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Investing in Payment Tokens and Stablecoins (aka new currencies).

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If you are trader/speculator, volatility is your friend. If you are using Tokenomics to fund a venture, volatility is also your friend; you sell Tokens into a rising market in order to fund the business. There are other situations where volatility is your enemy and stability is your friend. A new generation of Stablecoins are entering the market to meet these needs.

This is Part Three (Chapter 5) of The Blockchain Economy book. This serialised book is a practical guidebook for investors, entrepreneurs and employees who want to learn how to prosper during the transition to an economy where value exchange is permissionless and disintermediated. For the index/table of contents of The Blockchain Economy book please click here.

Note: updated after Basis shutdown news. Updated text shown with underline.

This Chapter describes:

Three use cases for a Stablecoin

Three Types of Stablecoin assets

Basis was a Single Fiat Peg solution.

Three Types of Stablecoin Collateralised.

How a Stablecoin is Collateralised is critical. This determines whether the Stablecoin really is worth what the promoter say it is. There are 3 forms of Stablecoin Collateralisation:

 

 

Basis was an Issuer Collateralised stablecoin. $133m sounds like a lot if it was just to build a tech and marketing team, but it is a drop in the bucket to act like a global central bank.

3 revenue models for Stablecoins

Many Stablecoin ventures recently got VC funding and there are many ways for   Stablecoins to make money, including:

One business model that does NOT work with Stablecoins is Token Sale Funding (sometimes called Tokenomics). This is the model where the entrepreneur funds the venture by selling tokens at ever higher prices. The whole point of a Stablecoin – price stability – runs counter to this. This is not needed as those 3 revenue models for Stablecoins are enough for them to make money from customers.

The regulatory backdrop

Stablecoins attract the attention of regulators for two reasons:

One question  is – which regulator? A Stablecoin is currency and needs regulator who has oversight of currencies. For example, in the USA this is NOT the SEC which is taking action on other Tokens but does not have regulatory oversight of currencies.

Another question is – which jurisdiction? A Stablecoin is naturally global and not tied to any single currency. It maybe perceived as a threat to agencies that manage domestic Fiat currencies.This is where Switzerland is interesting for two reasons:

This question – which regulator – hit the front page this week with the Basis shutdown. In this week’s Blockchain Economy Front Page, Ilias Hatzis asks the very pertinent question of what damage over zealous regulation does to the wealth-creating impact of innovation.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

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