Provenance Blockchain Foundation Announces $50 Million Grant Program

Morgan McKenney and Jeff Gapusan discuss the foundation’s $50 million development grant program and commitment to building blockchain applications for the regulated financial sector in the face of uncertainty.

The closings of Silvergate Bank and Silicon Valley Bank catalyzed one of the most volatile weeks in financial markets since the global financial crisis. The weekend after the eventful 48 hours, Signature BankSBNY, a solvent (at the time) financial institution was shut down by its chartering authority, the New York State Department of Financial Services (NYDFS).

Theories of a concerted effort to stifle fintech (especially crypto-active) innovation, writ large, swirled. Signature Bank board member, former Democratic US congressman and co-author of the Dodd-Frank Act, Barney Frank suggested that actions against the bank were partly spurred by the desire of regulators who “wanted to send a very strong anti-crypto message,”

While fintwit smolders and Rome burns, innovators at the Provenance Blockchain Foundation focus on investing in and building the future of finance. Last week, the foundation announced the launch of a $50 million development grant program to build core services and experiences on the Provenance Blockchain.

Provenance blockchain

The Provenance Blockchain was founded in 2018 by June Ou and Mike Cagney, CEO of Figure Technologies. Provenance Blockchain and Figure was founded independently and operates with the recognition that legacy financial institutions would need a blockchain specifically designed for the highly regulated industry. Formerly a permissioned blockchain, Provenance is now a public, open source, decentralized layer-1 blockchain.

According to Morgan McKenney, CEO of the Provenance Blockchain Foundation, what sets Provenance apart from other tier-1 blockchains is its focus, “only on serving regulated financial institutions all day every day.”

Today, the Provenance Blockchain is leveraged by over 60 financial institutions and fintech companies, including asset managers (Apollo, Hamilton Lane, Neuberger Berman), loan originators (Guaranteed Rate, Home Point, Movement Loans) and banks (Webster BankWBS and New York Community Bank).

The network has supported over $12 billion in financial transactions spanning a variety of first-time use cases from mortgage (first and second) origination and trading and tokenization of private securities. Recently, Figure Technologies announced that it would be working with Provenance Blockchain in another first, the tokenization of public equity.

Provenance Blockchain Foundation

The Provenance Blockchain Foundation was established in March 2022, when Ms. McKenney took the reins, to support institutional and fintech adoption and development of the Provenance Blockchain.

She is well positioned to tackle industry challenges as she has a wealth of banking and blockchain experience. An ex-Citigroup executive for nearly 20 years, she served as COO of Citi’s largest division, Global Consumer Banking. Prior to her current role, she worked as a special advisor to the Centre, a consortium founded by Circle and Coinbase to provide standards and governance for the USD Coin (USDCUSDC) and other fiat-backed stablecoins.

Regarding the foundation’s mission, McKenney said: “We are building a unique ecosystem to enable the new digital finance factory – the digitization of the financial system’s infrastructure.”

The foundation focuses heavily on fragmented and legacy applications in banking, capital markets, asset management, insurance, lending, trade finance and payment verticals, as well as the back office functions performed by custodians, administrators.

Adding network participants in a highly regulated industry does not happen overnight. While the technology is profoundly transformative, McKenney admits it won’t be everything everywhere at once.

“When we add asset classes, we add other participants in the ecosystem. We have private funds live On-Chain that bring accredited investors. We have many loans, mortgages and HELOCs, bringing in bank and credit union buyers, and mortgage servicers white-labeling their services through Figure Technologies. Infrastructure loans bring in insurance companies and pensions.”

Provenance Blockchain Foundation Development Grants

“The grant program is so important because it brings developers to support the asset’s life cycle.” Mrs. McKenney’s banking background shines as she discusses concepts integral to a well-functioning financial services industry – KYC/AML, identity registration and security interest perfection to name a few. “Our team has deep knowledge of financial services as well as an amazing engineering team trying to develop the protocol in ways that are competitively distributed.”

By balancing the importance of core banking concepts, the grant program underscores the foundation’s belief in the power of open innovation. “We enable the crowdsourcing of the future of finance.”

Provenance Blockchain is part of the CosmosATOM ecosystem, enabling partners and customers to leverage a code base developed by thousands of Cosmos developers. In addition, Cosmos’ multi-chain capabilities allow the movement of assets across multiple compatible chains.

The division of finance

In February 2014, JPMorgan Chase’s JPM chief, Jamie Dimon, warned banking investors about tech companies’ coming encroachment on sacred banking ground. “When I go to Silicon Valley… they all want to eat our lunch. Every single one of them is going to try,” By the end of that year, Lending Club and OnDeck were leading a boom in fintech investments. Fintech upstarts touted their efficiency and ease of use versus their heavy-handed, regulated counterparts.

Since then, almost every aspect of banking and finance has been examined to extract efficiencies through technology. Processes from account introduction, loan initiation, payments and more have been under attack.

Blockchain and Distributed Ledger technology are essential to the next step in this disintegration of finance. In a 2019 interview with Yahoo Finance, Jamie Dimon reiterated his earlier warning with specific reference to blockchain. “I tell our people, don’t guess, you know they’re there, you know they’re coming, you know they want to eat our lunch. Assume that.”

Mc. Expanding on this phase of development, McKenney says, “Innovation in finance over the past decade has really been at the consumer app layer. Fintech companies have polished up the front, but they’re still riding on banking rails. We’ve never been able to get to the infrastructure layer like we can now use blockchain.”

Banks and blockchains

Mrs. McKenney acknowledges that the bulk of the work on Providence Blockchain currently involves assets beyond the bank’s reach. While many large banks have established digital asset teams to work on core business uses, the regulatory framework they operate under limits their speed of development. “[The banks] must go step-by-step, especially in the United States.”

On the same day as our conversation, Federal Reserve Board Governor Michelle Bowman addressed the modernization of traditional banking at the Independent Community Bankers Association (ICBA) Live 2023 Conference. As Silvergate Bank, Silicon Valley Bank, and Signature Bank liquidated or were shut down by their regulators, particular attention was paid to bank involvement in cryptoassets and blockchain development projects.

While emphasizing the need for clear statutory and regulatory parameters, Governor Bowman cited requirements for firms to “develop adequate systems, risk management and controls to conduct these activities in a safe and sound manner.”

This is consistent with Ms. McKenney’s belief that development of On-Chain financial products and services must be done by regulated players or under regulated domains for true mainstream adoption. “We have a unique opportunity to lead and partner with industry to make that future a reality.

Digital deposits

According to Ms. McKenney, “The biggest application for banks that the foundation is working to enable is tokenized bank deposits. It is our very strong view that for finance to work successfully, a digitized form of money to buy digital assets must be issued natively on-chain.”

With over 70% of deposits in the world held by banks, the foundation believes that banks need the ability to mint deposits to be part of the new On-Chain digital economy. “Regulated entities that can issue digital currency that can be minted on demand and is fungible with the currency in one’s bank account is a necessity. We just can’t have private issuers of money. [It’s] too large and sensitive of an asset class,” she claims.

The foundation supports the development of the USDF on the Provenance Blockchain. Development is in coordination with the USDF Consortium, a member-based association of FDIC-insured banks, technology providers and investors. Due to the US regulatory environment and focus on public blockchains, the USDF operates on a private, permissioned zone in the originating blockchain. As of today, consortium members continue to test and work toward regulatory approval.

The future is bright

Despite a development backdrop overshadowed by the macro environment, there are still a number of opportunities on the horizon. Throughout our conversation, McKenney alluded to several projects that increase liquidity, open access to new investors and open up new revenue streams.

Infrastructure lending, for example, is a $93 trillion market that suffers from a $15-20 trillion funding gap. Banks have traditionally underwritten these agreements due to their size, long duration and complexity. Blockchain enables infrastructure lenders to tokenize these assets for subsequent fractionation, opening up the asset class to pension funds and insurance companies with similar long-term needs.

Mrs. McKenney believes that we are experiencing the 1998 moment of finance. “The Provenance Blockchain Foundation is building the future of financial asset class by asset class as proofs are demonstrated. The transformation will happen as proofs are demonstrated asset class by asset class.”

It is clear that Ms. McKenney and the foundation are deliberate in their focus on financial services applications of blockchain while threading the regulatory needle. “Financial services are the killer [blockchain] app. It is highly fenced, expensive and involves a number of allowed devices. We do not want to fight against the advance of technology – its [benefits] are unassailable.”

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