A new specification to allow businesses to create blockchain-based tokens for international trade and finance has been published – and businesses have already tested digital money based on it for cross border payments and settlement.

The Token Taxonomy Framework v1.0 (TTF) was developed by more than two dozen businesses and overseen by the Enterprise Ethereum Alliance (EEA). Its goal: give businesses and developers access to a set of reusable, cross-industry components to create usable tokens.

The Token Taxonomy Initiative (TTI) was first announced in April.

The participants sought to create a non-technical, standard definition of what a token is, and to establish a common set of terms and definitions for cross-industry business use without employing industry jargon or coding.

“In practical terms, a business user or consortium can select a base type of token and choose from contributed lists of behaviors and properties and assign them to the token, just as you might drag and drop icons on a screen," said Marley Gray, Microsoft's principal architect for Azure blockchain engineering and a member of the EEA's board of directors. "The framework enables a business person to create a token visually using a design tool without writing any code whatsoever and allows them to tell developers, ‘I want one of these."

Creators of the specification said the digital currency is different from Facebook's Libra cryptocurrency, whose launch could be hampered by intense regulatory oversight in the U.S. and Europe. Seven of the founding members of the Libra Association, Facebook's non-profit governing council for its planned cryptocurrency, have jumped ship amid increasing regulatory scrutiny.

Facebook Images of the Facebook's Calibra digital wallet app that would store its Libra cryptocurrency.

"Libra, at least as it was started, was not meant to be a regulated asset," said Julio Faura, TTI member and CEO of London-based tech services company Adhara. "When you're trying to use a non-regulated asset for regulated processes like banks and central banking, it's not easy.

"The TTF framework can host all kinds of tokens, both regulated and non-regulated, both financial and non-financial," said Faura, who prior to 2018 was head of R&D and blockchain at Santander bank.

Creating a single set of definitions and terms will help blockchain platform interoperability – regardless of the distributed ledger platform on which it resides, according to Gray.

The framework’s template approach and the tools to facilitate token workshops make exploration and innovation as easy as possible, the TTI group stated in a release. By using rich metadata, the framework facilitates automation like code generation, verification, and certification that business users don’t need to understand but is extremely valuable to developers. Using the GitHub repository, teams can map business requirements to specific blockchain code or solution implementations allowing for discovery and use increasing

"What we needed to do was put it [the TTF spec] through some exercises to make sure it worked right," Gray said. "What we're seeing now are their drafts that are also being used to learn. People can learn about tokens by looking at real-world examples..., concepts that are not grounded in cryptocurrency that are modeled after real-world B2B scenarios."

A TTF-based token can represent any number of goods, commodities or fiat-currencies, all of which can be defined by the business creating its specific flavor of token. For example, tokens can represent rewards points at a retail store, real estate, precious gems, artwork or simply government-backed cash – basically whatever value the creator wants to give it.

"Anyone can understand it; you don't have to be a programmer, but you can follow the links all the way down to the source code as a developer to see how they did it and reuse that code on the front- and back-end," Gray said.

The Token Taxonomy Initiative has about 25 members, including Accenture, Adhara, Banco Santander, Blockchain Research Institute, Clearmatics, ConsenSys, Digital Asset, Envision Blockchain, EY, Hedera Hashgraph, IBM, Intel, ioBuilders, Itau, J.P. Morgan, Komgo, Microsoft, R3, and Web3 Labs.

Separate from the TTI group, JP Morgan had already launched its own cash-backed token for international clearance purposes between clients.

Several of the TTI members, including IBM, Microsoft, Intel and ConsenSys, have already created more than a dozen of test tokens based on the new spec and piloted them on a blockchain network for usability, after which they published their own draft specifications for their tokens.

Getty Images

For example, Santander, one of the world's biggest banks, has tokenized a $20 million bond offering as a pilot to be used on an internal Ethereum-based blockchain network. The bond is made up by 20 million SUSD (Sandander U.S. Dollars) ERC-20 tokens, which are backed by $20 million Sandander received as payment from an unnamed investor through an off-chain, traditional channel.

In September, John Whelan, head of digital investment banking at Santander, tweeted his bank issued 100 units of SUSD tokens with a value of $200,000 per unit. The SUSD tokens were redeemed for the real cash from the custody account.

"SUSD is simply the tokenized cash leg that represents a claim against real cash on deposit in a custody account at our custodian (Santander Securities Services)," Whelan said via email.

The bank was also able to use TTF smart contracts with embedded rules requiring only entities who'd passed the know-your-customer (KYC) regulatory process to be onboarded to the permissioned blockchain.

Those who were whitelisted to be on the blockchain held tokens (bonds or cash) and were part of an exchange contract that acted as the escrow until the issuer accepted the transaction; that acceptance triggered the atomic DvP (delivery versus payment) ownership rights. (DvP is a securities settlement term that represents a guarantee that that securities will be transferred only after payment is received.)

Whelan said he wasn't sure when a production version of Santander's SUSD token would launch, only that it will "take time."

Adhara and ioBuilders created an E-Money token standard that is now a TTF token draft spec and an electronic money standard that enables the use of fiat money on blockchain. The token standard includes multiple extentions commonly used in finance, such as holds (EIP-1996), clearance (EIP-2018), detailed compliance (EIP-2009), funding orders (EIP-2019), and payout orders (EIP-2021).

For example, one version of Adhara and ioBuilders' token was used for cross border remittances by Union Bank of the Philippines. The money transfers were performed in partnership with Singapore-based OCBC Bank using the Adhara liquidity management and international payments platform.

Adhara's Faura said tokenized money eventually transform existing financial systems.

"Tokenized money is essentially implementing regulated money in a bank or electronic money transfer industry or a central bank... but doing that on top of smart contracts on a blockchain construct," he said. "There's also the possibility to put that money on hold...while you do a financial process such as clearance of payments like paying for securities.

"It's just a bank using another technology to issue money," Faura added. "And, we don't need a new regulatory framework to do that."