Withering cash: Sweden seems special rather than ahead of the curve
Central bank digital currency — Bahamas Sand Dollar, Eastern Caribbean DCash
This is a nice summary of the Eastern Caribbean Central Bank (DCash) and Central Bank of the Bahamas (Sand Dollar) central bank digital currency (CBDC) pilots.
Bank of France: stablecoins could impact EU financial sovereignty ‘for decades’
Bank of France: stablecoins could impact EU financial sovereignty ‘for decades’ Banque de France Governor Villeroy de Galhau warned that Big Techs, capitalizing on their global market penetration, will build private financial infrastructures and monetary systems, competing with the public monetary sovereignty since they will position themselves as issuers and managers of a universal currency. Prospective central bank digital currency (CBDC) could then end up being issued at the ‘backend of a future Big Tech stablecoin. Individual jurisdictions could then respond to the overwhelming pressure of private payments assets by issuing their own CBDCs, both domestically and globally — but without sufficient coordination in the global financial community. The articulation of these multiple CBDCs with private sector initiatives would risk sidelining input from other central banks. He stressed that the European Central Bank (ECB) and the Eurosystem as a whole cannot allow itself to “lag behind on a CBDC. https://www.bis.org/review/r200911e.htm
USDC Stablecoin Supply Is up 250% in 2020. Here's Why
The total supply of USDC has topped $1.8 billion, rising more than 250% since the beginning of 2020, likely spurred on by the explosion in DeFi’s yield farming popularity (where liquidity providers are rewarded for staking stablecoins and other digital assets in DeFi protocols for use in loan issuance and other financial activities.) The acceleration in USDC issuance also may be powered in part by the August 27 release of USDC version 2.0, an upgrade that improved security by transitioning some administrative USDC-related tasks to on-chain processes and allowed integrated projects to pay gas fees for users when transacting with USDC. Also, it’s supported by and easily obtained on Coinbase.
Major Bank-Led Digital Cash Settlement Project Gets Delayed
Technological development work on the Fnality's "Utility Settlement Coin" initiative has progressed, but it still needs regulatory approval. It hopes to receive that approval by the first quarter of 2021. Initially spearheaded by UBS Group AG, the project has been in the works for more than five years and seeks to create a more efficient way for banks to settle financial transactions. In June 2019 banks including Barclays Plc, Banco Santander and Credit Suisse Group AG announced the creation of Fnality. The company had said it expected the project to be commercialized by 2020. The project is looking to replace some of the cumbersome processes and paperwork involved in transferring value between financial organizations by using wholesale stablecoins denominated in U.S. dollars, yen, euro, sterling and Canadian dollars, and backed by deposits at central banks (ie "synthetic" wholesale central bank digital currency).
China’s DC/EP central bank digital currency — what we know
The People’s Bank of China (PBOC) says it’s been working on a central bank digital currency (CBDC) since 2014, and they announced in July 2019 that they were moving the CBDC project to active status — to turn it into something releasable to the public. But there have been no official source hard details from the PBOC about the project. The PBOC seems reluctant to promote DC/EP. In this post David Gerard provides a nice summary of what we do and don't know.
Different Approach to MakerDAO Rate Setting
Since Black Thursday, ETH is still performing well and organic demand for leverage has only increased. However, DAI selling from leverage seekers could not offset the yield farming craze and on average DAI has traded at around $1.02. Potentially, market making activities also decreased due to lucrative opportunities from yield farming. Importantly, this all happened despite heavily increased debt ceilings, the onboarding of new collateral assets and 0% rates across the board. The issue is that all the conventional monetary tools at hand simply cannot compete with massive DAI demand from yield farmers and new price mechanics introduced by several AMMs like Curve.
Maker seemingly gives up on Dai peg as interest rates are raised above 0%
MakerDAO (MKR) set interest rates on most assets, with the notable exclusion of Ether (ETH), back above 0%. Lowering interest rates is generally seen as a way of stimulating DAI creation, which is supposed to lower its price to its intended $1 peg, but DAI is trading at $1.03, significantly above its intended price. Maker has yet to find a satisfactory mechanism to entice arbitrageurs to bring the price down to $1. Several proposals based on strong-handed market interventions are being discussed, while external observers often bring up the idea of setting negative interest rates. The Maker community appears to be unwilling to cross that line for now, however.
Mastercard Launches Central Bank Digital Currencies Testing Platform
Mastercard announced a proprietary virtual testing environment for central banks to evaluate central bank digital currency (CBDC) use cases. The platform enables the simulation of issuance, distribution and exchange of CBDCs between banks, financial service providers and consumers. Central banks, commercial banks, and tech and advisory firms are invited to partner with Mastercard to assess CBDC tech designs, validate use cases and evaluate interoperability with existing payment rails available for consumers and businesses today.
The Eastern Caribbean Central Bank DCash is coming soon!
The Eastern Caribbean Central Bank (ECCB) will soon launch its DCash digital version of the EC Dollar. The central bank digital currency (CBDC) will be rolled out initially in Antigua and Barbuda, Grenada, Saint Kitts and Nevis, and Saint Lucia. With it, for example, folks who live in Grenada will be able to send DCash to family and friends in Saint Kitts and Nevis. Those who shop in Saint Lucia but live in Antigua or Barbuda will be able to send DCash from Antigua Barbuda to pay merchants for goods and services in Saint Lucia.
Sistema de Dinero Electrónico (2014–2018) — Ecuador’s sort-of CBDC
Ecuador's Sistema de Dinero Electrónico (SDE) had a limited launch in late 2014, and a full public launch in 2015, but the system failed to take off and was shut down in March 2018. This was arguably a central bank digital currency, because it was issued by the Banco Central del Ecuador (BCE). However, the currency was the U.S. dollar, which has been the national currency since March 2000. Ecuadorians could get an account at the BCE with an identity card and a mobile phone, after which they could go to an authorized outlet and deposit cash into the account. Each dollar in SDE was backed by a dollar stored at BCE, so this was more like e-money or a central bank-backed stablecoin.
Hyperledger Capital Markets Special Interest Group
The Hyperledger Capital Markets Special Interest Group (CMSIG) represents industry professionals working together to study how Hyperledger DLTs interact with Capital Markets use cases. This covers issuance and trading of instruments to continued market-making, management of risk, program-trading, regulations, capital requirements, traceability, post trade settlement, custody including corporate actions and more. This group also explores architecture, identity and performance related considerations specific to Capital Markets and DLTs.
2019 Cash Alternative Survey Results - Bank of Canada
The Bank of Canada's latest Cash Alternative Survey (CAS) found that Canadians’ cash holdings remain stable, and crypto-asset adoption remains limited and concentrated among few demographics. It found that only 5% of Canadians own crypto-assets (5%), though 85% had heard of them. 8% of people classed as having low financial literacy said they own crypto-assets, compared to 4% among those classed as having high financial literacy. But 90% of people with high financial literacy are aware of crypto-assets, versus only 72% of those with low financial literacy.
Design choices for central bank digital currency
This article provides a summary of a recent working paper on considerations for central bank digital currency (CBDC) design. Much like the recent IMF working paper that covers similar territory, it finds that the benefits and risks of CBDC are complex, encompassing financial, legal, and technical considerations and the interplay among them. And each country will have to take into account its specific circumstances and initial conditions before deciding whether the potential benefits of introducing a CBDC outweigh the possible costs. It concludes that a two-layer infrastructure with central bank management of the digital ledger and existing financial institutions providing customer service is a likely choice, because it would maintain existing financial sector business models and avoid disintermediation of the financial system.
What will China’s central bank digital currency mean for Alipay and WeChat Pay?
China’s digital currency will have two tiers, comprising the first level distributed by the central bank to commercial banks, and a second layer used by retail customers. The first-level design of the CBDC has been “basically completed” along with the formulation of technical standards and interoperability tests. The e-yuan will next be distributed to payment service providers and other private sector institutions, the central bank said in a July report published by the International Monetary Fund (IMF). To avoid such upsets, the Peoples Bank of China (PBOC) told the IMF that it is likely to limit e-yuan to small, retail transactions by setting maximum daily and yearly limits on payments and that it will only process large amounts by appointment. The PBOC said it may apply fees for large-sum or high-frequency transactions. It will also offer no interest on accounts.
Ghana planning central bank-issued digital currency
The Bank of Ghana, continues to explore central bank digital currency. The new digital currency will reportedly be named the "e-cedi" and the Bank is in talks with key stakeholders to finalise the details of the project. In a recent keynote address, Governor Addison reportedly described the move as a “pilot project” which will initially be trialled in a sandbox environment.
RealT Market Coming to the Aave Protocol
RealT Allows investors to directly buy shares of LLC managing properties and each RealT Token holder regularly earns their share of the property revenues directly into their wallet with stablecoins. On the Aave RealT market users will be allowed to deposit their tokens into the Aave Protocol and use them as collateral to borrow stablecoins. Intrinsically RealT assets collect stablecoins on a regular basis, and this can be leveraged in these loans as “income” that can contribute to the repayment of the loans organically, creating loans that at least partially repay themselves.
Bittrex lists Turkish stablecoin BiLira
The Turkish lira-backed stablecoin BiLira is now open for trading on cryptocurrency exchange Bittrex Global. Users can now use their ERC-20 BiLira tokens to buy Bitcoin (BTC) and USDT on Bittrex Global. There are currently 20 million BiLira tokens in supply. TRYB tokens are minted at the time of deposit, and an ID verification process takes place before the issuance. Users then redeem their tokens for fiat currency and transfer them on the network using the BiLira platform.
Ethereum Network Needs 'Drastic Increases in Scalability' to Tackle the Skyrocketing Fees: Vitalik
On September 1, the average transaction fees on the Ethereum network climbed to a new peak at above $10, and gas prices went past 450 Gwei. In response, Tether, the second biggest guzzler of gas, is planning to add support for ZK-Rollups. In this technique, many transactions are bundled into a single one, after integrating with OMG Network. This will reduce the pressure on the Ethereum network, which is congested amidst growing usage. Ethereum co-founder Vitalk Buterin has also been advising using layer2 solutions like OMG Network and Loopring.
Digital Yuan May See a Hardware Wallet
CoinDesk grabbed a copy of the Terms and Services that users were required to agree to follow when signing up for the China Construction Bank (CCB) DC/EP central bank digital currency wallet, before it was pulled from the bank's website. It showed that apart from DC/EP wallets within CCB’s mobile app that was offered, separate hardware wallets for DC/EP may also be in the works. It would be offered in a four-tier system; a user could only maintain a balance of up to 10,000 ($1,500) yuan in a tier-2 DC/EP wallet. The cap for a single transaction would be less than 5,000 yuan daily and annual accumulated spendings could not exceed 10,000 yuan and 300,000 yuan, respectively. Similarly, tier-3 and tier-4 DC/EP wallets would have tighter caps on wallet balances as well as daily and annual spendings but the Terms did not indicate if there will be any limit on tier-1 wallets.
DeFi users turn to USDC stablecoin to earn high-yield interest
Members of the decentralized finance (DeFi) ecosystem are turning to USD Coin USDC in order to interact with DeFi protocols either by earning high-yield income on lending protocols like Compound and Aave. Users are also providing liquidity to liquidity pools like Uniswap and Curve, the latter of which offers stablecoin to stablecoin trading. Following the launch of Curve’s governance token, CRV, on August 14, there was a surge in USDC on-chain activity. The launch of the token has also helped Curve earn the third place in terms of value locked, following Aave and Compound, with $1.27 billion locked.
Government of Bermuda Pilots Stimulus Token in Response to COVID Crisis
The government of Bermuda has commenced a pilot of a digital stimulus token in partnership with local private payments platform Stablehouse, which is expected to provide initial feedback on the viability of digital tokens in facilitating the purchase of essential products and services. In 2019, Bermuda began developing a blockchain-based digital ID system and announced that the public could pay their taxes with USDC stablecoins. The development of the stimulus token kicked off later in the year as part of the government’s larger initiative to create a comprehensive crypto ecosystem on the island that supports the adoption of digital currencies. The pilot token is based on Blockstream’s Liquid blockchain protocol while the Greenwallet app will enable payments via a point-of-sale terminal provided by Stablehouse.
Narrow Banking with Modern Depository Institutions: Is There a Reason to Panic?
What would be the effect of imposing a 100 percent reserve requirement to depository institutions? This paper contends that reserves do not compete with loans on the asset side of banks' balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions.
MakerDAO Eyes Adding Gemini and Binance USD as Collateral
Maker (MKR) holders have voted to prioritize adding Gemini USD, Binance USD, and several other tokens as collateral assets to the Maker DAO protocol so those tokens can be used to generate DAI stablecoins. As a result, Maker "Domain Teams"—elected community members—will analyze these tokens and determine whether or not the protocol can handle them before the community takes a final vote to accept or reject them as collateral assets.
Alex Lipton: What the Fed's New Inflation Policy Means for Stablecoins
Changes in the Fed’s policy open a real possibility for building the new economy based on programmable money and regularly complaint payment rails operating entirely (or mostly) outside of the existing banking system. The broad expansion of payment mechanisms will democratize finance and make it much more inclusive and equitable. It will also force banks to become more nimble and agile to remain economically relevant.
DeFi: The Hot New Crypto Trend Of 2020
DeFi stands for “Decentralized Finance”, which aims to recreate the traditional financial system with less, well, middlemen. Many of the traditional actions in the markets such as lending, borrowing, structuring derivative products, and the buying and selling of securities, can now be done through a decentralized open-source network. The vast majority of these applications are currently created on Ethereum, but in principle, other platforms with smart contract capabilities could work too.
AMPLs and YAMs aren’t Monies; They are Gambling Technologies
It’s hard to see why Ampleforth (AMPL) or YAM could ever replace a dollar. While the price of these tokens is relatively benign, their quantity fluctuates wildly. So the total purchasing power of AMPLs (or YAMs) held in one’s wallet is quite volatile despite the purchasing power of a given AMPL (or YAM) being stable. Put plainly, these aren’t dollar substitutes. The main use case for AMPLs and YAMs is as tokens in a financial betting game. Think of them as an access point to a self-referential guessing game—that is, a Keynesian beauty contest.
ECCB preparing for CBDC pilot launch
The Eastern Caribbean Central Bank (ECCB) is inviting merchants to participate in its digital EC currency (DCash) pilot on Antigua and Barbuda, Grenada, Saint Kitts and Nevis, or Saint Lucia.
China's global yuan push makes inroads in Asia and Africa
As of the end of July, 984 financial institutions from 97 countries and regions were part of China's Cross-Border Interbank Payment System (CIPS). The system was created in 2015 to help globalize the yuan, by providing an easier way for participants to settle and clear yuan-denominated payments. Members can choose to either take part in CIPS directly, meaning they maintain their own accounts within the system, or indirectly, meaning they work through direct members. More than 70% of participants are in Asia, followed by 124 in Europe, 40 in the Americas, and 37 in Africa. The African presence is due to China's economic clout in the region, especially with its Belt and Road infrastructure-building initiative.
FACTBOX-China's onshore yuan clearing and settlement system CIPS
Backed by the People’s Bank of China (PBOC), China launched the Cross-Border Interbank Payment System (CIPS) cross-border clearing and settlement services system in 2015 to internationalise yuan use. It allows global banks to clear cross-border yuan transactions directly onshore, instead of through clearing banks in offshore yuan hubs. For now, CIPS still largely relies on SWIFT for cross-border financial messaging but it has the potential to operate independently and have its own direct communication line between financial organisations. For Chinese banks and corporates, CIPS can serve as a messaging system without the risk of exposing transaction information to the United States.