AMERIBOR: Effective for Some, but Not All

By Marko Vidrih on The Capital

US Federal Reserve (Fed) President Jerome Powell apparently expressed support for an alternative to “Ethereum- based” LIBOR, the average interest rate at which the major global banks borrow from each other, pointing out that may not be effective for everyone.

This alternative to LIBOR (London’s interbank fee) is available in the form of an authorized “proof-of-authority blockchain on AFX Ethereum”, as a benchmark of transaction-based interest rate for banks, AMERIBOR, facilitated through the platform financial exchange (AFX) electronic trading.

In response to a question from Senator Tom Cotton, Powell described AMERIBOR as a reference rate created by AFX on the basis of a cohesive and well-defined market that meets the principles of the International Securities Organization for financial parameters.

However, the President stressed that although AMERIBOR is a fully adequate rate for banks that finance themselves through AFX or other similar institutions for which AMERIBOR could reflect their financing cost, it may not be a natural choice for many market participants.

Either way, earlier this week, Dr. Richard L. Sandor, AFX President and CEO said that “Chairman Powell’s response and other recent statements from Fed officials and the Alternative Reference Rate Committee provide greater impetus to AMERIBOR as it becomes a viable replacement for LIBOR“, which are complementary to each other.

AFX was launched in November 2015, while AMERIBOR, developed together with the Chicago Board of Exchange subsidiary for Futures, went into operation four years later. Since the start of the AFX and AMERIBOR benchmarks, over $970 billion in value have been traded, according to the company.

At the launch of the benchmark, Sandor said it is AFX’s first major blockchain initiative and that they believe blockchain has the potential to transform e-commerce and financial markets. AFX is committed to staying on the cutting edge of this new technology.

According to the company, the AFX blockchain uses a proof-of-authority consensus mechanism (unlike Ethereum’s proof-of-work, which is moving to proof-of-stake), thus leaving some control in hands of AFX. Issues two non-fungible tokens for each party in each AMERIBOR transaction, which comply with the ERC-721 token standard and which contain transaction and counterparty information. The token issue and deposit process is automatic.

News of this possible approval of something blockchain-related from one of the most conservative U.S. institutions traveled quickly through the cryptocurrency. Opinions are divided as usual though: while there are certainly those who see this a step forward both for the blockchain in general and for Ethereum in particular, others are wondering how much of the Ethereum network located using AFX.

Author: Marko Vidrih

Featured image credit: Andrew Harrer — Bloomberg/Getty Images

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