Consensus in Stablecoins--There Are Simply Too Many stablecoins
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Consensus in Stablecoins--There Are Simply Too Many stablecoins

Monday, March 2, 2020 3:20 AM
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NEW YORK, NY / ACCESSWIRE / March 2, 2020 / In just the first month of 2020, stablecoins are demonstrating their relevance and strength in the rapidly fluctuating blockchain industry.

On January 12, STAE launched decentralized stablecoins USDB and CNHB collateralized by either ETH or BTC. They can be tied to either the USD or the CNH(Chinese Yuan in Hongkong) by the minter. These stablecoins are finding immediate use in online gaming platforms and other mobile payment scenarios. Later in January, Tether Gold was launched, a stablecoin backed by physical gold reserves held in Sweden. Almost at the same time, Bytom Blockchain also has announced plans in a white paper for a decentralized stablecoin which is similar as STAE's products on infrastructure.

Second, the end of January it was said JP Morgan's own blockchain unit Quorum is merging with Ethereum software developer ConsenSys, a deal expected to finalize in the third quarter this year. Industry insiders speculate that this merger is for the next development of the previously launched JPM Coin. Facebook's ambitious Libra project, IBM, Busan Bank, Rizal Commercial Bank, and a handful of other companies signed a letter of intent to issue a stablecoin using the IBM payment network. These developments are the latest examples of IBM, Facebook, and other traditional industries choosing stablecoins as their entry point into the blockchain industry.

Following this trend, central banks around the world are planning the launch of their own stablecoins. Reuters reports that the French central bank has announced their own project to be launched in the first quarter this year and has urged the European Central Bank to issue digital currencies as soon as possible. It is also anticipated that China will launch DCEP later this year, a combination of digital currencies and electronic payment instruments to replace cash in certain payment scenarios.

Blockdata's 2019 report titled "An Overview of the Current State of Stablecoins" surveyed 226 stablecoin projects, 66 of which were launched, and 134 being under development, and 26 closed projects.

Although there is no consensus on how these surviving projects will fare, there seems to be a consensus that there are simply too many stablecoins.

The Two Paths

While stablecoins have certainly seen use within cryptocurrency exchanges, there is no clear path for mainstream adoption yet. A notable exception is STAE, which recently launched two decentralized stablecoins tied to the USD and the CNH(Chinese Yuan in Hongkong). Grant Baker, Chief Innovation Officer at STAE and author of the 2019 Blockchain Compliance Paper, believes that anti money laundering rules make it difficult for stablecoins to replace fiat in day-to-day life. "While stablecoins provide shelter for cryptocurrency investors during times of turbulence, they haven't seen much usage elsewhere. We anticipate this will change when Singapore begins issuing licenses and regulating stablecoin issuers this year. Decentralized stablecoins will likely be a very practical application of blockchain and that's what we're focusing on."

The philosophy of practical application seems to be working. Already, STAE has forged partnerships with Southeast Asia's top two online gaming companies. During the 2nd quarter of this year, more than a thousand online gaming applications will accept STAE's stablecoins USDB and CNHB, tied to the USD and CNH(Chinese Yuan in Hongkong) respectively. STAE is also looking at key Southeast Asian markets such as tourism.

Blockchain professionals have commented that the decision of stablecoins projects to emulate fiat currency instead of precious commodities such as gold has been a successful move, if adoption is any indication.

Competing Stablecoin Issuance

Stablecoin issuance is usually backed by real assets such as cash or gold held by a central issuer or collateralized by digital assets with no central issuer. USDT is a dominant player in this market, making up roughly 80% of market share. However, there have been recent controversies regarding the veracity of claims regarding the real assets held by issuers. For example, Tether, USDT's issuer, encountered a crisis of trust in October 2018 causing a 15% price plummet. In April 2019, the New York Attorney General's Office accused the Bitfinex platform of misappropriating $850 million of Tether's reserve funds to fill funding gaps, creating an epic blame game between Tether and the Bitfinex parent company iFinex.

Despite making a big splash initially, decentralized stablecoins backed by digital assets have faded from popularity over the past year, but that trend may be reversing thanks to the increased emphasis on trust. MakerDao's single asset collateral model and STAE's multi-asset collateral model, due to the smart contract's automated payouts and USDT's trust issues, are gaining momentum in the blockchain industry.

A Threat to Stablecoins?

The term "License" is the dread in the back of the mind of every stablecoin project. With the rising influence and scale of stablecoins, governments and international organizations are giving stablecoins extra scrutiny, casting a long shadow over the attempts of stablecoin projects to integrate with traditional banking infrastructure. The International Monetary Fund released a paper in 2019 called "The Rise of Digital Money", calling for the supervision of stablecoins over money laundering and terror financing concerns. Compliance has quickly become the foremost concern of stablecoin projects.

Singapore's Payment Services Act came into force in January 2020, bringing many blockchain projects seeking legal legitimacy to the application line in the small island nation. The Payment Services Act strictly follows the anti-money laundering recommendations of the Financial Action Task Force.

The prevailing expectation is that stablecoins legitimized by a globally recognized licensing system will flourish. Reliable issuers, auditing systems, and mature regulatory frameworks are all indispensable to this end.

Alien Wu
[email protected]


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