider”) deposits a $50 million U.S. government bond into a depositary 102a (which may be located in the U.S.).

[0066] At step 302, a user 106a with an account at financial institution 104a who desires to transfer funds to another user 106b in a different financial jurisdiction with an account at a different financial institution 104b provides details of the transfer to financial institution 104a. These details may include user 106b’s name and account number, international bank account number (IBAN), the payment amount, the purpose of the transaction, or other details typically required for a funds transfer. User 106a may provide the details to financial institution 104a via methods typically used for such purposes, such as through financial institution 104a’s mobile application or website, contactless payment mechanisms, scanning a QR code, or a point-of-sale payment terminal. Once financial institution 106a receives the details of the transfer, it provides them, in turn, to foreign exchange service provider 107 via blockchain 201.

[0067] For purposes of illustrating this embodiment, user 106a can be referred to as “Alice”, and user 106b can be referred to as “Bob”. Alice, who resides in the U.K., desires to transfer funds to Bob, who resides in the U.S. and desires to receive the funds denominated inU.S. dollars. Persons of ordinary skill in the art understand that any combination of different currencies may apply. The amount Alice desires to transfer to Bob will herein be referred to as the “payment amount” for ease of reference. In the illustrated embodiment, the payment amount is £8,000.

[0068] At step 303, foreign exchange service provider 107 provides currency exchange rate information relevant to the transfer to authority node 205 via blockchain 201. Such information will include the exchange rate between the currency sent by user 106a (in this example, British pounds) and the different currency received by user 106b (in this example, U.S. dollars). Authority node 205 then adds to this the spread charged for use of settlement network 103. For purposes of illustrating this embodiment, foreign exchange service provider 107 provides to authority node 205 via blockchain 201 that the exchange rate is, for example, £0.78 for every $1. Authority node 205 then adds to this a £0.02 spread, so that the final exchange rate is £0.80 for every $1, meaning that Alice will send £8,000 and Bob will receive $10,000. For ease of reference, the $10,000 received by Bob will be referred to as the “received amount.”

[0069] The total spread may be split among network manager 206, financial institutions 104a and 104b, and bond liquidity provider 101a pursuant to one or more agreements. For purposes of illustrating this embodiment, the spread from step 303 (£0.02 per $1) results in a total spread of £200, of which 50 percent, or £100, is agreed to be allocated to network manager 206, 25 percent, or £50, is agreed to be allocated to financial institution 104a, 12.5 percent, or £25, is agreed to be allocated to financial institution 104b, and 12.5 percent, or £25, is agreed to be allocated to liquidity provider 101a. These agreed allocations can be set as rules (i.e., be part of the smart contract) on nodes 204 by network manager 206, and reformulated as desired by network manager 206.

[0070] At step 304, authority node 205 sends the information from the previous step (or a summary thereof) to financial institution 104a via blockchain 201, which then communicates the same information to user 106a via methods already known in the art, such as through the financial institution’s banking website or mobile application.

[0071] At step 305, user 106a accepts or declines the transfer based on the information provided at step 304 and communicates such acceptance or rejection to financial institution 104a. If user 106a declines the transfer, the transaction is cancelled and process 300 terminates; if user 106a accepts the transfer, process 300 continues with step 306.

[0072] At step 306, user 106a’s agreement is communicated by financial institution 104a to depositary 102a via blockchain 201. Depositary 102a will then confirm whetherbonds issued by the jurisdiction issuing the receiving currency (in this illustration, U.S. treasury bonds) in an amount equal to the received amount plus the spread agreed to be allocated to financial institution 104b (which, in this illustration, is $10,000 plus $32.05, which is the £25 financial institution 104b is entitled to from step 303, converted to U.S. dollars using the conversion rate from step 303) are available to be tokenized into a token on an ERC-20, ERC-223, ERC-721 or similar token standard, called a “GTB Token” (discussed further below). If such assets are available, process 300 continues with step 307. If such funds are not available, either depositary 102a declines the transaction and process 300 ends, or depositary 102a sends a message to authority node 205 via blockchain 201 notifying it that funds are not available, at which point process 300 ends. Alternatively, if such funds are not available, network manager 206 may acquire from other financial institutions 104 sufficient U.S. GTB tokens that have previously been created to progress the transaction, and process 300 continues with step 307.

[0073] When government bonds deposited by a bond liquidity provider 101 and held by a depositary 102 are tokenized into one or more tokens on an ERC-20, ERC-223, ERC- 721 or similar standard as described above, such tokens are “backed” by the government bond, or in other words, such tokens represents ownership of the fractional amount of the bond being tokenized, or a credit right over network provider 206 to receive the nominal amount of the bond corresponding to the token the holder holds at maturity of such bond, which credit right is backed by the bond being fractionalized. In addition, such tokens may have a reference to the transaction which originated their creation. Such tokens may be referred to as “Government Tokenized Bond (GTB) Tokens.” For example, $10,032.05 of a $50 million U.S. treasury bond may be tokenized into U.S. GTB Tokens worth $10,032.05.

[0074] At step 307, depositary 102a directly, or indirectly via network manager 206, sends a message via blockchain 201 to financial institution 104a confirming availability of sufficient liquidity for the transaction.

[0075] At step 308, financial institution 104a verifies that user 106a has sufficient funds in her account, and if so, deducts from her account an amount that is equal to the payment amount. For purposes of illustrating this embodiment, financial institution 104a verifies that Alice has sufficient funds in her account, and if so, deducts £8,000 from her account.

[0076] At step 309, financial institution 104a sends a message, via one or more methods known to persons of ordinary skill in the art (e.g., SWIFT MT or ISO 20022), to financial institution 104b for clearing purposes.

[0077] At step 310, after financial institutions 104a and 104b finish the clearing process, user 106a receives a notification from financial institution 104a that the transaction has passed the clearing stage and that the transaction is pending KYC, AML, and / or other required compliances (discussed further below).

[0078] At step 311, financial institutions 104a and 104b verify that the transfer of funds by user 106a complies with applicable local laws and regulations. This verification may implicate Know Your Customer (KYC), Anti -Money Laundering (AML), and / or sanction laws and regulations. KYC, AML, and sanction laws and regulations generally require that financial institutions verify the identity of and risks involved with a given user of the financial institution. The objective of KYC, AML, and sanction laws and regulations is typically to prevent financial institutions from unwittingly being complicit in illegal activities, such as money laundering or other financial crimes. KYC, AML, and sanction efforts may involve verifying information about the user, such as identity, address, and occupation, or monitoring the user’s transactions to report on suspicious activity. In one embodiment, this step 311 only occurs after step 319.

[0079] At step 312, financial institutions 104a and 104b each send a message via blockchain 201 to authority node 205 that the verification in step 311 was successful. If verification was unsuccessful, financial institution 104a and / or 104b sends a message via blockchain 201 to authority node 205 that the verification in step 311 was unsuccessful and process 300 terminates.

[0080] At step 313, financial institution 104a interacts with its web service via settlement messages that are compatible with or based in SWIFT MT, ISO 20022 or other similar settlement messages that identify at least the recipient, the received amount, and the recipient’s bank (in this illustration, Bob, $10,000, and financial institution 104b, respectively). Such settlement message informs financial institution 104b that the account of user 106b should be updated in an amount equal to the received amount (in this illustration, $10,000).

[0081] At step 314, financial institution 104a’s web service converts the settlement message from step 313 to a message that can be sent over blockchain 201 from financial institution 104a to a smart contract in blockchain 201. Such message orders the minting of GTB Tokens worth the received amount plus the spread allocated to financial institution 104b (in this illustration, U.S. GTB Tokens worth $10,032.05) directly into financial institution 104b’ s suspense wallet via blockchain 201. The minting takes place and the resulting GTB Tokens are sent, via blockchain 201, to financial institution 104b’s suspense wallet.

[0082] At step 315, financial institution 104a transfers the payment amount minus the spread agreed to be allocated to financial institution 104a (in this illustration, £8,000 minus £50) via domestic payment systems known in the art (e.g., CHAPS or BACS) to network manager 206 ’s client account with a financial institution 104 based in the same financial jurisdiction as financial institution 104a (in this illustration, the United Kingdom). Such financial institution 104 may be financial institution 104a or a depositary 102 located in the same financial jurisdiction.

[0083] At step 316, network manager 206 sends a message via blockchain 201 to authority node 205 confirming receipt of the transaction amount.

[0084] At step 317, authority node 205 broadcasts a transaction to blockchain 201 authorizing and finalizing the transaction and creates a new block to record such validated transaction.

[0085] At step 318, the GTB Tokens from step 314 are transferred from financial institution 104b’s suspense wallet to financial institution 104b’s wallet via blockchain 201.

[0086] At step 319, financial institution 104b carries out the instructions from step 313 and credits the account of user 106b (in this illustration, Bob) with the received amount (in this illustration, $10,000).

[0087] At step 320, network manager 206 transfers from its client account from step 315 the agreed-upon portion of the spread allocated to it from step 303 to network manager 206’s account in a financial institution 104 in the same financial jurisdiction as financial institution 104a (in this illustration, the United Kingdom). For purposes of illustrating this embodiment, network manager 206 transfers £100 from its client account to its account in a financial institution 104.

[0088] At step 321, foreign exchange service provider 107, at network manager 206’s request, converts the payment amount, without the spread, plus the portion of the spread that is payable to financial institution 104b and to liquidity provider 101a (in this illustration, £7,850) into the equivalent amount in the received currency using the foreign exchange rate from step 303, without the spread (in this illustration, £7,850 divided by 0.78, or $10,064. 10) and sends the converted amount to network manager 206’s client account in a financial institution 104 in the same financial jurisdiction as financial institution 104b via methods known in the art (e.g., FedWire, CHAPS, ACH, SEPA or BACS). Network manager 206’s client account in a financial institution 104 in the same financial jurisdiction as financial institution 104b holds the converted amount until maturity of the bond that backs the GTB Tokens from step 314 or until financial institution 104b requests network manager 206 for itsGTB Tokens to be redeemed for the corresponding amount in the fiat currency in which the bonds are issued.

[0089] At step 322, (i) the underlying bond matures and depositary 102a receives principal and interest from the relevant government entity that issued the bond or (ii) before the maturity of the underlying bond, financial institution 104b makes a request to network manager 206 for redemption of its GTB Tokens. For purposes of illustration, the latter is shown in FIG. 3 with dotted lines and italic text.

[0090] At step 323, if the underlying bond matures before a request for redemption is made by financial institution 104b, depositary 102a requests financial institution 104b, via blockchain 201, to transfer the GTB Tokens (in this illustration, $10,032.05 worth of U.S. GTB Tokens) to financial institution 104b’s suspense wallet. Alternatively, if financial institution 104b makes a request for redemption before maturation, network manager 206 makes the same request of financial institution 104b.

[0091] At step 324, financial institution 104b transfers the GTB Tokens as specified in step 323. Depositary 102a and network manager 206 are informed of such transfer via the ledger of blockchain 201. Once the GTB Tokens are transferred, network manager 206 sends the received amount plus the spread allocated to financial institution 104b from its client account in a financial institution 104 in the same financial jurisdiction as financial institution 104b to financial institution 104b via domestic payment methods known in the art.

[0092] For purposes of illustrating this embodiment, network manager 206 sends$10,032.05 to financial institution 104b from its client account in a financial institution 104 in the same financial jurisdiction as financial institution 104b.

[0093] At step 325, node 204 of network manager 206 sends a message to authority node 205 via blockchain 201 informing it that the transfer of step 324 has been sent.

[0094] At step 326, node 204 of financial institution 104b sends a message to authority node 205 via blockchain 201 informing that the transfer of step 324 has been received. In one embodiment, if no confirmation of receipt is sent by financial institution 104b after a certain time period, for example, 7 business days, the transaction will be deemed to be received. In another embodiment, financial institution 104b may open a dispute over any alleged failure to receive the transfer in step 323 within a certain time period.

[0095] At step 327, if confirmation of receipt is sent by financial institution 104b or if no confirmation of receipt is sent by financial institution 104b after the certain period of time, authority node 205 will broadcast a transaction to blockchain 201 causing the GTB Tokens in financial institution 104b’s suspense wallet to be sent to a bum address. Persons of ordinaryskill in the art understand that “burning” a digital asset involves sending it to an address that is capable of only receiving assets, and not sending them. Thus, sending digital assets to a “bum” address means that digital asset is effectively removed from supply.

[0096] At step 328, depositary 102a directly, or indirectly via network manager 206, transfers the principal received from the maturation of the bond to bond liquidity provider 101a via domestic payment systems known in the art.

[0097] Additionally, if financial institution 104b retained ownership of the GTB Tokens issued in step 314 for any period of time, depositary 102a directly, or indirectly via network manager 206, transfers to bond liquidity provider 101a interest accrued on the full principal of the government bond until the transfer in step 318, plus the interest accrued on the portion of the principal of the government bond remaining after the transfer to financial institution 104b in step 318 from the time after the transfer in step 318 until the earlier of (i) maturity of the bond or (ii) the request for redemption at step 322.

[0098] Additionally, if financial institution 104b retained ownership of the GTB Tokens issued in step 314 for any period of time, depositary 102a directly, or indirectly via network manager 206, sends to financial institution 104b the accrued interest on the portion of the bond that backs the GTB Tokens financial institution 104b owns, which interest depositary 102a received from the government entity that issued the bond deposited by bond liquidity provider 101a (in this illustration, interest accrued by $10,032.05 of the $50 million U.S. government bond). For purposes of illustration, this is shown in FIG. 3 with dotted lines and italic text.

[0099] Alternatively, if financial institution 104b cannot (i.e., for regulatory reasons) or is otherwise unwilling to retain ownership of the GTB Tokens at all and is only willing to receive the GTB Tokens as a guarantee of payment, depositary 102a does not transfer any accrued interest to financial institution 104b, and bond liquidity provider 101a receives interest accrued on the full principal of the government bond. For purposes of illustration, only the situation where financial institution 104b does not retain ownership of the GTB Tokens is shown in FIG. 3.

[0100] Additionally, whether or not financial institution 104b retains ownership of the GTB Tokens, network manager 206 transfers from its client account from step 321 to bond liquidity provider 10 la the applicable portion of the spread payable to bond liquidity provider 101a. Process 300 then terminates.

[0101] For purposes of illustrating this embodiment, depositary 102a has the principal and interest accrued from the U.S. Treasury from the $50 million bond deposited by T-BillLiquidity Provider. Depositary 102a transfers $50 million to T-Bill Liquidity Provider. If financial institution 104b retains ownership of the GTB Tokens, depositary 102a also transfers the interest accrued on the full principal ($50 million) up until the transfer in step 318, plus interest accrued on $49,989,967.95 of the principal from the transfer in step 318 until maturity. Network manager 206 transfers from its client account the portion of the spread T-Bill Liquidity Provider is entitled to from step 321 (£25, or, using the exchange rate of £0.78 per $1 from step 303, about $32.05). Alternatively, if financial institution 104b cannot retain ownership of the GTB Tokens, depositary 102a does not transfer any accrued interest to financial institution 104b, and T-Bill Liquidity Provider receives interest accrued on the full principal of the government bond ($50,000,000).

[0102] While the present invention has been set forth in terms of a specific embodiment or embodiments, it will be understood that the invention disclosed herein may be modified or altered by those skilled in the art to other configurations. Accordingly, the invention is to be broadly construed and limited only by the scope and spirit of the claims appended hereto.

[0103] As used herein and in the claims, the singular forms “a,” “an,” and “the” include plural referents unless the content clearly dictates otherwise. It should also be noted that the term “or” is generally employed in its sense including “and / or” unless the content clearly dictates otherwise. Unless the context requires otherwise, throughout the specification and claims which follow, the word “comprise” and variations thereof, such as, “comprises” and “comprising” are to be construed in an open, inclusive sense, that is, as “including, but not limited to.”

Claims

CLAIMS1. A system for cross-border payments comprising: at least one bond liquidity provider; at least one depositary, wherein the at least one bond liquidity provider deposits at least one government bond in a first currency into the at least one depositary; a transferor with a financial account at a first financial institution denominated in a second currency, wherein the transferor provides a first set of information to the first financial institution specifying a payment amount denominated in the second currency to a transferee with a financial account at a second financial institution denominated in the first currency; a foreign exchange service provider that converts the payment amount to a received amount denominated in the first currency using an exchange rate; a blockchain; and an authority server controlled by a network manager, wherein the first and second financial institutions, the at least one depositary, the foreign exchange service provider, the network manager, and the authority server are communicably linked over the blockchain, the first financial institution orders the minting of at least one government tokenized bond (GTB) token on the blockchain, wherein the at least one GTB token is backed by the at least one government bond, the second financial institution credits the transferee with the received amount after receiving the at least one GTB token over the blockchain from the first financial institution, and the authority server broadcasts a transaction on the blockchain authorizing the transfer of the at least one GTB token to the second financial institution.

2. The system of claim 1, wherein the exchange rate is comprised of a base exchange rate plus a spread.

3. The system of claim 2, wherein portions of the spread are allocated to each of the network manager, at least one financial institution, and the at least one bond liquidity provider.

4. A method for cross-border payments comprising: depositing at least one government bond in a first currency into at least one depositary by at least one bond liquidity provider, wherein the at least one government bond has a maturation date, a principal amount, and an interest amount; providing a first set of information by a transferor to a first financial institution, wherein the transferor has a financial account at the first financial institution denominated in a second currency, the first set of information specifies a payment amount denominated in the second currency and contains information about a transferee, the transferee has a financial account at a second financial institution denominated in the first currency, and the first and second financial institutions each have a wallet and a suspense wallet on a blockchain; providing a second set of information by a foreign exchange service provider to an authority server over the blockchain, wherein the second set of information contains an exchange rate comprising a base exchange rate plus a spread, wherein portions of the spread are allocated to each of the network manager, at least one financial institution, and the at least one bond liquidity provider, the payment amount is converted to a received amount, denominated in the first currency, using the exchange rate, and the authority server is controlled by a network manager; providing at least a portion of the second set of information to the transferor; providing acceptance of a cross-border payment based on the at least a portion of the second set of information by the transferor; confirming, by the at least one depositary, that the at least one government bond is available to be tokenized into a government tokenized bond (GTB) token to be transferrable over the blockchain, wherein the GTB token is backed by the at least one government bond and is in an amount equal to the received amount plus the portion of the spread allocated to the second financial institution; deducting from the transferor’s financial account the payment amount by the first financial institution;minting, on the blockchain, at least one GTB token worth the received amount plus the spread allocated to the second financial institution; transferring, over the blockchain, the at least one GTB token to the suspense wallet of the second financial institution; transferring, by the first financial institution to the network manager, the payment amount minus the spread allocated to the first financial institution; broadcasting, by the authority server, a transaction on the blockchain authorizing the transaction transferring the payment amount minus the spread to the first financial institution; transferring, by the second financial institution over the blockchain, the at least one GTB token to the second financial institution’s wallet; crediting the transferee’s financial account with the received amount by the second financial institution; converting the payment amount minus the spread allocated to the network manager to the first currency by the foreign exchange service provider; receiving either, by the network manager, a request for redemption from the second financial institution for the at least one GTB token held by the second financial institution, or, by the at least one depositary, at the maturation date, the principal amount and the interest amount of the at least one government bond; transferring, over the blockchain, the at least one GTB token by the second financial institution to the second financial institution’s suspense wallet; transferring, by the network manager, the received amount plus the spread allocated to the second financial institution to the second financial institution; burning, on the blockchain, the at least one GTB token by the authority server; transferring, by the at least one depositary, the principal amount and a first portion of the interest amount to the at least one bond liquidity provider, and a second portion of the interest amount to the second financial institution, wherein the second portion of the interest amount is equal to the interest accrued on the portion of the at least one government bond backing the at least one GTB token held by the second financial institution, and the first portion of the interest amount is equal to the interest amount minus the second portion of the interest amount; and transferring the portion of the spread allocated to the bond liquidity provider by the network manager to the bond liquidity provider.

5. The method of claim 4, wherein the transferor and transferee each have a legal status and a financial status, and further comprising, after deducting from the transferor’s financial account the payment amount and before minting the at least one GTB token: providing a message by the first financial institution to the second financial institution for clearing purposes; clearing the cross-border payment by the first and second financial institutions based at least in part on the legal status and financial status of the transferor and the transferee; notifying the transferor that clearance has completed by the first financial institution; and confirming that the cross-border payment complies with required laws and regulations by the first and second financial institutions and notifying the authority server of the confirmation over the blockchain.

6. The method of claim 4, wherein the at least a portion of the second set of information is provided to the transferor by the first financial institution, and wherein the authority server provides the at least a portion of the second set of information to the first financial institution over the blockchain.

7. The method of claim 4, wherein the transferor provides acceptance of the cross- border payment based on the at least a portion of the second set of information to the first financial institution, and wherein the first financial institution provides, over the blockchain, the transferor’s acceptance to the at least one depositary.

8. The method of claim 4, wherein the transferring by the network manager to the second financial institution of the received amount plus the spread allocated to the second financial institution is confirmed via confirmation receipt sent by the second financial institution or after a predetermined time period if no confirmation receipt is sent.

9. The method of claim 4, wherein the second portion of the interest amount is zero and the second financial institution does not own any of the at least one GTB token.

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