Recently, ARYZE CEO Jack Nikogosian joined the conversation on the “Blockchain won’t save the world” podcast with IBM’s Anthony Day. Nikogosian, amongst many other things, discussed money and how his company is building a full reserve bank.
Anthony Day is a digital strategist with a background from Deloitte having joined IBM where he works as Blockchain Partner. He is the host of the podcast ‘Blockchain Won’t Save the World’ where ARYZE CEO Jack Nikogosian was invited to discuss blockchain, payments, digital banking, and other things. The young CEO, who was part of the Forbes 30 under 30 class in 2020, talked about how he wants to create a full-reserve bank to create digital money the way it should have been built in the first place.
Fractional-reserve VS full-reserve
In modern banking, deposits and lending activities form the basis for the industry’s business model. By keeping only a fraction of the money you deposit in a bank, and lending out the other part, money is being created without actually existing. This means that if everyone would claim their money today, a bank would most likely collapse. Essentially, banks generate revenue by taking on risk through lending out money that does not physically exist.
This is where full-reserve banking comes into play which is fundamental to ARYZE’s business model. Here lending activities are excluded from the companies’ operations. Although this concept is rarely found today’s modern banking industry, Nikogosian explains how the idea of full-reserve banking has been around for a long time:
Our idea of not lending money is not a new thing. If you search for the Chicago plan, you will find that after the great depression, a lot of economists theorized a concept of full-reserve banking and how this would look. This plan has been revised again and again, latest in 2012 by the IMF, where they ran some simulations using modern solutions to see how this could look and if it would work, and it did.
Jack argues how currently available technologies such as blockchain and fast data centers enable this idea of full-reserve banking and could finally unleash its potential. He draws from the example of electric cars, where the fundamental idea has been around for a long time, yet supporting technologies are only developing now.
It is a combination of the different things that now have been made available, so that old ideas could actually flourish and become real.
These technologies allow ARYZE to build Digital Cash which can be deposited and transferred on the company’s banking infrastructure and is inherently backed 1 to 1 by central banks. This way, even if ARYZE would vanish for any reason, customers will still have access to their funds that are kept by the central banks who printed them in the first place. This is contrary to depositing money with commercial banks, where you basically exchange your money for an IOU (I-Owe-You). Meaning that, should a bank default, you won’t be legally protected and your money might not be available to you anymore.
We are creating digital money in the way it should have been built in the first place. Where there is no doubt about its solvency and how much is issued, and where it’s agile enough to work on different systems and protocols.
This is not to say that fractional reserve banks and full-reserve banks cannot co-exist, both types of banks are needed and could potentially even merge into a common system. Lending activities should exist to enable economic activity, yet this does not mean that bank money, that is fundamentally debt, is the only alternative. Nikogosian explains:
If you would need credit, our system does not provide that, however, if you need an extremely secure place to lock up a million dollars for a certain period of time until it is released to a certain partner, then you can just use our system. You would benefit from the fact that it’s extremely secure.
In order to provide Digital Cash to our customers within our full-reserve bank, several steps need to be taken. The first step for ARYZE is to become a bank itself, which perhaps sounds apparent at first, yet proves different in the real world:
There are many stable coin companies that operate under either no regulations or under an e-money license. The latter one implies that companies only transact money instead of holding it for long periods of time. On the contrary, we do want people to use our system and store their money with us for a long time, and therefore we want to become a bank ourselves.
Becoming a bank can be done through multiple ways. One of the possibilities is to ‘simply’ apply for a banking license. Another option, which will be part of ARYZE’s approach, is to buy a bank that already exists and has a banking infrastructure in place. Here, ARYZE is looking to not buy full banks, but only (partially) acquire their infrastructure. Nikogosian explains how his company is not looking for established customer groups or technologies these banks might have, but rather for their relationships with central banks. It is about acquiring the banking licenses that will give ARYZE access to the federal reserves.
ARYZE faces many regulatory standards it has to comply by in order to become a bank. Regardless, the team remains proactive and the Nikogosian is very clear about ARYZE’s compliance within the industry:
What we believe is that money is one of the most fundamental things of modern society. There is a reason why money is highly regulated and controlled. So, instead of trying to push many boundaries, we want to play by the rules. This will be done through obtaining banking licenses, working with the central banks in various countries and being part of fast track programs with regulatory authorities around the world to understand how can we work with them and make this a reality. We have learned that if you want to provide banking services, you follow the rules set for banking.
Acting as a full-reserve bank is not the only unique aspect of ARYZE’s proposition. Our bank is meant to open the world to many different systems that will be interoperable within their ecosystem. To realize this, ARYZE will be connected to three main payment areas. First of all, the company’s infrastructure will be connected to banking trails, such as SEPA and IBAN. Secondly, a connection will be made with card schemes that allow for withdrawal of money from your card. Thirdly, the company will be connected to the world of blockchain which is currently the smallest of the three, yet according to Nikogosian, probably the most important one.
Stay tuned for the next article in our ARYZE series which will explain how we are creating and issuing Digital Cash within our full-reserve bank.
To learn more about ARYZE please visit our website.