Illinois' financial regulator has jumped on the blockchain bandwagon.

Illinois’ regulator has joined forces with the blockchain consortium spearheaded by R3, as financial watchdogs worldwide grapple with the emerging technology and try to understand its opportunities and risks.

The Illinois Department of Financial and Professional Regulation will collaborate with the syndicate’s member-base of around 80 financial institutions to develop blockchain-based applications that can be used on both a large and small scale and that are secure enough to help the highly secretive financial sector.

R3 can count the Bank of Canada and Hong Kong’s Securities and Futures Commission among its memebers, but this is the first time a US regulator has joined.

Illinois, home to large Chicago-based exchanges and trading firms, is a leading global hub for derivatives trading.

Blockchain technology, a virtual distributed ledger of transactions that everyone can access, can record ownership in every corner of a public network of computers rendered tamper-proof by advanced cryptography. It is already known as the platform for the controversial digital currency bitcoin, even though it is only one of several hundred applications that use blockchain technology.

The technology is causing a stir within the financial services sector as its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing.

Financial institutions across the world are ramping up investments into blockchain in the hope that it will streamline various elements of their businesses.

However, last year, a wave of big banks including Goldman Sachs, Morgan Stanley, Santander and National Australia Bank abandoned the R3 project before its first round of funding commenced.

R3 lowered the amount it aimed to raise from $200 million to $150 million in its first round of equity funding. The start-up planned to give members a 60% stake in exchange for theit capital. Despite this, Goldman Sachs (one of the consortium’s founding members) balked at being asked to contribute alongside a plethora of other investors. A source close to the process at Goldman Sachs last November told this publication that the group became 'saturated' as new members poured in, which resulted in a lack of headway being made and the project’s prospects becoming 'unrealistic.'

Still, the R3 consortium is continuing to pique the interest of financial institutions and their regulators, particularly in countries that want to be at the forefront of financial innovation.

Earlier this week, the Monetary Authority of Singapore said that it was ready to begin testing to see whether cross-border payments could be carried out by means of blockchain-based technology after it completed a successful pilot for conducting interbank payments.

In collaboration with the R3 consortium, the city-state’s watchdog built a digital version of a Singaporean dollar for interbank settlement. During the trial, it used the technology to connect bank infrastructures to a shared ledger, which was made to gel with the country's electronic payment system, and this in turn automated the management of collateral.

Now that the concept has been 'proven,' the MAS wants to use blockchain technology to "allow cross-border payments to settle directly using central bank accounts."