20 Nov 2019 Pavel Petrov
LIBOR Benchmark Interest Rate Threatened By An Ethereum-Based Alternative
The traditional finance world may undergo a drastic overhaul, as the London interbank offered rate, or its abbreviation as LIBOR, may be swapped for an Ethereum-based alternative.
LIBOR, used as a benchmark for interest rate, is controlled by one of the largest banks of the world – Bank of Scotland, Deutsche Bank, UBS, and Barclays. The primary goal of LIBOR is to determine the interest rates at which banks offer lends to each other.
Ameribor is an Ethereum-based alternative created by the Chicago Board of Exchange (CBOE) Futures subsidiary and American Financial Exchange (AFX). The two companies offer a two-token system and a permissioned based Ethereum blockchain.
Although the companies behind LIBOR were among the first to run trials in the blockchain sector, their implementation is progressively slowing down. Тhe occurrence of a possible delay may interferre with, or even disregard some of the services that LIBOR offers.
AFX CEO Richard Sandor is positive about the future of blockchain technology implementation. “We had a great learning experience, and we believe blockchain could be the future of modern economy and finance.”, Sandor stated.
AFX launched its Ameribor index earlier this year. In its core, Ameribor will create two non-fungible tokens, which will store transaction and user data on a “smart contract.” The tokens would be automatically generated on Ameribor’s blockchain. The blockchain platform would not be entirely decentralized, however, as transactions would run on a “proof-of-authority” algorithm, instead on the consensus method.
Former CTFC chairman Chris Giancarlo entered the AFX team in September 2019. Giancarlo stated that due to rate manipulations, LIBOR banks were fined multiple times.
“The time for LIBOR to be phased out is now. But one single index would not be enough to grant full operability”, Giancarlo added.
Giancarlo also noted that the New York Federal Reserve-issued SOFR overnight rate is an effective alternative to LIBOR for large banks with funds in various treasuries. Ameribor is suitable for smaller or regional banks that don’t operate with its own funds.
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