In Russia, fintech company Lighthouse has issued a type of debt security for 58 million yuan (just under 8 million euros) as a Digital Financial Asset (DFA). It is not only the first such asset in the Russian market to be denominated in a foreign currency, but also the largest ever.

The DFA has a maturity of 29 days and an interest rate of 4 percent. This, according to Lighthouse, makes it only half as expensive for the issuer as other short-term loans, whose rates are 9–10 percent. The short term also protects against losses from currency fluctuations, he said.

Lighthouse calls the DFA a “new opportunity for companies to obtain short-term capital in a foreign currency at a price half as expensive as current bank rates for loans in rubles.” Apparently, companies can now borrow capital in yuan via DFA, and an initial company has taken advantage of this to obtain 58 million yuan.

Lighthouse has received permission from the central bank in Russia to manage digital assets. The company works with banks and institutions, and has also apparently been tasked with working on the planned Moscow exchange for digital assets and cryptocurrencies.

There is little information on Lighthouse’s website about the technology they use. Somewhere they advertise “blockchain” and with “distributed ledger technology”, but without giving details: Are the assets running on a blockchain? If so, on a public or private one? And what kind of blockchain is it, what kind of consensus mechanism? — We don’t know.

Clearer than the technology is the underlying economics. Lighthouse has more to say about this in its press release:

“While the Western markets continue to be characterized by uncertainty and economic problems, the Asian market demonstrates stable development. Therefore, new opportunities are emerging for companies to raise money in Yuan. Given the significant transformation of currency flows in recent months in favor of currencies of friendly countries, among which the yuan is the undisputed leader, there is significant demand for assets denominated in yuan. The growing popularity of the Chinese yuan in Russia is associated with relatively cheap credit. Therefore, a DFA in yuan can play an important role for the Russian market.”

So China seems happy to jump into the hole that sanctions have torn in the Russian economy. Blockchain technology — or digital assets more broadly — are helping. We can only speculate about much else:

The asset itself appears to be issued independently of China or Chinese companies. This suggests an organic interest in the Chinese currency by the Russian economy. With the dollar and euro no longer working in Russia, the economy is relying on the yuan as an alternative to the ruble, possibly out of mistrust of its own currency. The yuan appears to be becoming the reserve currency in the Asian region. It is also possible that a digital asset denominated in yuan will help to settle liabilities abroad or, more generally, to trade with foreign countries. It is also conceivable that it was issued not by a Russian company but by a Chinese one, perhaps to raise money through which it would import more goods from China.

(By Kai)