No, the UK Is Not Going to Make USDC and USDT Legal Tender
"Money doesn’t have to be legal tender to be used for mainstream payments. It just needs to be widely accepted. Making stablecoins legal tender may help to instill confidence in them, but far more important is regulating them so they are perceived as safe. The U.K. has a comprehensive system of regulation to ensure that electronic payments are safe. Bringing stablecoins into this system of regulation would encourage their widespread use."
India's Central Bank Digital Currency to be Introduced in Phased Manner
The Reserve Bank of India (RBI) is continuing its work on central bank digital currency (CBDC). According to its latest annual report "the design of CBDC needs to be in conformity with the stated objectives of monetary policy, financial stability and efficient operations of currency and payment systems... The RBI proposes to adopt a graded approach to introduction of CBDC, going step by step through stages of a proof of concept (PoC), pilots and the launch.
Bank of Japan CBDC Experiments: Results and Findings from PoC Phase 1
The Bank of Japan published an English version of the April 13 paper on the results and findings of the first phase of its central bank digital currency (CBDC) proof-of-concept (PoC) work.
Terra to burn leftover UST (USTC) stablecoins in community pool
There is a total of about 11.2 billion circulated supply of TerraClassicUSD (USTC), currently trading below $0.04. About 1 billion USTC remaining in Terra’s community pool will be sent to the burn module and immediately discarded from supply. Terra will then bridge 371 million cross-chain USTC from Ethereum to Terra which will then be burned by Terraform Labs. “Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST,” the proposal said. The Terra governance has voted to create a new chain, which will ditch the algorithmic stablecoin USTC (formerly UST) in the old blockchain which has been renamed Terra Classic.
Barclays Warns that "Fully Collateralized" Tether May Be Prone to Downwards Spiral
"“...Even this arbitrage might not bring the value of the stablecoin back to par, for two reasons. First, investors may begin to have doubts about the underlying collateral backing the token or, more likely, its liquidity and Tether's ability to sell it all without taking a haircut. Second is the practical cost of the arbitrage. The arbitrageur needs to buy the token at a discount in the secondary market and redeem it directly from Tether for its face value. As we note above, Tether does not make this easy or cheap, by charging redemption fees and imposing minimum fiat withdrawal amounts. Related to this, arbitrageurs may lack the balance sheet/capital to absorb all of the desired selling by liquidity seekers, as this sort of arbitrage activity requires deep pockets and a tolerance for potential mark-to-market losses, given the delay between purchase and redemption.”"
Testimony by Vice Chair Brainard on digital assets and the future of finance
In testimony before the U.S. House Financial Services Committee, Fed Vice Chair Lael Brainard said that no decision has been made about whether the Fed will issue central bank digital currency (CBDC). However, she said that it is important to undertake the necessary work to inform any such decision and to be ready to move forward should the need arise. For example, a digital dollar could help ensure financial system stability if crypto-assets and CBDCs issued by other countries become increasingly popular. https://financialservices.house.gov/events/eventsingle.aspx?EventID=409382
Tether Launches MXN₮ Tether Tokens Pegged to the Mexican Pesontugrik-tether-tokens-pegged-to-the-mexican-peso/
Tether is launching a stablecoin pegged to the Mexican Peso (MXN₮) with initial blockchain support to include Ethereum, Tron, and Polygon. MXN₮ will join three other fiat-currency pegged tokens Tether has in the market: the U.S. dollar-pegged USD₮, the Euro-pegged EUR₮, and the offshore Chinese Yuan-pegged CNH₮. This marks Tether’s entrance into Latin America that will provide a testing ground for onboarding new users in the Latin American market and will pave the way for future fiat-pegged currencies in the region to be launched.
"Community currencies are used to pay for products or services within specific groups defined by geographical boundaries or specific common interests. Financial crises, social emergence in developing countries, and increased access to digital devices have stimulated a growing number of communities worldwide to develop digital currency projects. These projects use technologies ranging from traditional plastic cards to mobile phones and blockchain technologies. Following the design science research approach, this paper analyzes digital community currencies (DCCs) by developing a taxonomy based on platform architecture, governance, transactionality and virtuality. By investigating 22 DCC platforms around the world, 4 groups were distinguished: local, proprietary, commons and cyber. The identification of these four different groups of digital community currencies allows us to better discuss the potentials and limitations of each one of them. The presented taxonomy can be useful to researchers and practitioners both to explain and to design DCC platforms. Discussing each of the emerging categories from the proposed taxonomy helps us to provide insights into DCCs, offering a new theoretical frame for investigating the particular case of digital payment platforms."
A Reference Ontology of Money and Virtual Currencies
"In recent years, there has been a growing interest, within the financial sector, in the adoption of ontology-based conceptual models to make the nature of conceptualizations explicit, as well as to safely establish the correct relations between them, thereby supporting semantic interoperability. Despite the wide number of efforts to create a unified view of the reality related to economic and financial domains, no comprehensive enough formal model has been developed to, on one hand, accurately describe the semantics regarding the world of money and currencies and, on the other hand, differentiate them from virtual currencies - of which cryptocurrencies are the most significant representative. This research aims at tackling these questions by conducting an ontological analysis of money and related concepts, grounded in the Unified Foundational Ontology, based on a literature review of the most relevant economic theories, and considering recent innovations in the financial industry."
"The digitalization of the economy and technological innovations are pushing central banks to investigate new forms of digital money. The concept and design of digital currencies have been investigated by central banks for some time. Although much progress has been made towards a convergence on definitions , the term Central Bank Digital Currency (CBDC) is still used to refer to a number of concepts. In this paper we address this issue by extending and refining our previous work, the Reference Ontology of Money and Virtual Currencies, to provide a semantic foundation for the concept of CBDC."
"Having a clear understanding of the concepts on the finance domain is fundamental to figure out the evolution of the economy before innovations in the Finance Industry. This research aims at addressing these issues by investigating the conceptual foundations of money, grounded in the Unified Foundational Ontology and based on the literature review of the most relevant economic theories."
An Ontological Exploration of CBDC Governance Design
"Financial ecosystems and their related transactions are increasingly relying on big tech payment service providers, such as ApplePay and WeChat. By offering these services, transacting in unregulated cryptocurrencies becomes easier. Consequently, big tech companies take a powerful position in the ecosystem, such dominance may be avoided by a decentralized ecosystem, in which decision making power is distributed over several actors. Emergence of several highly unregulated cryptocurrencies and increased reliance on big tech, motivates central banks to investigate alternatives, called Central Bank Digital Currency (CBDC) that can be subject to governance and rules. CBDC is specifically aimed to decrease dependency on largely uncontrolled big tech payment service providers and to limit the growth of unregulated cryptocurrencies. In this paper, we explore the key question of how to design a governance structure, we do that by applying the DECENT ontology and conceptual models to the real world use-case of CBDC."
"Our analysis shows that automated loss recovery for digital cash through an expiry date could provide substantial benefits to consumers. A potentially important aspect that we consider in the paper is privacy in payments (Garratt and Van Oordt 2021, Borgonovo 2021). While our model does not explicitly account for privacy preferences, results in our paper do suggest that a digital cash that provides more privacy may achieve a higher level of social welfare despite weaker loss recovery. Finally, some consumers may feel uncomfortable with expiring digital cash for reasons that are outside of our economic model. It might therefore be beneficial to consider providing an option to allow users to opt out from automated loss recovery at their own financial risk."
One model of Terra goes like this:
(1) Terra is a company. Not really — it’s a decentralized finance ecosystem, a blockchain, a bunch of independent developers working on diverse projects — but let’s just pretend for a minute. (In fact there is a company-ish thing called Terraform Labs which helps run Terra, and another company-ish thing called Luna Foundation Guard that keeps some of Terra’s money, but here I want to conceive of Terra as a whole as sort of a distributed company.)
(2) The Luna token, which powers the Terra blockchain and is the currency of its ecosystem, is the equity of Terra, the stock in the Terra company.
(3) The TerraUSD stablecoin (or UST), which was supposed to always be worth a dollar, and which maintained that peg by being exchangeable for $1 worth of Luna at market prices, is the debt of Terra. Like bonds of the company, or like deposits of a bank.
Platypus: A CBDC with Unlinkable Transactions and Privacy Preserving Regulation
"In this paper, we depart from blockchain-based CBDC designs and instead build on ideas from traditional e-cash schemes. We propose a new style of building digital currencies that combines the transaction processing model of e-cash with an account-based fund management model. We argue that such a style of building digital currencies is especially well-suited to CBDCs. We also design the first such digital currency system, called Platypus, that provides strong privacy, high scalability, and expressive but simple regulation, which are all critical features for a CBDC. Platypus achieves these properties by adapting techniques similar to those used in anonymous blockchain cryptocurrencies like Zcash to fit our account model and applying them to the e-cash context." https://publications.cispa.saarland/3823/1/platypus_ccs_final.pdf
"It is well-understood in the cryptocurrency community that Tether’s reserves are a polite fiction. If pushed on this, clueful members of the community, such as their co-conspirators, will (quietly) admit that Tether depends on a de facto guarantee of support from members of its consolidated group, such as Bitfinex, which can inject more equity at will. The community believes, based on prior experience, that there is appetite within the crypto community to conduct “private bailouts” to rescue their central bank if it comes under stress."
Putting the Terra stablecoin debacle into "tradfi" context
"It’s not really surprising that stablecoin issuers keep going back to essentially the same model: people have been fascinated by perpetual motion machines since time immemorial. No one, however, has ever succeeded in making one, because we live in a world of change, and perpetual motion machines only work if nothing ever changes."
Deceptive representations involving the FDIC’s name or logo or deposit insurance
"Representations about deposit insurance may be particularly relevant with respect to new financial products or services, especially those involving new technologies such as digital assets, including crypto-assets. New technologies may yield significant benefits for consumers, workers, and small businesses. Nonetheless, especially with respect to new technologies, some market participants may seek to entice consumers to use their products or services by deceptively advertising that uninsured products or services are FDIC-insured. These misrepresentations disadvantage financial institutions that truthfully market FDIC-insured accounts to consumers. Such misrepresentations also harm consumers, who may find that their assets are not insured in a time of financial distress."
Circle CEO Jeremy Allaire announced that company will now provide weekly attestations concerning stablecoin USD Coin (USDC) reserves and liquidity. According to the latest week's figures, all $52.9 billion USDC in circulation are fully backed by cash ($12.8 billion) and short-dated U.S. Treasury securities ($40.2 billion expressed in terms of fair market value) held at U.S. regulated financial institutions on behalf of USDC holders. This weekly reporting is in addition to the the monthly attestation reports which, like Tether's, are published with long lags. The last one (covering the accounts as of March 31, 2022) was published at the end of April.
The TRON DAO Reserve launched the USDD stablecoin just a few days before UST witnessed a massive decline. When Tron’s founder, Justin Sun, revealed the launch of the stablecoin, some crypto community members pointed out the similarities between USDD and UST.
The language used by Tether’s accountant in the latest quarterly attestation report suggests it’s worried about the future existence of the stablecoin. MHA Cayman used ‘going concern’ language, a form of words that implies a business is stable enough to meet its obligations for the time being, but which suggests the accountant is taking a step back in judging the business as viable. The accountant added other new language to Tether’s attestation, suggesting significant uncertainty with respect to the valuation of Tether’s assets and its exposure to possible counterparty risks.
"This paper studies how introducing a central bank digital currency (CBDC) can affect the banking system. We show that CBDC need not reduce bank lending unless frictions and synergies bind deposits and lending together. We then estimate a dynamic banking model to quantify the importance of these frictions and synergies for the impact of a CBDC on the banking system. Our counterfactual analysis shows that a CBDC can replace a significant fraction of bank deposits, especially when it pays interest. However, CBDC has a much smaller impact on bank lending because banks can replace a large fraction of any lost deposits with wholesale funding. Substitution to wholesale funding makes banks' funding costs more sensitive to changes in short-term rates, increasing their exposure to interest rate risk. We also show that a CBDC amplifies the impact of monetary policy shocks on bank lending."
The Money Museum mobile application, the MNB’s new blockchain technology-based platform launched
"On International Museum Day, the Magyar Nemzeti Bank, the central bank of Hungary, launched the Money Museum mobile application. The new application has two main functionalities: on the one hand, it provides a new channel for displaying useful content related to the Money Museum and finances in general in order to enhance the interactive museum experience; on the other hand, it is an innovative opportunity to test blockchain-based technology. Utilising this, the MNB has created a dedicated platform for NFT (Non-Fungible Token) issuance and coin registration, which can be considered as a novelty among central banks."
The Hong Kong Dollar Is the Best Stablecoin. Sorry, Terra and Luna
"Pegged to the US dollar for nearly four decades, the currency in the Asian financial center is a stablecoin, albeit of the paper variety. Most days it relies — just like UST — on arbitrage to hold its value at 7.8 to the dollar. But there are two key differences. The Hong Kong Monetary Authority runs a pure currency board. All of HKMA’s monetary base is backed 110% by US dollar assets. Second, while fixing the exchange rate, the authority deliberately lets interest rates float freely to absorb pressures on the peg. When the local currency gets sold off, there’s a capital flight from Hong Kong. But that automatically raises interest rates enough to lure buyers back."
ACLU and Partners Tell Federal Reserve: On Digital Cash, Anonymity is Not Negotiable
"On May 20, 2022, the ACLU joined a dozen civil society organizations in sending a letter to the Board of Governors of the Federal Reserve about how a US Central Bank Digital Currency (“digital cash”) could provide privacy to consumers without providing complete anonymity and facilitating illicit financial activity. This letter is in response to the Fed’s call for public comments, amid their evaluation of a potential US Central Bank Digital Currency. "
"Though rumors about BlackRock and Citadel are just that, it does seem very plausible that some large mainstream hedge fund was involved in the Terra depeg. That would be a major double-edged sword. On the one hand, it would mean crypto is regarded as a robust and trustworthy enough ecosystem that mainstream finance is willing to risk shorting it. The emergence of more such shorts would, furthermore, benefit the ecosystem long-term by providing a profit motive for asking hard questions about projects."
Stablecoins are often discussed with regard to their “stability.” It is usually questioned whether a stablecoin is sufficiently backed with money or other assets. Undoubtedly, it is a very important aspect of stablecoin value. But, does it make sense if the legal terms of a stablecoin do not give you, the stablecoin holder, the legal right to redeem that digital record on blockchain for fiat currency? This article aims to look into the legal terms of the two largest stablecoins — Tether (USDT) by Tether and USD Coin (USDC) by Centre Consortium, established by Coinbase and Circle — to answer the question: Do they owe you anything? The short answer is no.
US Considers Legislation on Mandatory Acceptance of Cash
The U.S. House Financial Services Committee passed the Payment Choice Act that, if enacted, would require applicable retail businesses to accept cash for transactions of less than $2,000 and prohibit them from charging cash-paying customers a higher price relative to customers not paying with cash. Retail businesses would retain flexibility to accept payments through any other means. Exceptions are provided in the event that a retailer temporarily has insufficient cash on hand to make change, or experiences a systems failure that temporarily prevents it from processing cash payments. Enforcement of alleged violations would be by a civil action brought by any injured person in state or federal court.
G7 Finance Ministers, Central Bank Governors Issue Statement on CBDCs
G7 Finance Ministers and Central Bank Governors have issued a statement that, among other things, highlighted the opportunities and implications of central bank digital currencies (CBDCs) and their potential role in future payment transactions. "[It encouraged] jurisdictions exploring CBDCs to examine the international dimensions of CBDCs, in particular their cross-border use. CBDCs with cross-border functionality may have the potential to spur innovation and open up new ways to meet users’ demand for more efficient international payments, but continued international cooperation will be important to understanding and minimizing any negative spillovers to the international monetary and financial system.”
New experiments pave way for international payments using CBDCs
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) published a paper outlining how the financial transaction messaging platform is preparing to interact with the cross-border use of central bank digital currencies (CBDCs). SWIFT is teaming up with Accenture to test ways to link multiple CBDC networks, as well as CBDC and traditional currency networks, as a proof of concept.
