Last month, Australian digital payments company Novatti completed its central bank digital currency (CBDC) trial using an eAUD CBDC-backed stablecoin. The trial was part of the country’s CBDC pilot program, which officially ended in May, and is expected to publish a report soon. Novatti’s essay demonstrated the potential of CBDCs to provide a credible and risk-free asset to back privately issued stablecoins.

Novatti CBDC Test

Today, to ensure that stablecoins are fully supported, reserves must be regularly audited by third parties. However, this does not build much confidence unless reserves can be proven in real time, as there have been previous cases where stablecoins were found not to be fully backed by sufficient reserves. CBDC-backed stablecoins could allow users to independently verify reserves, thus increasing trust in the system.

Also, because a CBDC comes directly from the central bank, it should be more liquid than reserves held in government bonds that would have to be sold if there was a massive stablecoin redemption.

During the test, Novatti purchased eAUD from an authorized dealer and minted an equivalent amount of “wrapped” stablecoins on the public Stellar Blockchain. A hash time lock contract (HTLC) was used to join the CBDC ledger and the Stellar blockchain. This ensured that Novatti was continually backed up one by one, which users could independently verify at any time. The stablecoins were then used to purchase Zerocap-issued NFTs for a charitable donation to the FSHD Global Research Foundation.

“In Australia, some charities lack transparency,” said Natalie Cooney, president of the FSHD Global Research Foundation. “Donors deserve trust when they support a cause and I am proud of the FSHD Global Research Foundation’s commitment to transparency and impact. The eAUD offers a solution because it can track the donation, show proof of receipt and could even show the direct impact on the cause. Zerocap provides the ability to receive the funds in our insured custodial wallet, supporting the digital asset ecosystem and I am excited to see Novatti driving innovation in digital payments.”

Australia Public Blockchain Affinity

One thing worth noting is Australia’s willingness to link a CBDC to public blockchains, something few have done. Brazil’s Real Digital Challenge also involved public blockchains. In general, Australia has shown a greater inclination towards public blockchains, with several use cases testing such applications.

Australia’s public affinity for blockchain also extends beyond its CBDC trials. In recent years, both ANZ and National Australia Bank have again tested blockchain-based stablecoins, something few banks elsewhere have attempted.