Earlier this month, Signature Bank won approval from New York’s Department of Financial Services (NYFDS) to launch a digital payments platform for near-instant payments for its commercial clients. Now the bank plans to use Signet, its payments platform - to settle energy trading transactions. According to a press release issued last week, American PowerNet, a Pennsylvania-based independent energy management company, plans to use Signet to settle energy trading transactions on Verde Blocks, itself a blockchain-based platform for trading renewable energy. The company had deployed another energy trading platform - the xGrid platform - by Australian power company Power Ledger to trade 35 MW of solar power.
How Does The System Work?
Verde Blocks connects large sellers and buyers of renewable energy. The platform will use Signet to facilitate and accelerate transactions. Thus, a transaction that would otherwise take 30 days for payment could be completed in less than a day. There are other benefits too. Signature Bank claims that the transaction will not require fees or mediators, such as financial services institutions, for settlement. That said, the system is not without its own rules.
American PowerNet’s platform requires clients to maintain account balances of $250,000 to be eligible to conduct transactions on the platform. According to Payment Week, the proposed system is ideal for renewable energy transactions because prices change dynamically based on electricity supply due to changes in weather conditions.
In its workings, the system is not different from standard smart contracts, in which an exchange of value takes place but a collateral, in the form of ether - a cryptocurrency, is required to conduct the transaction.
Unanswered Questions
But a couple of questions remain unanswered.
For starters, what is the role of Signet in the platform? Based on its description, Signet seems to be a stablecoin, a cryptocurrency that trades at parity with a fiat currency or a basket of goods, of sorts. It is likely that, with traction, Signet will begin trading at cryptocurrency exchanges. In that case, it will be necessary to clarify Signet’s role in order to ensure clarity in its regulatory status. Signature Bank may also have to submit itself to third-party audits to convince regulators about its token’s ability to refund investors in case Signet's peg is lost.
There is also the question of Signature Bank’s business model for its platform. It is not clear how Signature Bank intends to capitalize Signet in the future. The price fluctuations for stablecoins are minimal, meaning that investors in the coin do not make money off volatility. Instead stablecoins have the potential of fulfilling bitcoin’s promise of being a medium of daily transactions. A stablecoin’s market capitalization increases with a corresponding increase in its daily transactions.