The BIS says anonymous CBDCs are ‘not plausible.’ Privacy advocates say that’s nonsense.

Quick Take

  • The era of central bank digital currency is officially here.
  • The BIS and seven other central banks recently called a fully anonymous CBDC implausible.
  • But privacy advocates beg to differ.

This feature story is available to
subscribers of The Block Daily.
You can continue reading
this Daily feature on The Block.

DefiDollar scores $1.2 million in new funding to build a USD token backed by a stablecoin index

Just when you thought the DeFi world couldn’t get more meta, along comes a stablecoin made up of, well, stablecoins: DefiDollar. 

The project, which traces its origins to HackMoney, announced Wednesday that its raised $1.2 million from a group of professional trading firms and venture capitalists. The deal was led by Standard Crypto, Accomplice, and Divergence Ventures. Other investors include CMS Ventures, Ledger Prime, and Altonomy. 

The fundraise comes after a period of sustained growth in the stablecoin market, which has seen total supply of crypto dollars soar from $5 billion at the beginning of 2020 to beyond $20 billion, as per data compiled by The Block.

The project seeks to offer a stablecoin — dubbed DUSD — that’s more stable than others on the market because it is based on an index of stablecoins. Despite the breakneck growth of the market, questions still hang over the market, including those about the risk of centralized stablecoin operators blacklisting certain addresses as well as particular DeFi stablecoins being subject to subpar governance. 

“The stablecoin market has grown tremendously — both in scale of issuance and in quantity of issuers,” said Adam Goldberg of Standard Crypto. “And with that growth also comes different shapes of risk that any holder of a stablecoin is implicitly taking. With DeFi Dollar, a user can hold an index of stablecoins in a single token (DUSD) that mitigates the risk of any specific underlying stablecoin losing its peg, all while maximizing yield.”

“DUSD is an index of stabelcoins, hence it reduces the exposure you have if one holds a single stabelcoin,” said co-founder Siddharth Jain. 

For instance, Jain explained that “if a particular stablecoin loses its peg and has a bank run on its reserves you lose 100% of your value stored in that.”

He went on: 

“While by holding an index your risk is not only capped to the assets’ weight in the index, but we have some novel ways to reduce the deficit. These will be covered soon in greater detail when we unveil or stability module.”

To be sure, users are subject to the risk of the protocol itself. Jain said that Quantstamp and Peckshield have conducted audits of the project.

Stablecoins have long been a darling of crypto’s high-speed traders, given they allow traders to move in between cryptos and limit their exposure to price swings. They also use stablecoins as collateral to trade on certain exchanges. DUSD’s mechanisms aim to keep a peg that’s closer to $1. 

As indicated by CoinMetrics, stablecoins aren’t always stable and have ventured away from their $1 pegs, especially during periods of heightened volatility. Here’s how DefiDollar’s arbitrage mechanics work: “If DUSD is trading > $1, an arbitrageur will deposit $1 worth of assets to mint DUSD and sell it in the open market until the price has been driven down. Similarly, if DUSD is trading < $1, arbitrageurs will buy it from open markets to redeem it for $1 from the protocol.”

© 2020 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

JPMorgan’s stablecoin finally sees commercial light of day

JPMorgan Chase now recognizes blockchain’s profitability and has created a new business dedicated to digital currency and blockchain work.

A year-and-a-half after it was first announced, JPM Coin — JPMorgan Chase’s in-house stablecoin — is now live and in use by a major transnational tech firm for round-the-clock cross-border payments.

According to a report on Oct. 27, this real-world proof that the technology is increasing efficiency and reducing costs has bolstered the megabank’s confidence in the technology’s promise and profitability. With the expectation that further commercial clients will sign up to use the stablecoin, JPMorgan has created a dedicated business devoted to digital currency and blockchain work.

The new business unit, dubbed “Onyx,” has over 100 staffers and is being led by Umar Farooq as CEO. Takis Georgakopoulos, JPMorgan’s global head of wholesale payments, told reporters:

“We are shifting to a period of commercialization […] moving from research and development to something that can become a real business.”

On the heels of PayPal’s recent embrace of crypto, incumbents’ confidence that blockchain can actually make them money appears to be on the rise. JPMorgan’s experimentation and development with the technology thus far can be broken up into several key areas.

First, the megabank has been piloting a blockchain-based Interbank Information Network since 2017, involving over 400 participant banks and corporations. JPMorgan believes that the network, now being rebranded as Liink, can bring significant efficiency savings for the complex interactions of corresponding banks in cross-border wholesale payments. JPMorgan itself accounts for cross-border wholesale payment flows of over $6 trillion per day, across over 100 different countries.

The bank has also identified blockchain’s usefulness to innovate the existing, outdated system for processing “hundreds and millions” of paper checks. Blockchain and digitization can, securely, banish the physical aspects of this exchange altogether. Georgakopoulos said that a new blockchain system is months from commercial launch:

“Using a version of blockchain with the participants being the main issuers of checks and the main operators of lockboxes, it’s possible we can save 75% of the total cost for the industry today, and make checks available in a matter of minutes as opposed to days.”

Lastly, JPMorgan has confidence in blockchain for the creation of new payment rails for global central banks and their evolving central bank digital currencies. Pointing to China and Singapore, Georgakopoulos expressed his confidence that the probability of CBDC adoption is “very high.” 

The new CEO of Onyx gave his insights as to why developments have appeared “slow,” or at least equivocal, on the blockchain front at JPMorgan until now:

“If you think about blockchain, we are either somewhere in the trough of disillusionment or just beyond that on the hype curve. That’s why at JPMorgan we’ve been relatively quiet about it until we were ready to scale it and commercialize it.”

Philippines’ central bank isn’t ready to pull the trigger on a CBDC

The central bank wants to learn from private-sector digital currencies — but still believes they are inferior to central bank money.

Philippine central bank governor Benjamin Diokno has announced that the institution’s “exploratory” study of central bank digital currency study suggests that much more work is needed to make a digital peso a reality.

During the summer, Bangko Sentral ng Pilipinas had confirmed it was investigating the feasibility and potential policy implications of issuing its own CBDC, or digital counterpart to the physical peso.

In a press briefing, Diokno reportedly rejected the possibility that a CBDC could be issued any time in the near future. The study so far has suggested that ongoing research is needed to look into capacity-building and the creating of networks between other central banks and financial institutions. 

So far, the bank’s study has covered basic issues surrounding CBDCs, focusing on implications for monetary policy, legal frameworks, payments and settlement systems, financial inclusion, and regulatory oversight.

The governor has said that CBDC research at the BSP could benefit from a study of the business models of private-sector digital currencies in the Philippines, as well as the use of industry sandboxes. The central bank plans to look into how to improve the country’s existing payment system and to draw upon other central banks’ CBDC research worldwide.

CBDC research in the Philippines has emerged against the backdrop of the central bank’s Digital Payments Transformation Roadmap, which aims to switch over 50% of retail payments into digital form by 2023, and to ensure that 70% of citizens have a bank account by the end of the period.

Ongoing CBDC research could require technical input from the International Monetary Fund and Bank of International Settlements, in the BSP’s view. 

The central bank remains committed to the view that CBDCs are superior to private digital currencies, and has indicated that its digital innovations will continue to evolve within the existing structure of fiat currencies. 

USDC Is Growing Faster Than Tether Amid Stablecoin Boom

USDC, The US dollar-pegged stablecoin run by crypto exchange Coinbase and payments platform Circle, today announced Solana as its fourth “official” blockchain, after Ethereum, Algorand and Stellar

Upon the announcement, the market cap of USDC jumped up by $53 million to $2.791 billion, according to metrics site CoinMarketCap. The coin, which is now the 13th largest by market cap, traded $566 million in the past 24 hours. What’s more, at this pace, its growth now exceeds that of its chief competitor Tether (USDT), even if Tether’s overall market cap is still far larger.

USDC Coinmarketcap
USDC’s market cap: Coinmarketcap

USDC has boomed this year. In January, the market cap for the coin was $473 million. Its market cap—a proxy for how much US dollars people have invested in the coin—started rising amid the mid-March coronavirus market crash. It hit $700 million by April. This is likely because people wanted to move their crypto-holdings to more stable assets, such as the US dollar.

Things really took off for the coin during this summer’s decentralized finance (DeFi) craze, when investors poured billions into non-custodial exchanges and lending protocols. Starting around the end of June, lots of these protocols offered customers the chance to make massive returns from staking USDC in their smart contracts.

And stake they did: On June 19, the market cap for USDC was $732 million. It peaked at $2.8 billion—about a 4x increase—last Sunday.

USDC’s main competitor is Tether, also known as USDT. That coin’s market cap has more than doubled since May, from $7 billion to $15 billion today, according to data from CoinGecko. That means USDC is growing faster than Tether, but that USDT is still dominates the market.

Tether's market cap
Tether’s market cap. Image: CoinGecko

As “official chains” of USDC, the blockchains support the USDC coin and offer businesses various USDC-based APIs. USDC launched on Ethereum, pushed its Algorand integration live earlier this year, its Solana launch today, and it will support Stellar at the start of next year. Is this enough to put USDC in pole position? 

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

Ethereum ‘Killer’ Solana Adds USDC Stablecoin in DeFi Push

The Centre Consortium, which was founded by payments platform Circle and cryptocurrency exchange Coinbase, announced today that it’s making Solana an official blockchain for its USDC stablecoin.

That means that USDC—already integrated with Ethereum and Algorand (and about to be integrated with Stellar)—is coming to Solana, a blockchain interested in attracting decentralized finance users looking for a network with higher speeds and lower costs than the second-largest crypto network by market cap, Ethereum. It’s one of the reasons that Solana, among many other blockchain networks, has earned the moniker of potential Ethereum “killer.”

To make the most of the USDC-Solana integration, Circle is partnering with crypto trading firm Alameda Research, crypto derivatives exchange FTX, and Solana-based decentralized exchange Project Serum to help put the USDC-SPL token in traders’ hands at the jump.

“It’s the fastest, cheapest stablecoin in the world, and will help bring that power to Serum,” said FTX founder and CEO Sam Bankman-Fried, referring to USDC. “Both FTX and FTX US will be supporting USDC-SPL through exchange deposits and withdrawals and their OTC desks, with Alameda committing to provide deep liquidity in it.” 

Solana is a blockchain network that touts its inherent scalability, claiming to be able to handle up to 50,000 transactions per second compared to Ethereum’s 15 or so. Last summer, Solana raised $20 million in a funding round led by Austin-based Multicoin Capital. In April, the blockchain began adding stablecoins to its network, including the largest stablecoin by market cap Tether, and has made several moves since to better position itself to take on Ethereum in the DeFi sector.

Circle Chairman and CEO Jeremy Allaire thinks the Solana blockchain is a good fit with USDC, referring to it as a decentralized solution with “throughput that rivals most centralized financial market infrastructure.” 

Solana co-founder Anatoly Yakovenko concurred, seeing the integration as a way to further reach into the decentralized finance sector, which allows crypto users to access loans and earn interest on holdings.

And while it first started making stablecoins available earlier this year, Solana clearly had its sights on USDC. Centre introduced USDC, a stablecoin pegged to the US dollar, in 2018. It’s now the second-largest stablecoin in reported market cap, at $2.7 billion, behind only Tether. That represents over 500% growth in the last year—moving in tandem with what is now a $10+ billion market for decentralized finance products.

Solana Builds Bridge to Take DeFi Pressure off Ethereum

“USDC is the lifeblood of the DeFi ecosystem and we couldn’t be more excited to welcome USDC to the Solana community,” said Yakovenko. “We’ve seen a flurry of inbound interest from teams looking to build DeFi products on Solana recently, and a trusted stablecoin like USDC is a critical building block for many of them.”

In addition to the obvious—people can easily use the USDC stablecoin on the Solana blockchain—the partnership will bring other benefits in the form of APIs so that other products—wallets, exchanges, and custodians, for example—can “support nearly instant cross-chain swaps of USDC.” 

It’s not the first DeFi play for Solana, which recently launched Wormhole, a bridge to Ethereum that allows projects to jump onto Solana if/when Ethereum becomes too congested or costly. 

It’s holding a hackathon for Wormhole development on October 28, with $250,000 in winnings at stake. The judges and speakers include not only Yakovenko and Fried, but also Aave founder Stani Kulechov, Compound founder Robert Leshner, and Multicoin Capital co-founder Kyle Samani.

Pomp says US digital dollar needs to happen now

The U.S. doesn’t mind coming a bit late to the CBDC party, but is that the wrong approach?

Recent comments from Jerome Powell, the chairman of the U.S. Federal Reserve, show the American government is not especially concerned with speed when it comes to developing a central bank digital currency, or CBDC. In contrast, Morgan Creek Digital co-founder Anthony Pompliano argues that time is of the essence.  

“They’re talking about like, maybe we’ll build one in the next couple of years,” Pompliano said of Powell’s recent comments on CBDCs. “This is not a next couple of years thing,” Pomp said on an Oct. 19 episode of his YouTube show, Lunch Money.

“This is a right now thing, and if they don’t act, the U.S. is going to fall really far behind China, because it all comes down to accessibility.”

Powell expressed the importance of accuracy over speed when it comes to issuing a CBDC during a discussion about cross-border payments on Oct. 19. “We have not made a decision to issue a CBDC, and we think there’s a great deal of work yet to be done,” Powell said, placing greater focus on building a CBDC correctly than winning the digital currency race. 

Meanwhile, China continues moving forward with its CBDC pursuits, and has already begun testing its digital yuan.

Pomliano explained the importance of accessibility. “If I’m sitting somewhere in the world, and I can use an internet connection, and I want a global currency, can I get yuan, or can I get the dollar,” he noted. Based on Pompliano’s comment, people may gravitate toward the easiest solution, which could be China’s CBDC if it becomes the dominate digital option before the U.S. enters the game. 

Pompliano joined CNBC for an interview in September 2019 during which he expressed the importance of a digital U.S. dollar. After a year of CBDC interest from numerous countries around the globe, Pompliano’s comments still remain relevant. 

R3’s public Corda Network gets its first token ‘XDC’ for DeFi and CBDC projects

Cordite Society, a co-operative society registered in the U.K., has launched “XDC” — the first token built on R3’s public Corda Network.

XDC is designed to meet requirements of decentralized finance (DeFi) projects, as well as stablecoins and central bank digital currencies (CBDCs), Cordite Society said in a release shared with The Block on Tuesday.

XDC is an “Exchange Token as defined by the UK’s FCA guidance as a ‘means of exchange… a decentralized tool for buying and selling goods and services without traditional intermediaries,” according to its whitepaper. Cordite Society said XDC meets the G20-sanctioned Financial Action Task Force (FATF) standards on digital assets to mitigate anti-money laundering (AML) risks — a challenge that Ethereum-based DeFi projects continue to be unable to address.

“As financial institutions look to build digital security platforms for digital security issuance, trading, settlement, custody within the Corda ecosystem, they can leverage the Cordite codebase to create their own digital assets in an institutional-grade, enterprise-ready and regulatory friendly framework,” a spokesperson for Cordite Society told The Block.

As for DeFi, they can build decentralized exchanges similar to Uniswap, said Cordite Society. “Projects can not only comply with AML/CTF standards but ensure transactions are kept private between parties which is a requirement in most commercial and financial settings,” said the co-operative society.

BCB Prime Services, Europe’s crypto payment services provider that works with Coinbase, Galaxy and Kraken, will provide over-the-counter liquidity and custody services for XDC.

© 2020 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Japanese messaging giant Line developing CBDC platform

The platform would aid central banks in Asia with developing a central bank digital currency.

Line, a Tokyo-based subsidiary of the South Korean internet search engine company Naver, is building a platform for developing central bank digital currencies, South Korean news agency the Chosun Ilbo reported on Oct. 19.

Sources familiar with the matter reportedly told Chosun Ilbo that Line aims to support the development of a so-called “customized CBDC.”

The messaging company is discussing the application of its blockchain-based CBDC platform with several central banks in major Asian countries, according to the report. Line executives said that they cannot disclose the exact countries that are considering the platform’s application.

A Line spokesperson told Cointelegraph that the firm aims to “provide a blockchain platform that is fit for CBDCs based on Line Blockchain.”

Line has been actively exploring the crypto and blockchain industry. In August 2020, it launched a blockchain development platform for decentralized applications and services and a digital asset wallet named Bitmax. Earlier this year, Line’s crypto subsidiary LVC Corporation launched trading of its proprietary cryptocurrency Link (LN) in Japan.

A number of Asian countries are making plans for their own CBDCs. On Oct. 9, the central bank of Japan officially announced that it will start a CBDC proof-of-concept in 2021. On Oct. 7, the South Korean central bank reportedly claimed that it will begin the distribution phase of its CBDC pilot scheme next year.

Leaders of global CBDC projects talk shop in panel today

Central bank digital currency interest continues gaining global traction.

As part of DC Fintech Week, a digital conference on the governmental side of the financial technology sector, several international leaders gathered for an Oct. 19 panel called: Central Banks, CBDCs and Cryptoeconomics. 

“I don’t see technological barriers in this area, but I do see technological challenges,” Cecilia Skingsley, First Deputy Governor of Riksbank, the central bank of Sweden, said on the panel.

“The challenge is not so much technology in itself, but it’s more about — we have to choose what sort of policy objectives do we want to focus on, what is the problem we want to solve,” she explained. “Depending on what that is, and the purposes we want to serve, then you choose the technology after that.”

The panel saw discussion between four separate authorities on various aspects of CBDCs, including the global race toward toward such a currency, as well barriers. In addition to Skingsley, the panel hosted BIS executive committee member Benoit Coeure, Bank of England deputy governor Jon Cunliffe, and former U.S. CFTC chairman J. Christopher Giancarlo. 

As far as the Bank of England is concerned, Cunliffe explained cash as a cumbersome part of the economy. “Physical cash is no longer convenient,” he said. “It’s becoming increasingly inconvenient for people to use in their everyday lives, and the COIVD crisis has accelerated that,” he added. “On the other hand, it’s becoming increasingly less acceptable to merchants for some of the same reasons, even merchants that are able to take physical cash.”

Giancarlo specifically pointed out the competitive atmosphere around launching a CBDC, noting that winning the race is not the most important point — sentiment U.S. Federal Reserve chairman Jerome Powell also recently expressed

“If there’s a winner, I don’t think the winner is necessarily who’s first and the loser is necessarily who’s last,” Giancarlo said during the panel. “What matters is, which central bank successfully incorporates its societal values in a successful development of CBDC,” he explained. “On the other hand, one can’t be too late to the game here,” he added. 

Mentioning a report from the BIS from January 2020, Coeure reminded the audience that a large number of the world’s central banks consider CBDCs a worthwhile research effort. China has notably charged forward with its CBDC development in 2020. 

Better to get it right than to be first with CBDC, says US Fed chair

The U.S. already has a “safe and active dynamic domestic payment system,” Powell argued.

The United States will not be issuing a digital dollar until the Federal Reserve resolves all questions around a potential central bank digital currency, or CBDC, according to the Fed’s chairman, Jerome Powell.

Powell claimed that he is not worried about other countries having a first-mover advantage when it comes to issuing CBDCs.

Speaking at a Monday panel on cross-border payments hosted by the International Monetary Fund, Powell said:

“We have not made a decision to issue a CBDC, and we think there’s a great deal of work yet to be done. […] In fact, I actually do think that CBDC is one of those issues where it’s more important for the United States to get it right than it is to be first.”

Powell elaborated that “getting it right” means that the U.S. is not only looking at the potential benefits of a CBDC but also the potential risks — particularly given the fact that the U.S. dollar is the world’s reserve currency.

The official noted that countries around the globe will have their own motivations for issuing a CBDC. He contended that the main focus for the U.S. would be determining “whether and how a CBDC could improve an already safe and active dynamic domestic payment system.” Powell continued:

“Unlike some jurisdictions, here in the United States we continue to see strong demand for cash. Moreover, we have robust and mature financial and banking sectors, and we have a highly banked population, so that many, although not all, already have access to the electronic payment system.”

The Fed chair emphasized that the bank will not make a decision on issuing the digital dollar until it resolves CBDC-associated risks involving cyber attacks, financial stability, privacy and security. He stated:

“In addition to assessing the benefits, there are also some quite difficult policy and operational questions. […] Just to mention a few, I would mention the need to protect a CBDC from cyber attacks and fraud; the question of how a CBDC would affect monetary policy and financial stability; and also, how could CBDC prevent illicit activity while also preserving user privacy and security.”

Powell’s remarks come amid a number of global jurisdictions actively exploring and piloting CBDCs. Countries such as Russia and Japan are among the latest countries to jump on the CBDC bandwagon, while jurisdictions such as China and Sweden began testing their forthcoming digital currencies in 2020.

Despite the technology’s growing popularity across the globe, citizens in the U.S. are also skeptical about the idea of the digital dollar. According to a recent survey, more than 50% of Americans are opposed to the U.S. Fed issuing such an asset. In late September, the Federal Reserve Bank of Cleveland revealed details of the Fed’s ongoing research into a potential digital dollar.

Chasing the hottest trends in crypto, the EU works to rein in stablecoins and DeFi

The proposed EU crypto market regulation will raise many compliance obstacles for the next Libra-like project seeking to operate in Europe.

In cryptoland, the fall tends to be regulators’ open season. As unprecedented as it’s been, 2020 is no exception to this trend. Tensions are high on both sides of the Atlantic: As markets were still processing the news of the United States Commodity Futures Trading Commission cracking down on derivatives exchange platform BitMEX, the Financial Conduct Authority, the British financial watchdog, moved to ban retail investors from using cryptocurrency derivatives altogether.

The densely packed news cycle has somewhat muffled the impact of another regulatory bomb that dropped a week earlier and is bound to have major lasting effects on the global financial system: The European Union’s proposed legislation for crypto-asset markets.

The far-reaching framework, designed to bestow regulatory clarity upon digital finance businesses serving residents of the European Economic Area, is bound to be especially consequential for two interconnected domains of the crypto industry that have dominated the narrative throughout much of 2020: stablecoins and decentralized finance applications. What gives?

Stablecoins as a threat to stability

At the moment, the draft, known as the “Regulation on Markets in Crypto-assets,” or MiCA, exists in the form of a proposal put forth by the European Commission, the EU’s executive branch. It is still bound to go through a rather lengthy legislative process before it becomes law, meaning that it might take months and even years before the new rules kick in.

The text makes it apparent that stablecoins, which are also called “asset-referenced tokens” and “e-money tokens” in the document, have been squarely at the top of European lawmakers’ minds: MiCA singles out this asset class and affords it a bespoke regulatory framework.

Under the proposed law, stablecoin issuers will have to be incorporated as a legal entity in one of the EU member states. Other requirements include provisions related to capital, investor rights, custody of assets, information disclosure and governance arrangements.

Albert Isola, the minister for digital and financial services of Gibraltar, explained to Cointelegraph that the reason for the European Commission’s heightened attention to stablecoins is the authority’s concern for the Eurozone’s financial stability:

Stablecoins are widely considered to potentially bring significant benefits as a digital method of payment, providing for greater financial inclusion and a more efficient method of transferring funds. They are also viewed as a potential risk to financial stability and integrity and could dilute the effectiveness of monetary policy. It would appear logical that the European Union may not welcome an entity other than the European Central Bank issuing Euro in an electronic format.

Isola mentioned that “disruptors,” such as the prospective stablecoin Libra, have the potential to significantly decentralize the control of currencies.

Seamus Donoghue, vice president for sales and business development at digital finance infrastructure provider Metaco, cited the impressive growth of the stablecoin market in recent months as a prerequisite for regulatory attention, which he called a “positive response”:

The USDC stablecoin’s market cap alone has grown 250% in 2020 from $520 million to $1.86 billion, with a significant acceleration in growth over the last two months. Bank regulators have no doubt also observed that although the asset class in the context of the traditional payments space remains relatively small, it has the potential to have a huge impact on regulated banks and payments incumbents.

The specter of Libra

Illustrating the depth of the top EU officials’ concern over preserving the union’s monetary sovereignty is the fact that, earlier in September, “finance ministers of Germany, France, Italy, Spain and the Netherlands issued a joint statement outlining that stablecoin operations in the European Union should be halted until legal, regulatory and oversight challenges had been addressed,” said Konstantin Richter, CEO and founder of the blockchain infrastructure company Blockdaemon.

Richter added that some of the more visible figures in European financial policy, such as the German minister of finance, Olaf Scholz, have advocated for the introduction of the regulatory framework.

Most experts who talked to Cointelegraph mentioned Facebook-backed stablecoin Libra as the point of departure in the EC’s thinking about the dangers and opportunities that asset-referenced tokens present.

MiCA opens with an explanatory memo that discusses how the crypto asset market is still too “modest in size” to pose a serious threat to financial stability; however, things can change, the framers admit, with the advent of “global stablecoins, which seek wider adoption by incorporating features aimed at stabilizing their value and by exploiting the network effects derived from the firms promoting these assets.” There has been a single stablecoin project to this date falling into the scope of this description: Libra.

Mattia Rattaggi, board chairman at FICAS AG — a Swiss-based crypto investment management firm — opined that stablecoins are the application of blockchain technology with the highest probability of big impact — something regulators are well aware of:

Stablecoins have grasped the attention of regulators over 12 months ago with the presentation of project Libra by Facebook and have since been closely monitored by the public and regulators around the world. Regulators are realizing that stablecoins are bound to increase efficiency in the payment system — particularly the international one — and promote financial inclusion.

Further hedging against the potential disruption of the Eurozone’s monetary stability, the MiCA proposal specifies even stricter compliance requirements for issuers of asset-referenced tokens deemed “significant.” The significance criteria include the size of the customer base, market cap, volume of transactions, and even “significance of the issuers’ cross-border activities and the interconnectedness with the financial system.”

Bad news for DeFi?

Stablecoins largely power another sprawling domain of crypto financial activity: a diverse array of applications and protocols that exist under the umbrella of decentralized finance. Given the stringency of the proposed requirements around asset-referenced tokens, it is plain to see how complicated things can get if, say, the bulk of liquidity locked in a certain decentralized protocol is denominated in a stablecoin that is not compliant by the MiCA standards.

Another major source of uncertainty is the requirement for all crypto-asset service providers, or CASPs, seeking authorization to operate in the EU to be legal entities with an office in one of the member states. Whether the European authorities will treat individual DeFi apps as CASPs remains an open (and central) question, but if this is the case, developer teams maintaining DeFi protocols might be forced to come up with workarounds that will stretch the notion of “decentralized” incredibly thin.

In their response to the proposed regulation, members of the International Association for Trusted Blockchain Applications expressed their concern that MiCA could effectively bar European residents from participating in DeFi markets.

Martin Worner, the chief operating officer and vice president of blockchain tooling provider Confio, believes that compliance issues could be resolved by implementing on-chain governance mechanisms tailored to specific jurisdictions’ regulatory frameworks:

[This could be] achieved within a self-sovereign framework where the institutions can develop compliant DeFi instruments, which work within their jurisdictions. Just as there are rules about businesses in different jurisdictions and how they do cross-border transfers, the same would apply on the blockchain.

Elsa Madrolle, international general manager at blockchain security company CoolBitX, told Cointelegraph that by the time MiCA becomes law, the DeFi landscape will have likely changed, much as the ICO landscape changed rapidly after the initial boom. By that time, “it will be quite clear what is required of DeFi projects to operate in the EU or seek out EU customers.”

Madrolle thinks that at that point, DeFi projects will fall into one of two categories — regulated and unregulated — and the big question will be whether the rest of the world will align itself with the European framework.

Nathan Catania, a partner at XReg Consulting — a regulatory and policy firm that has recently published a breakdown of the proposed regulatory framework — is hopeful that it is possible for regulators to reconcile MiCA requirements with not regulating DeFi out of existence. Catania said:

I believe that a project which is sufficiently decentralized and does not provide the service on a professional basis to a third party cannot be considered a CASP and there is still room for DeFi projects to exist.

Today, many DeFi protocols are far from being fully decentralized. The battles over how much decentralization is good enough are still ideological and are primarily fought inside the crypto bubble. It looks like the day when regulators join this debate will come, but with some very tangible implications for crypto businesses.

Former PwC partner to launch New Zealand ‘Power Dollar’ stablecoin

Power Finance, led by former PwC partner, plans to launch a New Zealand digital dollar stablecoin early next year.

New Zealand-based financial services company Power Finance plans to launch what it’s calling a “world-first” digital version of the New Zealand dollar. Set to launch early next year, the digital currency will employ Distributed Ledger Technology.

The ‘Power Dollar’ is not government backed however and is more akin to a stablecoin like Tether than a true digital dollar. It is being set up privately and will be backed one-for-one by New Zealand dollars held by Inland Revenue (IR) through its tax pooling system.

The company is led by former PwC banking and capital markets partner Dave Corbett and is backed by British investment firm Centrality Ventures, among others.

By using DLT in conjunction with smart identity technology, all currency holders will have their identities verified and transactions recorded, helping to prevent money laundering and fraud. Corbett said that the new currency has been developed to function within current regulations, and added:

“I see the Reserve Bank every couple of weeks. It’s fair to say they’ve been supportive of what we are doing, but we’ve been stretching their mind about the future of banking looks like,”

In response to Corbett stating that the digital dollar is ‘soverign-backed’, both the Reserve Bank (RBNZ) and IR stressed they are not in partnership with the firm. Inland Revenue spokeswoman said IR is not responsible for regulating financial companies, adding:

“Inland Revenue is not in partnership with Power Finance on this and neither have we endorsed that is it ‘sovereign-backed’.”

After launching the currency, the company will work to secure a banking license from the RBNZ, and if successful, start signing up “partners” to launch banking-style services that function outside of the traditional banking system, Corbett said.

“Our plan is to attach that [banking] license to the platform, which means that our partners will technically be able to operate as banks,” he said, adding the currency could be an important precedent for the RBNZ:

“This is a really great way to have a large scale experiment in New Zealand and it might be the thing that encourages the RBNZ to go ahead and do its own digital currency.”

Central banks around the world have been looking closely at digital currencies and the RBNZ has its own program underway looking at the future of the cash system in this country.

New Zealand has been positive towards the use of blockchain and cryptocurrencies going all the way back to 2014 when RBNZ described Bitcoin as a real competitor to cash. More recently, the small nation became one of the first countries to legalize Bitcoin as a form of income in July 2019. In February this year, the country’s tax authority proposed to free crypto from some taxes to promote growth.

Law Decoded: The rivalry between central banks and global stablecoins, Oct. 9–16

Talk of CBDCs and Facebook’s Libra headlined this week’s policy news, as international organizations weigh in on both.

Editor’s note

Blockchain technology has attracted regulatory attention since its inception. The security of the Bitcoin network despite the value of BTC in play has consistently proved the resilience of blockchain technology in maintaining records across a vast range of parties.

However, many countries have determined that Bitcoin doesn’t behave as a currency at all, or at least not a replacement for their own. The nations behind the world’s most-used fiat currencies have in many cases pointed to Bitcoin’s volatility as a critical flaw. They have decided that the rise of stablecoins, especially over the past two years, poses a more clear and present danger.

New stablecoins, pegged to fiat or gold or baskets of currencies, can move value faster and more efficiently than existing monetary systems. Facebook’s announcement of Libra last year was a watershed moment. Monetary authorities quickly saw that Facebook’s user base is far larger than the population of any country. Practically overnight, Libra would conceivably be able to challenge every monterey authority on earth.

Some central banks had already begun work on their own digital currencies, but over the next year the U.S., EU, China, Japan and Great Britain — which issue the five leading currencies in the world — would all have active research into the subject of a CBDC. But while governments are trying to keep up in the race to upgrade their own currency, they remain suspicious of private entities like Facebook challenging them. While this has been going on for some time, the past week saw major flare-ups.

G7 and G20 will make Libra toe the line

The G20’s financial watchdog, the Financial Stability Board, published new guidance warning governments as to the dangers that global stablecoins pose to monetary sovereignty. The guidance comes on the heels of a drafted G7 statement that promised to block stablecoins like Libra from launching until they address all regulatory concerns.

The G7 and G20 both represent their respective number of countries, including the largest economies in the world. That wealth ensures that the countries involved have a stake in maintaining existing monetary norms. However, everyone seems to recognize that money could be so much better than it is right now.

As to concerns, the G20’s guidance rattles off a number of the classics, including anti-money laundering and terrorism financing. The overarching theme is that the key advantages of crypto are also its greatest risks: Cryptocurrencies can cross national boundaries far more freely than most money and reach way more people than existing financial systems. But these announcements are not aimed at crypto writ large. They put stablecoins in general and Libra in particular right in the crosshairs of future action.

If Facebook and the Libra Association want to continue — and they seem determined to — they have a long road ahead. Moreover, it really looks inconceivable that any Libra that boasts the global accessibility that its initial whitepaper promised has any chance whatsoever at hitting the market without being completely defanged. At least, that holds true in the most developed economies of the world.

European Central Bank dodges commitment to a digital euro

The ECB, which issues the euro, has invited the public to comment on the development of a digital euro.

In its announcement, the ECB made clear that it did not intend to replace cash. It also drew a fairly clumsy distinction between any potential digital euro and crypto assets. After pointing to crypto’s legendary volatility as a difference, the announcement turned to stablecoins, saying they they lacked the backing of a central bank. This is called moving the goalpost.

While the invitation to consultation did not many specific claims as to the mechanisms behind a digital euro, the ECB is clearly doing its best to distance its project from stigma associated with crypto. It is, therefore, revealing that the word “blockchain” does not appear in the announcement. It’s obviously under consideration, otherwise the bank would surely point to lack of a blockchain as a real, substantive distinction between crypto and its envisioned euro, but it’s also true that the word blockchain is still subject to a lot of the same stigma and skepticism that drew the ECB to draw distinctions with crypto in the first place.

Nonetheless, the ECB’s breakdown of priorities for a digitized euro is clearly fixated on deciding between privacy, speed, offline utility and security — the classic tradeoffs of crypto.

…with Russia close behind

Not to be outdone, the Central Bank of Russia released a public consultation remarkably similar to the ECB’s, both in its concerns for a digital ruble and in avoiding mention of blockchain technology.

The ruble is not the global currency that the euro is. That was the case even before a collapse in value since 2014, as sanctions and slipping oil prices took their toll on the Russian Federation’s engagement with the global economy.

That said, Russia has been trying to increase ruble usage among countries similarly isolated from the Western-led global economy. It’s no surprise then that the Central Bank of Russia’s announcement for the public consultation does not really dig into issues of money laundering. Which, honestly, could prove good for the prospective trade in a digital ruble.

Further reads

Attorneys for Baker Hostetler write on growing crypto precedent following the SEC’s courtroom victory over Kik.

Writing for Reuters, Francesco Canepa and Tom Wilson explain CBDCs as a tool to beat out crypto.

Coinbase publishes a new transparency report on its work with international governments and law enforcement over the first half of 2020.

Tether Stablecoin Used by Drug Cartel Money Smugglers, DOJ Claims

The United States Department of Justice yesterday unsealed documents about a Latin American drug-smuggling, money-laundering bust, in part facilitated by the US dollar-pegged stablecoin, Tether. 

Six were arrested, five of them born in China and living in Latin America or the US; one lived in Hong Kong. A Virginia court filed charges against Xizhi Li (aka “Z,” “AKA “Piglet”); Jianxing Chen (aka “Big Brother Heng”, aka “John”); Jiayu Chen (aka “John’s Brother in-law”); Jingyuan Li; Eric Yong Woo; and Tao Liu (aka “Antony/Jason/Lucas Liu”). 

The documents, filed on September 24, allege that the six spent the last 12 years laundering “millions” for drug cartels. They allegedly picked up money that others made from selling cocaine in parking lots and hotels—and then moved the money between bank accounts, casinos and businesses.

The men were busted when an undercover special agent from the Drug Enforcement Administration offered to buy Tao US passports at a price of $150,000 a piece. The DEA agent said he knew someone within the US government who’d do it if Tao paid $10,000 up front. (In reality, this was yet another DEA agent). 

The DEA agent agreed to split the cost with Tao to entice this (imaginary) corrupt government administrator to play ball. To make the payoff, Tao sent $1,000 worth of Tether, the US dollar-pegged stablecoin, to the second DEA agent’s account. He did this four times, according to the indictment.

Tether used by money launderers
Tether used by money launderers. Image: Department of Justice

The court wants those charged to forfeit at least $30 million. Members of the alleged crypto-money-laundering crew face charges of conspiracy to commit money laundering, bribery, attempted identity fraud, among other crimes. 

If the charges stick, each could serve at least 10 years in prison.

Stablecoin supply has surged past $20 billion, driven by derivatives market

The total outstanding supply of stablecoin has surged past $20 billion, according to data compiled by The Block Research. 

Most of that growth has been driven by the two largest stablecoins by total supply, Tether and Centre’s USDC. In total, the market has grown from $5 billion at the beginning of 2020 to around $20.2 billion today. Tether’s USDT comprises approximately 79% of the market. 

Part of the growth in stablecoin supply this year has been driven by the surge in the decentralized finance (DeFi) market. Traders can lock stablecoin into a number of non-custodial lending platforms to earn a high-yield.

The breakneck growth of the crypto derivatives market has also likely played a role in the growth of the stablecoin market, specifically that of USDT. Most derivatives venues require traders to put up collateral in the form of stablecoin. BitMEX, which has seen its market share collapse in recent months, is a notable exception that requires bitcoin collateral. Meanwhile, the market share of exchanges that accept USDT collateral have increased relative to BitMEX.

“I think collateral for derivatives is one the main drivers,” said Paolo Ardoino of Bitfinex, the sister firm of Tether. “DeFi follows with I would say around 1.5B of allocation (speaking for tether) and then we’re seeing miners getting used to sell bitcoin for tethers rather than dollars.”

Jeremy Allaire, CEO of Circle, one of the firms behind USDC, noted that stablecoins benefit in both up and down cycles. 

Said Allaire:

“First, when markets are intense and growing, more capital is injected and USDC benefits from that new capital.  Once USDC is in circulation, users and holders tend to prefer to hold it vs. returning to the fiat system, so it is relatively ‘sticky.’ Second, when markets are selling off, demand for USDC grows as people seek to exit risk assets and hold stable-value assets, again with users often holding the USDC as they intend to continue to be active market participants.”

© 2020 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

What Are Stablecoins and How Do You Use Them?

Since their inception, cryptocurrencies have been considered particularly volatile investment instruments when it comes to their price. That’s led to price jumps and crashes, preventing cryptocurrencies from being used for everyday goods and services in some cases, due to the risks for vendors and merchants. 

That’s where stablecoins come in. The theory goes, if you create a currency that is ‘pegged’ or attached to a regular fiat currency like the US dollar or something else with a relatively stable price, it will prevent price swings.

We explore these more below.

What is a stablecoin?

Stablecoins are cryptocurrencies that claim to be backed by fiat currencies—dollars, pounds, shekels, rubles, etc.

The idea is that, unlike cryptocurrencies like Bitcoin, stablecoins’ prices remain steady, in accordance with whichever fiat currency backs them.

What are some examples of stablecoins?

Centralized stablecoins

  • 💵 Tether (USDT): Tether is one of the first stablecoins and the most famous. It claims it is backed by a reserve of real dollars—”collateral”—that is “off-chain,” i.e. in a real-world location that is controlled by a centralized third party.
    With this stash safely in the vault of a bank, investors can be confident that their tethers really are worth one dollar each, keeping the price steady. The stablecoin accounts for a whopping 48% of all cryptocurrency trading volume. There’s only one problem: Tether Ltd, which mints Tether tokens, has never conclusively proven that the currency really is fully backed, fuelling doubts among investors. (More on this below)
  • 💰 Gemini Dollar (GUSD)/Paxos Dollar (PAX)/USDC: Developed by venture capitalists the Winklevoss twins, blockchain startup Paxos, and crypto exchange Coinbase (in concert with payment platform Circle) respectively, these stablecoins are currying favor with the institutional investors—all have been closely audited by Wall Street firms and are compliant with local regulatory regimes. As Tether becomes less trusted, these tokens only become more popular.
  • 🛢 Petro: The petro is a cryptocurrency developed by Venezuela. The government claims it is backed by the country’s oil reserves, among other valuable commodities, like gold. At its heart, it’s an attempt to create an alternative to the hyperinflationary Venezuelan bolivar. The coin has been airdropped to young people and doctors in the country, but there’s been criticism that it functions as a tool of mass surveillance, and that there are discrepancies between the official government price and the reality on secondary markets.  

Gold-backed stablecoins

While the vast majority of stablecoins are backed by US dollars stored in a bank vault, weakening sentiment around the USD and the fiat, in general, has led to the elaboration of stablecoins backed by other assets, including various gold-backed stablecoins. These differ considerably in their form and usability, but are all backed by investment-grade gold. 

CACHE gold (CACHE) is among the most popular of these. Each CACHE is backed by 1g of pure gold held in the vaults stored around the world. Sending CACHE tokens is the equivalent of sending 1g of gold per token since they can be easily redeemed for physical gold at any time. 

There’s also Tether Gold (XAUt) and PAX Gold (PAXG), which operate in a similar way, but are instead pegged to one troy ounce of investment-grade gold. They also have a higher minimum redemption amount than CACHE. 

Algorithmic stablecoins

Terra is a decentralized stablecoin, which means rather than relying on a trusted third party it uses a complex algorithm to keep stable. To do this, it balances “on-chain” reserves—i.e. the funds are held in smart contracts—with supply and demand automatically, mitigating the chances of traders accidentally—or intentionally—fiddling the price.

Ampleforth (AMPL) relies on a similar process. Instead of physically backing each AMPL with 1 USD, it instead uses a process known as a “rebase” to automatically adjust the circulating supply of the cryptocurrency in response to changes in supply and demand. If the price of AMPL is more than 5% above or below the USD reference price, then it will increase or decrease the circulating supply in an effort to push the price back towards $1. Since this rebase is proportional across all wallets, AMPL holders always maintain their share of the overall AMPL network.

A comprehensive list of popular stablecoins


  • Tether (USDT)
  • True USD (TUSD)
  • Gemini Dollar (GUSD)
  • USD Coin (USDC)
  • Paxos Standard (PAX)
  • Binance USD (BUSD)
  • DAI
  • HUSD
  • sUSD (SUSD)
  • mStable USD (MUSD)
  • Ampleforth (AMPL) (algorithmic)


  • Binance GBP Stable Coin (BGBP)


  • Stasis Euro (EURS)


  • BiLira (TRYB)


  • Binance KRW (BKRW)


  • CACHE Gold (CACHE)
  • Tether Gold (XAUt)
  • Paxos Gold (PAXG)


  • Petro (PTR) (oil-backed)
  • Libra (basket backed)

How are stablecoins used?


Like most digital assets, stablecoins are primarily used as a store of value and as a medium of exchange. They give traders temporary reprieve from volatility when the market is tumbling, and can also be used in the rapidly growing world of decentralized finance (DeFi) for things like yield-farming, lending, and liquidity provision.


Most traders and investors gain exposure to stablecoins buy purchasing them from exchange platforms, but it is also often possible to mint fresh stablecoins by depositing the requisite collateral with the issuing company, such as US dollars with Tether or physical gold with CACHE gold. 

Why have stablecoins become so popular?

Stablecoins are enormously popular: Tether, for instance, is the second most traded cryptocurrency after Bitcoin, with a 24-hour trading volume of $31.4 billion (at the time of writing).

There are two main reasons people choose stablecoins over cryptocurrencies like Bitcoin.

  • They’re (relatively) stable. Because they are supposedly backed by fiat currency, investors can be confident that their tokens will always sell for one dollar each. This supposedly means that the prices won’t fall: coin prices are driven by belief, so if investors believe their stablecoins are worth and backed by one dollar each, the price should reflect that.
  • They’re a safe haven for worried investors. Many exchanges—including Binance, the world’s largest—don’t let traders buy fiat currency, and only let them buy and sell cryptocurrencies. This means it’s often tricky for investors to swiftly cash out their cryptocurrencies when the going gets tough. To do so they might have to transfer across several exchanges, or even wait several days.


This is where stablecoins come in. Because they are cryptocurrencies, they live on most exchanges. Yet because they hew to the value of a single fiat currency, they act as a sort of temporary refuge for investors looking to secure their funds during a bear market. In this way, stablecoins are like blockchain-enabled versions of the dollar. That’s if they retain their value.

Disadvantages of stablecoins


Investors need proof the coins are backed by reserves. In Tether’s case, this has never been conclusively provided, sparking rumors that the currency was unbacked and was in fact minted out of thin air. 


Stablecoins aren’t necessarily stable. The Gemini Dollar has increased by a few cents several times in the last year as traders poured money into it. Ironically, many of those investors’ funds had come from Tether—which has previously sunk to as low as $0.51 on some exchanges. As such, stablecoins can be considered ‘relatively’ stable, rather than absolutely stable—particularly when compared to volatile assets like Bitcoin. 

Why Tether has printed $5 billion USDT this year

The idea of a fully-backed, audited cryptocurrency is anathema to many crypto diehards. They say it’s pointless, and that it betrays a lack of trust in regular cryptocurrencies: you may as well do away with the whole crypto project if you’re just going to use it to recreate a lesser version of the dollar.


Tether has consistently failed to provide proof of its dollar reserves. It managed to release one audit but the law firm that carried it out, Freeh, Sporkin & Sullivan LLP, swiftly downplayed its auditing credentials when scrutinized. In 2019, a Tether lawyer revealed that USDT is only 74% backed, but the firm later stated that it is in fact 100% backed.  

The future of stablecoins

With the crypto boom of 2017 behind us, investors are increasingly looking to stablecoins as a safer way to experiment with the technology. In the first half of 2020, the supply of stablecoins swelled by 94% to hit $11 billion in June. And regulators are warming up to them, too; in September 2020, the US Office of the Comptroller of the Currency (OCC) gave national banks and federal savings associations the green light to hold reserves for stablecoin issuers.

As more respected players throw in their weight—the Winklevoss twins, Circle, and Coinbase, for instance—the idea of a digital dollar, a shadow currency that takes fiat onto the blockchain without risking its value, is ever more tantalizing.

Former PwC partner to launch New Zealand ‘Power Dollar’ stablecoin

Power Finance, led by former PwC partner, plans to launch a New Zealand digital dollar stablecoin early next year.

New Zealand-based financial services company Power Finance plans to launch what it’s calling a “world-first” digital version of the New Zealand dollar. Set to launch early next year, the digital currency will employ Distributed Ledger Technology.

The ‘Power Dollar’ is not government backed however and is more akin to a stablecoin like Tether than a true digital dollar. It is being set up privately and will be backed one-for-one by New Zealand dollars held by Inland Revenue (IR) through its tax pooling system.

The company is led by former PwC banking and capital markets partner Dave Corbett and is backed by British investment firm Centrality Ventures, among others.

By using DLT in conjunction with smart identity technology, all currency holders will have their identities verified and transactions recorded, helping to prevent money laundering and fraud. Corbett said that the new currency has been developed to function within current regulations, and added:

“I see the Reserve Bank every couple of weeks. It’s fair to say they’ve been supportive of what we are doing, but we’ve been stretching their mind about the future of banking looks like,”

In response to Corbett stating that the digital dollar is ‘soverign-backed’, both the Reserve Bank (RBNZ) and IR stressed they are not in partnership with the firm. Inland Revenue spokeswoman said IR is not responsible for regulating financial companies, adding:

“Inland Revenue is not in partnership with Power Finance on this and neither have we endorsed that is it ‘sovereign-backed’.”

After launching the currency, the company will work to secure a banking license from the RBNZ, and if successful, start signing up “partners” to launch banking-style services that function outside of the traditional banking system, Corbett said.

“Our plan is to attach that [banking] license to the platform, which means that our partners will technically be able to operate as banks,” he said, adding the currency could be an important precedent for the RBNZ:

“This is a really great way to have a large scale experiment in New Zealand and it might be the thing that encourages the RBNZ to go ahead and do its own digital currency.”

Central banks around the world have been looking closely at digital currencies and the RBNZ has its own program underway looking at the future of the cash system in this country.

New Zealand has been positive towards the use of blockchain and cryptocurrencies going all the way back to 2014 when RBNZ described Bitcoin as a real competitor to cash. More recently, the small nation became one of the first countries to legalize Bitcoin as a form of income in July 2019. In February this year, the country’s tax authority proposed to free crypto from some taxes to promote growth.

Stellar blockchain will support USDC stablecoin starting next year

USDC, the stablecoin developed by Centre, will launch on the Stellar blockchain in the first quarter of 2021, according to the firm.

Today, USDC is supported by Ethereum and Algorand, the latter, in September, became the second blockchain to support the stablecoin. 

“We value the increased interoperability and wide range of developers that the Stellar network brings to the table, and look forward to seeing how adding a strong and stable USD anchor to Stellar grows its ecosystem,”  Circle CEO Jeremey Allaire said in a statement. Circle and Coinbase are the two firms behind Centre.

There are more than 2.8 billion USDC in circulation, according to The Block’s Data Dashboard, making it the second-largest stablecoin behind Tether.

© 2020 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

FSB releases recommendations to regulate ‘global stablecoins’ such as Libra

The Financial Stability Board has warned that global stablecoins could pose systemic risks to the monetary systems of nation-states.

The G20’s financial watchdog, the Financial Stability Board (FSB), has published regulatory recommendations opposing the trans-national ambitions of “global stablecoins,” such as Facebook’s Libra project.

The FSB’s report offers regulatory recommendations to G20 member states and the broader international community intended to prevent stablecoin projects from using opportunities for “regulatory arbitrage” and becoming embedded within the financial structures of national economies.

The report warns that so-called global stablecoins (GSC) could become “systemically important” across jurisdictions, undermining the capacity for governments to dictate monetary and investment policy within their borders.

“The decentralized nature of GSC arrangements could pose governance challenges; stabilization mechanisms and redemption arrangements could pose market, liquidity, and credit risks.”

The report also notes risks relating to the technology underpinning stablecoins, warning that “the infrastructure and technology used for recording transactions, and accessing, transferring and exchanging coins could pose operational and cyber-security risks.” 

Unique challenges relating to the collection and storage of data relating to GSC transactions were also identified.

The FSB emphasizes that the challenges stable tokens pose to the financial governance of nation-states are currently limited by their relatively small adoption. It urges lawmakers to establish comprehensive regulatory frameworks before GSCs gain significant traction:

“Ensuring appropriate regulation, supervision, and oversight within jurisdictions and internationally will therefore be important to prevent any potential gaps and avoid regulatory arbitrage.” 

The FSB also recommends collaboration between national supervisory authorities to identify “potential gaps in their domestic frameworks” and “reduce opportunities for cross-sectoral and cross-border regulatory arbitrage.”

However, despite warning that a lack of international cooperation will open the door to regulatory arbitrage, a survey of 51 jurisdictions found disparate oversight regimes across various nations, including more than one dozen different legal classifications for stablecoins.

Legal classifications for stablecoins across 40 jurisdictions: FSB

The FSB added it will frequently review its recommendations to keep pace with the evolving GSC sector.

Despite emphasizing the risks associated with stablecoins, the report also notes significant benefits offered by stablecoins, including efficiency savings in the provision of financial services and payments, and greater economic inclusion internationally.

Bitcoin volume unaffected by Tether’s (USDT) market dominance — Data shows

Tether’s USDT stablecoin dominates crypto market volumes but data shows its $15.7B market cap does not negatively impact Bitcoin’s volume.

Tether’s (USDT) stablecoin has been the leading base pair for cryptocurrencies for over eighteen months. 

This is a rather impressive feat given the ongoing court case with the New York Attorney General and the other frequent rumors that USDT is not sufficiently backed or subject to regulators’ reach. 

USDT has also been the dominant stablecoin in China even though the country banned cryptocurrency exchanges in 2017. This is because large exchanges like Binance, Huobi and OKEx turned to the stablecoin as their leading base pair. 

It’s also worth noting that competitors like USD Coin (USDC), TrueUSD (TUSD), and Paxos Standard (PAX) had a combined capitalization of $520 million in June 2019. During the same period, USDT had already amassed a market cap larger than $3.1 billion.

Over the past 15 months, Tether’s market cap grew to $15.7 billion, while its four largest competitors reached $4.1 billion. Regardless of all the USD backing controversies, USDT has held a nearly 80% market share of all fiat-backed stablecoins.

A nearly identical story is noted in trading volumes, where Tether dominates with a 75% lead. 

Consolidated crypto volume by base pair

Consolidated crypto volume by base pair. Source: CryptoCompare

Data from CryptoCompare shows USDT holding a nearly 73% volume market share over the past three months. Before investigating further, it should be mentioned that numbers will vary according to each data provider, as some exchanges are often excluded due to a lack of transparency.

Despite these indiscrepancies, CryptoCompare Head of Research, Constantine Tsavliris, explained that:  

“In terms of Bitcoin trading into USDT or other equivalent stablecoins such as USDC or PAX, we haven’t seen a significant shift in terms of volume.”

A stablecoin on-ramp is irrelevant to Bitcoin price

Most traders have grown accustomed to using Bitcoin (BTC) as the primary gateway to cryptocurrencies. This solution might have been the only, or at least, the most liquid for most traders in 2017 or 2018, but as the stablecoin market grew, volumes on altcoin paired to USDT soared.

A broader offering of altcoins pairs followed the higher stablecoin volumes, and as Coinbase, Huobi, and Binance launched their own stablecoins, this trend accelerated.

It would be wrong to infer that Bitcoin’s diminishing use as the main on-ramp to cryptocurrency is detrimental to its price. Those who acquire BTC as a pass-through might have increased its volume, but used the same amount to sell it later in exchange for altcoins. 

Moreover, even if one uses stablecoins as the leading on-ramp solution, eventually, part of this flow will spill to Bitcoin. Furthermore, most crypto assets are not direct competitors to BTC’s store of value and scarcity propositions.

Chainlink inflow and outflow past 24 hours

Chainlink inflow and outflow past 24 hours. Source:

For example, the chart above shows $26.6 million in outflow from Chainlink (LINK) to BTC over the past 24 hours. A similar trend occurred with the remaining altcoins, confirming that Bitcoin is not losing volume as stablecoins establish themselves as the dominant base pairs.

By analyzing the combined cryptocurrency market volume, one can determine whether stablecoins have been increasing overall market share or simply taking markets away from Bitcoin.

Crypto total market 7-day average volume, USD billion

Crypto total market 7-day average volume, USD billion. Source: TradingView

The chart above is probably astonishing even for traders who experienced the late 2017 bubble. The $36.6 billion January 2018 daily average peak might have been excessive at the time but it’s rather shy when compared to the current $100 billion level.

Regardless of whether faked volumes impact this view, we can see that, proportionally, there has been a sizable increase. This volume growth coincides with the stablecoin issuance from $3.6 billion in June 2019 to the current $18.9 billion.

Volume dominance is a key factor

Michael Saylor, the co-founder and CEO of MicroStrategy, believes that BTC’s primary use is reserve currency. Therefore it does not compete with tokens like Ethereum (ETH) and stablecoins. 

Unlike traditional Bitcoin dominance data based on market capitalization, Saylor’s analysis only includes coins based on proof-of-work mechanisms.

Even if one compares Bitcoin’s volume to a broader asset base, it matches the top 20 altcoins’ sum when analyzing transparent volume. 

30-day accumulated transparent volume, USD

30-day accumulated transparent volume, USD. Source: Nomics

Keeping the above data in mind, it is safe to say that stablecoins are not competitors to Bitcoin in market capitalization or volumes. 

Tsavliris explained that he believes this is the case because:

“For the top altcoins in the last few months, volumes aren’t necessarily moving away from BTC markets. Rather, they are offered and utilized in tandem with USDT markets. USDT markets are attractive because they generally offer superior liquidity compared to BTC markets across most exchanges.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Tether’s market cap could overtake Ethereum’s next year — Bloomberg report

Expect Bitcoin in the number one spot and Tether second by market capitalization before 2022.

A new report predicts Tether could surpass Ether’s market cap by the end of next year, paving the way to mainstream adoption of stablecoins and central bank digital currencies (CBDCs).

According to Bloomberg’s Crypto Outlook report for Q4 2020 written by Senior Commodity Strategist Mike McGlone, Tether (USDT) is likely to take the number two position by market capitalization from Ether (ETH) in 2021. The report cited the “stagnant market cap” of ETH, which currently stands at $43.2 billion but remained under $30 billion for most of 2019 and 2020, before getting a boost from DeFi in late July.

USDT’s market cap, on the other hand, has seen steady growth since 2017, with just one significant dip in October 2018. The stablecoin began 2020 with a market capitalization of $4.1 billion, “rapidly rising” to $15.7 billion in October.

Market capitalization of Tether v. Ethereum. Source: Bloomberg

“It should take something significant to stall the increasing adoption of Tether,” McGlone stated. “If current trends prevail, the market cap of Tether may surpass Ethereum next year.”

Not everyone in the crypto community will appreciate the prediction. Crypto pioneer Adam Back told his 211,500 Twitter followers on Oct. 11 that Bitcoin (BTC) is “the only benchmark that matters” as he believes the majority of investor portfolios are denominated in the cryptocurrency.

“I use stablecoins, but I don’t hold them much as that’s short Bitcoin,” said Back. “Any strategy that doesn’t involve holding Bitcoin is at high risk of underperforming Bitcoin.”

Though the report suggests the demand for Tether indicates that the arrival of central bank digital currencies (CBDCs) is simply “a matter of time,” it also predicts a bullish future for Bitcoin.

Bloomberg stated BTC will be “adding zeros” as it rises from its current price of $11,448 to $100,000 by 2025. With a fixed coin supply of 21 million, “demand vs. supply metrics remain price-positive,” it said.

“Bitcoin could continue doing what it has for most of its nascent existence, appreciating in price on the back of increasing adoption, but at a slower pace,” the report stated.

“Most demand and adoption measures indicate Bitcoin is more likely to stay on its upward path.”

The Tetherization of trading

Quick Take

  • In recent years, there has been a shift on spot exchanges from denominating trading pairs in Bitcoin to denominating in Tether
  • We are now in the midst of the same shift on the derivatives exchanges as BitMEX’s market share continues to dwindle
  • A lot of this year’s growth in Tether has been driven by the market structure changes rather than the DeFi boom

This research piece is available to
members of The Block Genesis.
You can continue reading
this Genesis research on The Block.

Stablecoins Will Bring Growth, But Beware Central Banks: Execs

Stablecoins are set to expand the reach of crypto markets, and have the potential to increase business-to-business efficiency in the coming years—if they don’t become irrelevant, that is.

That’s according to representatives from some of the largest stablecoin projects, who discussed the future role of dollar-pegged stablecoins at the 2020 LA Blockchain Summit today.

First, the bright side: Raghav Chawla, director of product management at Fidelity Labs, noted that stablecoins pegged to the value of their country’s currency offer a simplified way for crypto users and eventually large-scale businesses to transfer value without having to route through a bank or other third party.

Stablecoins booming during coronavirus

“People think in a particular currency, usually a fiat currency from the country they were born in, so they think of a store of value as that currency,” he explained. The leap from US dollar to, say, USD Coin is small, then.

Joao Reginatto, USDC product lead at Circle, reiterated that point, stating that when USDC launched in 2018, it served as an effective on-ramp for new crypto users and provided a halo of safety against crypto asset volatility. (USDC is a joint product of Coinbase and payment infrastructure provider Circle).

Greg Di Prisco, head of business development at the Maker Foundation, which administers MakerDAO, highlighted how Centre’s USDC and MakerDAO’s DAI stablecoins work together to draw new users into the cryptocurrency industry, with USDC focusing on converting fiat deposits into stablecoins and MakerDAO having users “denominate their debts in our currency.”

USDC and MakerDAO’s DAI are two of the largest stablecoins by total supply, with more than 2.5 billion and 550 million in circulation, respectively, according to blockchain data aggregator Coin Metrics. The stablecoin with the largest supply by far, Tether, has more than $12 billion in tokens in circulation.

Now, with steady use, it’s time to look beyond psychological barriers toward new use cases for businesses. 

“We work a lot in building platforms that connect to USDC for developers, where we’re seeing traction for things like settlement for commerce, B2B payments, cross border payments,” said Circle’s Reginatto. “There’s a lot of untapped potential.”

Fidelity’s Chawla agreed that stablecoins have a wide range of use cases for businesses that could even flow down to the consumer level, where Venmo or Paypal could one day use stablecoins to increase the efficiency and lower the cost of making small peer-to-peer style payments.

He also noted, however, that as central banks continue to consider and potentially release digital versions of their own national currencies, third-party stablecoins run the risk of being made irrelevant.

“In terms of central bank digital currencies, once the US government issues its own crypto for the US dollar, then these types of third-party custodian models or decentralized protocols have a future that becomes a little fuzzy,” Chawla said. 

“What’s the role of other USD-pegged stablecoins when you can use the central bank’s digital currency? At least for the next decade or more, though, I think stablecoins will play a pivotal role in progress for the crypto industry.”

China’s Central Bank Transacts $160 Million in Digital Yuan

The People’s Bank of China (PBoC) has processed over three million transactions—worth 1.1 billion yuan ($162 million) as part of its trial of the DCEP (Digital Currency, Electronic Payment), its pilot for a central bank digital currency (CBDC).

Speaking at virtual conference Sibos 2020 on Monday, the PBoC’s deputy governor Fan Yi Fei noted that, “An aggregate of 113,300 personal digital wallets and 8,859 corporate digital wallets have been opened […] up until late August.”

DCEP “red envelopes” for key workers

According to FinTech Futures’ report, the deputy governor confirmed that “internal closed pilots” have been launched in Shenzhen, Suzhou and Xiong’an. The PBoC also plans to test its digital yuan during the upcoming Winter Olympics in Beijing.

The bank has reportedly researched over 6,700 use cases for a CBDC, including areas such as bill payments, catering services, transportation, shopping and government services.

What China’s citizens really think of its digital currency

Additionally, around 5,000 medical workers in Shenzhen’s Luohu district have received “red envelopes” containing digital yuan for their contributions to fighting the coronavirus pandemic. These funds can be spent at specified merchants in the district.

The global implications of China’s DCEP

Yi Fei also reportedly noted that the “evolution of currencies” is the key element that would allow banks to improve cross-border payments. “We could achieve interoperability and address the trilemma—low costs, low risks, high efficiencies—by using digital fiat currency,” Yi Fei explained, adding that, “To protect fiat currency from these cryptoassets and safeguard monetary sovereignty, it is necessary for the central banks to digitize banknotes through new technologies.”

The PBoC regards the DCEP as an important financial infrastructure for the future, Yi Fei explained, adding that “In recent years, with the development of distributed ledger technology and cryptoassets such as Bitcoin, stablecoins have emerged and triggered a new wave of competition attempting to reap profit from substituting the fiat currency in circulation.”

As Decrypt reported, China is likely to reduce its holdings of US Treasury bonds to just under $800 billion—from the current level of more than $1 trillion—ahead of the digital yuan’s launch.

The emergence of a Chinese CBDC could have global implications. US lawmakers have already met to discuss the need for a digital dollar in light of China’s DCEP, while the country’s Office of the Director of National Intelligence has sought out researchers to explore the effects of the US dollar losing global dominance.

Bank of Canada calls central bank digital currencies risky, especially storage

Is risk in the eye of the beholder?

Canada’s central bank, the Bank of Canada, recently put out a report on the risks and benefits of a central bank digital currency. 

“An anonymous token-based central bank digital currency (CBDC) would pose particular security risks,” the Bank of Canada wrote in its Oct. 5 report. “These risks arise from how balances are aggregated and stored, how CBDC is used for transactions, and how various solutions such as e-wallets, crypto exchanges and banks compete to attract users.”

Over the past year or so, discussions have picked up and various governments have begun digitizing their currencies in the form of a CBDC. China has made a number of headlines for its digital yuan CBDC. 

The Bank of Canada’s report listed risks in multiple areas, including asset storage. In the digital asset world, tokenholders can make a huge number of wallets, spreading their funds in different allotments across those wallets. This leads to more asset storage locations than would be plausible in traditional finance.

Risks also arise from the platforms potentially providing solutions around CBDCs. In response, possible solutions include caps on wallet holdings built into the CBDC, as well as parameters for involved platforms set by the associated central bank.

“If the Bank of Canada were to issue a CBDC, it would likely be token-based,” the report said, noting the presence of secure, albeit clunky, private-key use in the equation. “To ensure that CBDC is a safe and efficient means of payment, the Bank needs to carefully consider how CBDC will be aggregated and used, and what externalities will arise from it.”

The report explained the pros and cons of personal wallets and storage versus centralized asset storage opportunities, such as exchanges, while also mentioning other risks and measures associated with a potential CBDC, as well as possible rules and guidelines around such an asset class.  

Europe also recently headlined CBDC news as the European Central Bank expressed interest in the asset type.