Vibrant Credit Union in Illinois explores a blockchain-based future

Metallicus

Vibrant Credit Union in Moline, Illinois, is working with the San Francisco-based distributed ledger technology company Metallicus to explore how it can adopt the firm's products and learn more about use cases throughout the financial services industry.

Interest in distributed ledgers and the digital assets often supported by the technology has waxed and waned over the past decade, before the highly publicized fall from grace of Sam Bankman-Fried, co-founder of the now-defunct cryptocurrency exchange FTX, saw many tech-forward executives hold fast or retreat. But as bank and credit union regulators seek to regain lost ground, leaders of financial institutions are renewing their interest in DLT-powered products and the firms that develop them.

Toward the end of 2023 and into this year, Metallicus developed research agreements with individual financial institutions seeking to learn more about distributed ledgers and built integrations into core providers like Jack Henry for ease of adoption. Now, the firm hopes to capitalize on this work through the launch of a new collaborative effort.

Metallicus debuted its Metal Blockchain Banking Innovation Program in January. The company's subject matter experts work alongside banks and credit unions to develop roadmaps for adopting a distributed ledger system while remaining compliant with regulatory guidelines. Other credit unions that have joined the program include the $1.9 billion-asset Meritrust Credit Union in Wichita, Kansas, and the $4.8 billion-asset Fairwinds Credit Union in Orlando, Florida.

Peter Nohelty, chief technology officer of the $1.1 billion-asset Vibrant Credit Union, came across Metallicus' program after exploring the use of distributed ledgers earlier this year to support faster payments for members alongside rails in use with Venmo and PayPal.

"The question is can we augment those [faster payments] capabilities, in unique participation with blockchain solutions, that allows us to do that very efficiently compared to where you do point to point connections to each one of those services," Nohelty said. "Can we bring this into a more collaborative matrix with community banks and credit unions so that we don't all have to duplicate the services into every single institution."

Nohelty, who was involved early on in the Credit Union National Association's (now known as America's Credit Unions) technology council to explore the intersection of DLT and the credit union industry, added that he's also interested in using this type of technology for more complex products like buying and selling pooled loans as well as mobile banking platforms.

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In the Metallicus program, Nohelty and others are exploring ways to use the fintech's technology and possibly build their own systems upon it.

The program offers participants access to research and development grants as financial support for offsetting the cost of constructing the bespoke chain.

Depending on the intended use of the distributed ledger, ranging from tokenized assets to data storage, external fintech partners and core providers that a bank or credit union partners with can also be brought onto the chain to provide added support through separately owned nodes.

"What we know from our years of experience and research in the market is that many banks and credit unions want to deploy blockchain solutions. … But the biggest challenges right now are that they don't have the resources, they don't know what technology to use and they also have issues with regulators being able to build these programs," said Frank Mazza, director of blockchain and digital assets for Metallicus. 

These challenges, while not new, still present a significant barrier to entry. Last year, the Federal Reserve issued guidance on blockchain and crypto-based activities that permitted banks to engage in behaviors like trading and custody, while stating that higher supervisory scrutiny would be in lockstep throughout — dissuading institutions from getting involved.

"These letters are not issuing new guidance, and like letters that were issued earlier this year, seem to be singling out crypto-related activities as posing additional risks and therefore warranting further supervisory attention," Young Kim, a regulatory lawyer at Clifford Chance, said in a previous American Banker story.

Some institutions have decided to adopt the technology regardless, additionally focusing on applications outside of digital assets. The $150 billion-asset Northern Trust in Chicago, for example, uses DLT-based smart contracts to enforce legal agreements and retain data from prior transactions.

In December 2023, executives of the Dallas-based distributed ledger technology firm BankSocial announced they were working with the NCUA to obtain a federal charter for their proposed Defy Federal Credit Union. Payments transactions and some operations data, like records of member deposits, would be stored on the Hedera public ledger.

Becky Reed, chief operations officer for BankSocial, said that interest in Web3 tools has started to trend upward again following the sentencing of Bankman-Fried in March as "people are beginning to recognize that there is real value in this emerging technology outside of 'just cryptocurrency,'" she said.

The problem hanging over the heads of organizations like Metallicus and other DLT developers is separating the technology from its association with cryptocurrency and allowing interested organizations to probe the full scope of what is capable within the realm of current laws.

Through communication and time, many hope fintechs and financial institutions can work together with regulators to assuage doubts.

"Any help the industry can provide would be beneficial, and that's achieved by developing collaborative relationships with policymakers over time and seeking to understand those processes just as policymakers are working to understand new technology," said Bryan Hubbard, former deputy comptroller for public affairs at the Office of Comptroller of the Currency and a member of Metallicus' advisory board.