While cryptocurrencies remain banned in Russia, their underlying tech, blockchain, is more and more actively used by the country’s major companies.
Sber on the forefront of blockchain adoption
Earlier this month, Russia's largest lender, state-run Sber, announced the first ever deal involving a blockchain-based smart contract – a technology facilitating the execution of deals automatically and without a need for the counterparties to trust each other.
According to Sber, it was Russia's first ever deal in which a customer obtained a bank guarantee under a smart contract written to the blockchain, rather than a traditional paper contract.
Although technically smart contracts are not yet recognised under Russian law, Sber has taken a major step towards a wider use of that tech in transactions between institutions and their customers.
Overall, Sber is one of the blockchain pioneers in Russia. Earlier this year German Gref, the lender's head, said in an address to the Federation Council, the upper chamber of the Russian Parliament, that digitalisation, tokenisation and blockchain storage of assets could account to as much as 10% of the global GDP by 2030.
"This is a complicated technology that is not easy to use, and therefore it has had to be substantially upgraded over the last seven to eight years," he said. "These days, thanks to a combination of blockchain technology and artificial intelligence, the technology is becoming more and more customised and applicable for a large number of options both on a government level and on a level of regular people."
In May 2023, Sber opened access to its decentralised finance (DeFi) platform ComUnity to a large number of developers. The platform aims to create an infrastructure for issuance and circulation of digital assets. It facilitates the creation of tokens and smart contracts, while integration with Sber services is expected to enable users to easily switch between digital assets and Russian rubles.
Connected developers have access to an application catalogue; they can start their own project or launch a network node. It is also possible to integrate their application into the system, issue a token or place a smart contract. Sberbank's Blockchain Lab decides whether projects that have applied to join ComUnity will be accepted, based on the candidate's experience, expertise and reputation.
In August 2023, Alexander Vedyakhin, Sber's first deputy chairman, also confirmed the lender's interest in exploring blockchain technology.
"It is one of the technologies that is growing as fast as possible," he told the Russian business news website RBC. "It is among the top five technologies, the fastest growing, the most promising in the world. All the leading countries of the world, including Russia, are involved in blockchain. The blockchain market, let's say, the tokenisation market more broadly, will be worth $16 trillion by 2030. The DeFi market, the NFT market, blockchain as applied to finance will be measured in hundreds of billions of dollars, unequivocally. That is, this is a technology that arouses huge interest, a large flow of investment, gives a lot of opportunities and will definitely determine the development of the future finance market."
A new tool for raising capital
Although cryptocurrencies remain banned in Russia for payments or other transactions, digital financial assets (DFAs) – blockchain-based tokens operating similarly to securities – are legal, and Russian companies have begun to actively explore this niche.
In early November, the Tokeon platform, which is part of Promsvyazbank Group (PSB), reported a pilot issuance of digital financial assets.
The Tokeon platform was used to issue digital bonds by gold equipment developer Goldex with a total value of RUB3.5mn (€36,107) and a one-year maturity period.
"The debut issue, which took place on the Tokeon platform, demonstrated that not only large companies, but also small and medium-sized businesses, can issue digital assets," Maxim Khrustalev, general director of Tokeon's operator, was quoted as saying by the Russian daily Vedomosti.
"Issuing DFAs does not take much time, and also allows minimising the number of financial intermediaries and saving significantly on commissions," he went on to say. "We hope that Goldex's experience will become a good example for other entrepreneurs who are still looking at this innovative tool."
Interest from exchanges and the regulator
On September 27, 2023, the Moscow Stock Exchange facilitated the issuance of the first DFAs by GPB Factoring, a company that is part of Gazprom Neft. To date, about 100 DFA issuances have been made on the exchange, with a total value of roughly RUB30bn (€310mn).
Meanwhile, DFAs have the potential of becoming a popular financial tool in Russia, and even the Central Bank of Russia (CBR) apparently seems to have no objections against their wider use.
In July 2023, the regulator’s head, Elvira Nabiullina, told a financial congress in Moscow that DFAs for public companies could also be issued, "if there is market demand."
"At the first stage, we went for non-public companies, because it is easier, there is a limited number of participants," Nabiullina said. "So far, we have not received any explicit applications and requests to issue DFAs for shares of public companies. But if there is a market request, we are ready to consider it, including within the framework of the experimental legal regime."
Currently, the Moscow Stock Exchange doesn't use blockchain-based settlements, but the exchange's register holder, the National Settlement Depository, already records shareholder decisions to a blockchain platform, which has already proved an effective measure against fraudulent practices of stealing assets in collusion with register holders.
The Moscow Stock Exchange also plans to step onto the terrain of tokenising art by issuing DFAs for works of art, the exchange's head of digital projects and products, Nikolai Trunichkin, told Vedomosti.
"It is possible to start with the accounting of art objects on the balance sheets of participants, i.e. by issuing a DFA with hybrid rights to an art object, which is accounted for on the balance sheet of the company," he explained, adding that there are already examples of such a mechanism on the market. The next step, according to him, may be the participation of professional investors in such transactions. Only after that will the stock exchange start offering such investments to individuals, he concluded.
Blockchain for the environment
In areas other than finance, blockchain use cases have also been on the rise.
In August 2023, Russian petrochemical company SIBUR completed the first transaction to sell greenhouse gas (GHG) emission reductions using tokens and blockchain technology. These were carbon units generated by a climate project at the Zapsibneftekhim plant.
By doing that, SIBUR became the first industrial company in Russia to make a transaction to sell CO2 emission reductions on a blockchain platform. The transaction involving the purchase of carbon tokens, which are the digital equivalent of emission reduction units, was carried out in a public distributed registry on the Green Digital Platform. The emission reduction units were purchased by Qiwi Group with the aim of fully offsetting its carbon footprint for 2022.
Digital ruble: going according to plan
Meanwhile, the rollout of the digital ruble, Russia's long-discussed central bank digital currency (CBDC) that is expected to enter into circulation in 2025, is going according to plan, the regulator says.
CBR Governor Nabiullina was recently quoted by RBC as saying that the testing of the digital ruble is proceeding according to plan and that the Central Bank will start expanding its currently run pilot project as early as 2024, and by 2025 the regulator will move to the mass introduction of the digital ruble.
In August 2023, testing of transactions with real digital rubles began in Russia, involving 14 banks, such as Sber, VTB, Alfa Bank, Gazprombank, Promsvyazbank, Rosbank, Sovcombank, MTS Bank and Qiwi Bank, and a limited number of their customers.
Meanwhile, despite voices in favour of legalisation of crypto in Russia in a bid to fight international sanctions slapped on the country following its invasion of Ukraine in February 2022, no concrete steps have been made in that direction. Still, the use of crypto by Russian individuals has been on the rise since the invasion.