DFC

Stablecoins are, as some would like to say, the “Holy Grail” of cryptocurrencies. They promise to offer the stability of fiat currencies while maintaining the censorship-resistant features of cryptocurrencies. With the recent string of announcements¹ from stablecoin companies, we’ve decided to take a look at the growing asset class.

"Eidoo has become the latest cryptocurrency startup to seek to create a more stable token by tying it to the price of gold. The Switzerland-based startup says the ERC-20-compatible token, dubbed the ekon, will sit alongside its multicurrency wallet and decentralized exchange. But perhaps more notably, each token will be redeemable for one gram of 99.9 percent fine gold, which the startup says will be stored in its vaults and audited every 90 days."

"The New York Department of Financial Services (NYDFS) approved two “stablecoins” this week for trading. Stablecoins are cryptocurrency that are pegged to a fixed value, for example the US dollar. This could connect the dots between cash securities finance trades, blockchains and smart contracts."

The issuance of tether (USDT), the controversial cryptocurrency tied to the U.S. dollar's value, has had no meaningful impact on the price of bitcoin, an academic study has found.

"For those of you who are confused over the recent introduction of more stable coins, I don’t blame you. It seems like everyone is throwing their ideas into the hat. So, let me break them down for you to make it a little simpler."

"It is my opinion that Tether is a scam. Let's talk about why. A majority of cryptocurrency trading on exchanges is taking place in Tether. If Tether fails, it could usher in a rare buying opportunity for Bitcoin investors seeking an entry point."

"A full featured platform for the issuance, distribution, redemption and management of smart cryptocurrencies, tokens and assets."

"The Gemini Dollar (GUSD) was developed by Gemini Trust Company, LLC.  and is backed 1:1 by the United States Dollar(USD). Therefore each GUSD will always be worth one USD. We at Forra, have decided to integrate GUSD into our marketplace because it’s “the world’s first US regulated stablecoin”. The number of USD and GUSD is audited monthly by an external public accounting firm."

In this article, I am not going to repeat much about the stablecoin 101. Instead, I will primarily focus on analyzing the non-collateralized/growth-backed type stablecoins using Basis Protocol as an example

"Griffin and Shams noticed that when Bitcoin fell to certain levels, purchases using Tether would flood in to stabilize prices. After crunching the data, they concluded this fit a pattern consistent with someone, or a group of people, trying to manipulate Bitcoin prices. The two researchers made the startling claim that half the gains in Bitcoin last year can be attributed to Tether. The results of their June paper were picked up around the world, helping to send the prices of digital assets lower. J.L. van der Velde, chief executive officer of Tether Ltd., said in a statement in June that the company’s digital currency can’t be used to artificially prop up Bitcoin."

"Although reasons for the USDT price plunge are not confirmed, there have been reports of an alleged loss of market trust leading to a possible sell-off: yesterday, a Bloomberg article suggested that investors are “losing faith” because of the ongoing lack of transparency surrounding Tether’s claims to be backed one-to-one by the US dollar."

"Meanwhile, traders are increasingly opting to use other stablecoins, as new offerings from heavyweights such as Gemini, Circle, and Paxos are gradually chipping away at tether’s stranglehold on that multi-billion dollar market."

NuBits is hardly talked about these days but it was the crypto world’s first “successful” stable coin. From September 2014 until June 2016 NuBits stayed around one US dollar, give or take a cent. On June 7th it fell to $0.96, which wasn’t that far from its normal variance but was enough to erode investor confidence. June 8th it fell to $0.90 and then by June 9th it had entered free fall, hitting $0.63. by the 18th, it had hit lows of around $0.21.

"U.S.-based cryptocurrency payment processor BitPay has started accepting stablecoins, according to an announcement published Oct. 15. The company now allows its merchants to receive settlements in Gemini Dollars (GUSD) and Circle USD Coin (USDC)."

"Guys, I've been telling you that if Tether were to collapse, it could bring a Bitcoin Black Friday. Well, it looks like this is happening right now, so I want to explain what's happening. First, Tether adds liquidity to the market, but it's based on a lie. They're supposed to have $2.5 billion in the bank, but do they? These funds are how they control the price of Tether, keeping it pegged to the US dollar. In other words, Tether should always be worth $1.00. But, that is no longer the case."

"A second stablecoin has broken its peg with the U.S. dollar – except this one's soaring well above a buck, not tanking below it. According to data from CoinMarketCap, the Gemini exchange-issued Gemini dollar (GUSD) saw its price hit an all-time high of $1.19 Tuesday after first breaking its dollar peg on Monday, when it shot up to $1.14. At press time, the token was trading at $1.18."

"As first reported by The Block’s Larry Cermak, Tether — whose USD-pegged cryptocurrency has a market cap in the billions of dollars — is said to be holding its fiat reserves at Deltec Bank, which is based out of Nassau. Those reserves, according to the company, are quite large. As of Tuesday morning, there are more than 2.25 billion USDT tokens in circulation, representing $2.25 billion in physical assets. At one point, USDT was worth nearly $2.9 billion, though hundreds of millions of dollars worth of the cryptocurrency token has been yanked out of circulation in October."

"The market is starting to differentiate between stablecoins, even though these cryptocurrencies are all designed to trade 1-to-1 with fiat. Several U.S. dollar-pegged cryptocurrencies are now trading either significantly higher or significantly lower than the greenback, reflecting investors' perceptions of their relative risk."

"Cryptocurrency trading platform Bitfinex has reportedly shifted its banking business to the Hong Kong-based Bank of Communications, the Block reported Oct. 16. A source familiar with the matter reportedly said that Bitfinex appears to be banking with the Bank of Communications through the private account “Prosperity Revenue Merchandising Limited.” According to the Block, Bank of Communications — which is partly owned by HSBC — has been using U.S.-based Citibank as the intermediary bank for U.S. dollar wire transfers to Bitfinex."

"Broadly speaking, this is broken down into 3 categories: asset-backed (including fiat), crypto-backed, and non-backed stablecoins (including algorithms and the Seigniorage shares’ approach). This is a great way of introducing the concept of stablecoins and a good basis for providing an overview, but it doesn’t paint a full picture in terms of how the composition of stablecoins can ultimately affect its utility and usability. To do this, we need to include 3 additional, but equally important, aspects into stablecoin discussions, i.e. pegging, collateralization, and redeemability."

"According to Moscow-based news outlet Mskagency, the chairman has clarified that the cryptocurrency will be issued by the central bank since it is backed by fiat currency. In conclusion, Aksakov noted that the implementation of blockchain technology in terms of issuance “crypto-money” is “promising.”"

"In a report published October 29 by the Mehr news agency, Jalali spoke about how cryptocurrencies could present “great opportunities,” hinting at the capital’s plan to potentially introduce a state-backed digital currency. The impetus behind the move is to minimize Iran’s dependence on SWIFT’s USD-based payment rails."

"DUBLIN, Aug. 1, 2018 /PRNewswire/ -- eCurrency Mint Limited (eCurrency) announces that it has contributed its Application Programming Interface (API) to the International Telecommunication Union Focus Group on Digital Currency including Digital Fiat Currency (ITU FG DFC). The API will contribute to an area of standardization for integration with existing payments systems for interoperability."

"Terra is a protocol of money that ensures price-stability by algorithmically expanding and contracting supply. Terra's Stability Reserve makes a decentralized guarantee of solvency, protecting it from the speculative and regulatory risks that other currencies are exposed to."

"On November 7, the chairman of Russia’s State Duma Committee on Financial Markets announced details of the “CryptoRuble,” a long-discussed government cryptocurrency project. Specifically, the official said that a state-backed stablecoin would be a complete equivalent to the Russian fiat ruble, but in a digital space. Russian authorities have now ended up with this concept after years of contradicting statements, and still, a ruble-pegged stablecoin might not turn out stable in the end."

"The Atlanta Fed recently hosted a workshop, "Financial Stability Implications of New Technology," which was cosponsored by the Center for the Economic Analysis of Risk at Georgia State University. This macroblog post discusses the workshop's panel on cryptocurrency and central bank e-money. A companion Notes from the Vault post provides some highlights from the rest of the workshop."

This IIF paper outlines some of the important policy issues around the prudential regulation treatment of commercial and central bank digital instruments that will need to be considered further, illustrated by some potential scenarios.