DFC

"18 things about Tether stablecoins"

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Booming demand for stablecoins in DeFi’s yield farming landscape is breaking DAI's U.S. dollar peg. MakerDAO’s DAI, which uses Ethereum and other stablecoins as collateral to maintain the peg, is trading above its targeted peg, has been consistently trading above $1 since mid-March. The community responded by setting all rates to zero, but the demand for DAI is so extreme that even these zero rates don’t make a difference. MakerDAO’s community is debating some tweaks to its monetary policy to restore the peg, though Maker’s creator believes the only long-term solution is adding additional, varied collateral to the DAO.

US Dollar Coin (USDC) received a blockchain upgrade to support faster transactions on Algorand. Algorand brings over 1,000 transactions per second (versus Ethereum's 15) and transaction fees of 1/20th of a cent to the USDC ecosystem, and soon to be released innovations offer the potential of scaling throughput by 8-10x on Layer 1, accompanied by new secure smart contracts that complement standard tokens such as USDC.

Former HSBC executive James Emmett will take on the role of managing director of Libra Networks LLC, the operating company subsidiary of the Libra Association. He has was previously CEO of HSBC Bank PLC and Europe. Before that he was chief operating officer at the bank, where he guided technology and operations.

This Coindesk article provides a detailed timeline of the Libra project’s history, from the early signs that Mark Zuckerberg’s social network was sniffing around the blockchain industry to Libra’s recent watering-down of its once-bold plans. Bookmark this article, because Coindesk will keep updating it as the story continues to unfold.

This European Central Bank (ECB) paper summarises the outcome of an analysis of stablecoins undertaken by the ECB Crypto-Assets Task Force. At the time of writing, the stablecoin debate lacks a common taxonomy and unambiguous terminology. This paper applies a definition that distinguishes stablecoins from existing forms of currencies – regardless of the technology used – and characterises stablecoin arrangements based on the functions they fulfil. This approach emphasises the role of technology-neutral regulation in preventing arbitrage, as well as comprehensive Eurosystem oversight, irrespective of stablecoins’ regulatory status. Against this background, this paper assesses stablecoins’ implications for the euro area based on three scenarios for the uptake of stablecoins.

Peer-to-peer commerce company Origin launched Origin Dollars, or OUSD, a stablecoin whose reserves leverage decentralized finance (DeFi) so that balances grow wherever it resides, no staking or account required. OUSD will be backed one-for-one by the three big stablecoins on Ethereum: Tether’s USDT, Circle and Coinbase’s USDC and MakerDAO’s DAI. Users can mint OUSD by depositing any of those three into Origin’s new app, or they can just buy it on Uniswap. Either way, the OUSD will just start growing in their wallet, no further action needed.

This article spells out how to build a USD stablecoin legal basis by leveraging the core commercial law principles of (i) focusing on the principles of settlement finality, (ii) rules for adverse claims, (iii) discharge of the underlying obligation, and (iv) the concept of a security entitlement. It maps out how these principles are embodied under the U.S. commercial laws of investment securities (UCC Article 8) and of payments (UCC Articles 3, 4, and 4A). The goal in doing so is to show how innovators can incorporate novel, technology-driven market practices and business models into the existing financial law framework in a proven and effective way — how to leverage what is working today and does not need to be invented again. Awareness of the availability of these commercial law tools, and their limitations, can provide important help to stablecoin developers and market participants in managing their exposure, designing efficient financial innovations, and controlling the risk to the broader financial market.

In the guidance, the OCC writes that it is allowing banks to manage funds kept in a “hosted” wallet, an address that would essentially represent the relevant stablecoin’s reserves. The watchdog adds, “We are not presently addressing the authority to support stablecoin transactions involving un-hosted wallets.” “Un-hosted wallets” seem to refer to addresses individuals or businesses would control. This distinction has caused some confusion, with Coin Center’s Jerry Brito raising the question whether this points to a possible prohibition on banking firms that support un-hosted wallets.

YENTS, a stablecoin developed by the Kenya’s Young Entrepreneurs Network (YEN), has entered into testing under the local regulatory sandbox. YEN, which organizes golfing tournaments to facilitate networking opportunities for Kenyan entrepreneurs, plans on initially using the stablecoin as a means of payment for sporting events and training programs. YEN intends to launch the token in November, and hopes to use it to accept investments into a planned golf course.

The Association of International Certified Professional Accountants (AICPA) Digital Assets Working Group added 13 questions and answers to its Accounting for and Auditing of Digital Assets Practice Aid. The Aid includes vital information for professionals on how to account for and audit digital assets. It is intended for those with a fundamental knowledge of blockchain technology, is based on existing professional literature and the experience of members of the Digital Assets Working Group and is specific to U.S. GAAP (for non-governmental entities) and GAAS.

Celo.Works is a non-custodial mobile wallet, enabling feature phone users to send and receive remittances at a fraction of the cost compared to traditional methods. Celo.Works is built on the Celo blockchain. Celo.Works is accessible, enabling users to send/receive cUSD on feature phones that cost as little as $15.

The Financial Stability Board (FSB) published a report that sets out ten high-level recommendations for the regulation, supervision and oversight of “global stablecoin” (GSC) arrangements, both at the domestic and international level, that are proportionate to the risks. They support responsible innovation and provide sufficient flexibility for jurisdictions to implement domestic approaches. GSC arrangements are expected to adhere to all applicable regulatory standards and to address risks to financial stability before commencing operation, and to adapt to new regulatory requirements as necessary.