AUDD on Stellar will deliver faster, more cost-efficient cross border transactions

22 Mar, 2023

By Novatti

The third Stellar Ecosystem Proposal to be integrated into Novatti in 2023 will complete the initial phase of efforts to establish the AUDD stablecoin as a modern payment solution that offers secure, instant and low-cost transactions.

AUDD is Novatti’s Australian dollar-backed stablecoin intended for facilitating payments,  transactions and remittances between businesses and their customers. It is collateralised on a 1:1 basis by Australia’s sovereign currency, providing a hedge against the price volatility of traditional cryptocurrencies.

Since AUDD’s launch on 1 November 2022, AUDD Digital – powered by Novatti  – joins a global network of anchor organisations that connect the Stellar network to the traditional banking system.

The Stellar Development Foundation is a non-profit organisation that supports the growth and development of the decentralised, fast, scalable and uniquely sustainable Stellar network. The Stellar network is both a cross-currency transaction system and a platform for digital asset issuance, designed to connect the world’s financial infrastructure.

Anchors on Stellar can integrate the Stellar Ecosystem Proposals (‘SEPs’) to provide customers with use cases for their digital assets such as cross border payments or on/off ramping between digital and fiat assets.

The adoption of SEPs by a range of providers is an important step towards the goal of making stablecoins like AUDD a widely-accepted form of payment that can be used on a daily basis.

What is SEP-31?

The third of the SEPs to be incorporated into AUDD this year, SEP-31, will build on the functionality provided by SEP-12 and SEP-24.

In simple terms, SEP-31 is a cross-border payment API that enables payments between two financial accounts that exist outside the Stellar network, allowing Novatti to settle remittance payments in AUDD with counterparties. The principle behind it is to enable remittance businesses, both sending and receiving organisations, to use Stellar as a settlement layer instead of traditional rails. Using Stellar as a settlement layer reduces counterparty risk and lowers transaction costs.

How it works

For example, Tom from the US wants to send USD$1,000 to his relative in Australia, paid out in AUD. He uses a currency exchange service that provides the foreign exchange rate from USD to AUD. After Tom accepts the quote, the currency exchange service sends the agreed upon amount to Novatti in the form of AUDD.

Novatti, having been sent Tom’s information via SEP-12, detects the AUDD on-chain payment and initiates a bank transfer to the recipient one to one minus fees.

With this example, the foreign exchange service would also have the option to use the Stellar DEX to convert USDC to AUDD instead of holding a float of AUDD.

Furthermore, SEP-31 will actually identify the most cost-effective currency conversion option for users.

SEP-31 could identify, for instance, that Stellar’s own native token – called ‘lumens’ or ‘XLM’ – offered a better rate.

Why it matters

AUDD will be the first Australian dollar stablecoin to integrate SEP-31 and join around 12 other services that currently support the protocol. It is an important step in fulfilling Novatti’s vision of allowing entities to pay and be paid anywhere in the world.

The Reserve Bank of Australia (RBA) has noted the potential of some forms of stablecoin to enhance the efficiency and functionality of payments and other financial services while also acknowledging the need to consider appropriate regulatory settings to safeguard investors and users. It estimates the total value of stablecoins on issue reached US$185 billion in April 2022 before more recently falling to US$150 billion amid the market volatility that followed the collapse of a large algorithmic stablecoin.

Want to know more?

AUDD is a blockchain-agnostic stablecoin that will be added to other commercial platforms over time.

To find out more about AUDD and how Stellar’s SEPs can improve the efficiency of transactions, please contact us at [email protected]

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