Stablecoins - The Good, The Bad, and the Terra UST
"Stablecoins, why do they exist? What purpose do they serve? Are they a necessary evil? How do they work? Let’s explore!"
Cash in the Pocket, Cash in the Cloud: Cash Holdings of Bitcoin Owners
"We estimate the effect of Bitcoin ownership on the level of cash holdings of Canadian consumers. Bitcoin ownership positively correlates with cash holdings even after accounting for selection into ownership via a control function approach. On average, Bitcoin owners hold 83 percent (in 2018) to 95 percent (in 2017) more cash than non-owners. Focusing on the quantiles of cash holdings, we find that Bitcoin ownership has a highly nonlinear effect. For example, the difference in cash holdings between Bitcoin owners and non-owners in 2017 varies from 63 percent at the 25th quantile of cash to 176 percent at the 95th quantile of cash. Our results provide some evidence to reject the hypothesis that new digital currencies or technologies, such as Bitcoin, will lead to a decline in cash holdings."
Tether Condemns False Rumors About Its Commercial Paper Holdings
Tether pushed back on rumors that the commercial paper held as USDT stablecoin reserves is 85% comprised of paper backed by (mostly shaky) Chinese or Asian firms. As of the most recent attestation report commercial paper made up about 25% of USDT's backing, and Tether is gradually switching maturing paper into short-maturity U.S. Treasury securities. Also, Tether's Celsius position has been liquidated with no losses to Tether, and Tether has currently zero exposure to Celsius apart from a small investment made out of Tether equity in the company.
Brazil's digital currency implementation pushed to 2024
Banco Central do Brasil is reportedly pushing out its CBDC pilot work from end-2022 to 2023. This is due to a workers' strike at the central bank, which impacted the original schedule.
Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel
"Design flaws in the no-arbitrage mechanism contributed to the failure of the IRON stablecoin. That said, the design flaws we uncover in this paper are not easily fixed. For instance, using the spot price as opposed to the ten-minute weighted-average price of TITAN in the creation of IRON is susceptible to manipulation of the spot price. It remains to be seen whether future generations of algorithmic stablecoins can improve these issues. For now, our results serve as useful reminder that some stablecoins are not stable at all, particularly for the users of smaller accounts who bought into the falling knife when IRON was tumbling."
Digital Currencies in Financial Networks
"We introduce a digital currency, either as a central bank digital currency (CBDC) or a financial crypto asset (stablecoin), in the network of financial accounts. Simulating a shift of deposits by both households and non-financial corporations from the banking sector to the digital currency, we model the different responses of the affected institutional sectors. We find that the introduction of a digital currency generates significant adjustments in the balance sheets of all sectors, may trigger large moves in securities prices and induces changes in the network structure. The economic impacts vary depending on the design of the digital innovation, the size of the deposit shift, the channels through which the balance sheet adjustments take place and the timing of the initiative."
Deciding on a Digital Dollar: The Necessary Steps for Canada
The Centre for International Governance Innovation (CIGI) published a conference report based on an April 2022 workshop attended by Canadian and international experts (including yours truly). The discussion focused on the international backdrop and what can be learned from global leaders in central bank digital currencies (CBDCs), to determine next steps for Canada and to assess the legal and regulatory changes required to support a Canadian CBDC.
IDEMIA secure wallet solution for offline CBDC payments
"Built to enable an ideal banknote exchange for Central Bank Digital Currency, the IDEMIA secure offline CBDC wallet makes a highly secure digital cash experience truly available to everyone and at any time. This secure wallet allows a user to make consecutive digital offline payments with immediate settlement. The CBDC wallet user can initiate offline payments using any channel: contactless, email, QR Code, and the same terminals and standards currently used for card payments. The offline CBDC payments can be received by any device (secured or not), with or without an internet connection to the ledger."
Why would anyone use a central bank digital currency?
"Central banks will struggle to rollout CBDCs that will be widely adopted. They may not provide consumers the same benefits as today’s services; privacy is unlikely to be a game-changer; and the private sector still offers scope for innovation. Without widespread adoption, a CBDC will be an expensive failure, and will do little to advance central banks’ goals. For the EU, regulation is a more sensible way to make European payments cheaper, and more diverse, competitive and innovative."
CBN to introduce USSD code to boost eNaira
The Central Bank of Nigeria reportedly plans to introduce the unstructured supplementary service data (USSD) code to its eNaira central bank digital currency (CBDC) platform to ensure people without smartphones, but with basic featurephones and access to mobile data, could still transact on it.
Stablecoins Circulating - DefiLlama
MoneyGram Launches Global Crypto-to-Cash Service on the Stellar Network
MoneyGram launched its stablecoin-powered payment channel, giving users the ability to send USD Coin (USDC) payments worldwide that can be withdrawn as cash by recipients. The service is being rolled out across several key remittance markets, including Canada, the United States, Kenya and the Philippines. Global cash-out functionality will be available by the end of June. To encourage adoption, the USDC transfer service will carry zero fees for the first 12 months. The new transfer service was built on the Stellar (XLM) blockchain and allows Stellar wallet users to send USDC to recipients around the world.
How Digital Currencies Can Help Small Businesses
"Small businesses have largely been ignored during the debate over digital currencies, even though they’re a hugely significant part of the U.S. economy and have much to gain from cheaper, more efficient payment systems. These businesses work with small margins, have less bargaining power than large companies, and suffer from cash flow problems as they wait to be paid for goods and services. Stablecoins and central bank digital currencies can help. These technologies can reduce payment processing costs, allowing small businesses to keep more of what they earn, and significantly accelerate how quickly they get paid. This could drastically improve small businesses’ liquidity and cash buffers, and help them survive negative economic shocks and thrive."
Solving CBDC's privacy problem
"If you were designing a CBDC you might want to create a cash-like experience for users. This is just one design decision, but it’s surprisingly tricky. There are two features in particular that define the user experience with cash: it’s anonymous and it’s authenticable. Creating a token that incorporates one of these features is straightforward. Creating a token with both features together, however, poses an interesting—though solvable—challenge for blockchains that use the UTXO model."
CBDC Technology Considerations
"Given the rapid pace of technological experimentation and development, and the multitude of variables at play, it can be challenging to assess the best technology choices for a new central bank digital currency (CBDC). This WEF white paper is intended to guide central banks and other decision-makers through major technology considerations for CBDC. It is divided into three parts: 1) discussion of CBDC technical design considerations given various policy goals, 2) an evaluation of the pros and cons, or trade-offs, of the use of distributed ledger technology in CBDC infrastructure, and 3) an overview of important cybersecurity risks and considerations for any CBDC."
Franklin Noll: Hybrid Banknotes Can Bridge Cash and Crypto
"Transcending the division between banknotes and digital money through a hybrid banknote will bring many advantages to central banks and cryptocurrency advocates. Such banknotes will use a universally accepted and robust payment technology, cash, to deliver the cutting-edge benefits of digital money, passing hand to hand until used to access an electronic network to transfer value."
Central Bank Digital Currencies and International Payments
"This paper – drawing on interviews with twenty-two senior payments professionals – documents the business processes employed in the execution of international payments and discusses how international payments might be improved through the adoption of central bank digital currencies (CBDC). This was a substantial exercise resulting in a lengthy research paper."
Kansas City Fed Rescinds Master Account for Payments Firm, GOP Senator Says
"The Federal Reserve Bank of Kansas City revoked the so-called master account of a payments firm that came to prominence earlier this year when Republican senators raised questions over how that account had been granted, according to a letter sent by Sen. Pat Toomey (R., Pa.). In that letter, obtained by The Wall Street Journal, Mr. Toomey asked for more details about the Kansas City Fed’s decision to terminate the account for the Colorado-based Reserve Trust. The decision to grant that account had faced scrutiny earlier this year after Mr. Toomey and other Republicans questioned Sarah Bloom Raskin, then President’s Biden nominee for a seat on the Fed’s board of governors, over her possible role in helping Reserve Trust to secure the master account when she served on its board."
Will the UK get its own digital currency?
"The UK is looking at the case for issuing digital currency alongside cash. This type of money is known as central bank digital currency or CBDC."
Digital Currencies and Energy Consumption
An IMF paper explores the main components and technological options that determine digital currency (DC) energy profiles. It finds that the energy consumption of non-proof-of-work (non-PoW) distributed ledger technology (DLT) platforms is orders of magnitude lower than that of PoW platforms. Also permissioned networks that exercise more control over who can join as a validator, are more energy efficient than unpermissioned networks. The paper concludes that DCs could be designed to use infrastructures that are less energy intensive than the current payment system.
New DFS Regulatory Guidance on the Issuance of U.S. Dollar-Backed Stablecoins
The New York State Department of Financial Services (DFS) issued new Regulatory Guidance, setting foundational criteria for USD-backed stablecoins issued by DFS-regulated entities. Such stablecoins will have to be fully backed by reserves consisting only of U.S. Treasury securities and deposits at U.S. federal or state chartered banks, held in segregated accounts and marked to market daily. Also, redemption at par must be guaranteed for all stablecoin holders.
Minutes of the Bank of England CBDC Engagement Forum
The objective of this third meeting of the Bank of England CBDC Engagement Forum was to discuss opportunities CBDC could potentially present for retail payments, were one to be introduced in the UK.
How digital divide threatens eNaira’s mass adoption
According to a Ventures Africa poll only 4% of Nigerian respondents have used the eNaira, and 64% haven't even heard of it. Retail merchants and traders felt the same way. Plus only 30% of merchants and traders interviewed had heard of the eNaira, and none had used it. One of the factors contributing to this may be Nigeria’s digital divide. According to the Alliance for Affordable Internet only 12% of Nigerians have access to 4G-like Internet speeds or the capacity to use the internet on a daily basis. Although the CBN has said that Nigerians without smartphone internet access will be able to transact in eNaira using basic featurephones, apps have been the predominant form of transaction.
Moneyness: Thoughts on Tether's $10.5 billion contraction
"In addition to a difference in asset quality, I'd argue that USD Coin and Binance USD have better legal protections for users in the event of failure. Binance USD in particular operates under the New York stablecoin regulatory framework, which obliges Binance USD's issuer, Paxos, to operate as a trust. Trusts are effective mechanisms for ring-fencing customer funds from an issuer's other creditors."
Justin Sun’s Terra-like Stablecoin Now Boasts Backing in Bitcoin, Tether, Tron - Decrypt
"Created as an algorithmic stablecoin, Justin Sun’s Terra-like stablecoin USDD is now shifting gears towards a hybrid model with improved transparency. USDD is now reportedly over-collateralized with a collateral ratio of 226.1%, according to data from Tron DAO, the organization responsible for maintaining the collateral of USDD."
Uganda Seeks CBDC Lessons from Nigeria
A delegation from Bank of Uganda (BOU) went on an "experience sharing tour" of the Central Bank of Nigeria's central bank digital currency (CBDC) e-Naira project. The BoU announced its intention to explore CBDC earlier in 2022, with key questions revolving around the rationale, for example "what issues it is going to help resolve."
Oman Central Bank official confirms CBDC project
His Excellency Taher bin Salem Al Omari, CEO of the Central Bank of Oman, confirms in his speech at the New Age of Banking Conference that work is underway on the bank’s digital currency and open banking services.
RBNZ central bank digital currency seen shoring up NZ's monetary sovereignty
"The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford."
Senate Approves Central Bank Digital Currency
The Bank of Jamaica has been given the authority to issue CBDC with the Senate’s passage of the Bank of Jamaica (Amendment) Act, 2022 at Gordon House on June 3, 2022.
Technology Adoption and Leapfrogging: Racing for Mobile Payments
"Paying with a mobile phone is a cutting-edge innovation transforming the global payments landscape. Some developing countries have surprisingly overtaken advanced economies in adopting the mobile payment innovation. We construct a dynamic model with sequential payment innovations to explain this puzzle, which uncovers how advanced economies' past success in adopting card-payment technology holds them back in the mobile-payment race. Our calibrated model matches the cross-country adoption patterns of card and mobile payments and also explains why advanced and developing countries favor different mobile payment solutions. Based on the model, we conduct quantitative exercises for welfare and policy analyses."