What is the optimal method of stablecoin delivery?
Here is our pick of the 3 most important Stablecoin news stories during the week.
Last week the question seemed to be who should be first? This week it has moved on to how? Should it be a two tier distribution model, all public sector lead or largely private sector driven?
Firstly, Libra, the real driver in my opinion of the initiatives and energy in this area (partly fear of Facebook), last week they hired a former CEO of HSBC, signalling that they accept they will have to be regulated as a Bank (narrow as a payment provider). Now, they are also signalling that they will be building an ecosystem and not just payment rails, by bringing in another VC member to the consortium.
“The Facebook-initiated Libra blockchain project continues to grow as its governing body adds a new major industry partner.
Blockchain Capital, one of the largest venture capital firms in the blockchain industry, has joined the Libra Association, according to an official announcement Friday.
Alongside the other 26 association participants, Blockchain Capital will now be working to create a “more equitable payment system” with Libra.”
Then to China, which is building a two tier distribution system (Central Bank at the centre with licensed Banks and Fintechs doing the customer facing) is signally that their CBDC is a project of strategic importance and a race that they must win. An article published in China Finance, a magazine run by the People’s Bank of China (PBOC), said the rights to issue and control a digital currency would become a “new battlefield” of competition between sovereign countries.
Issuance and circulation of the digital currency would bring great changes to existing international finance, it said. “China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate the pace to seize the first track,” the article, which was published on the weekend, said.
Finally, we also saw the European Commission getting busy (but it will take four years). It is due to set out its strategy for encouraging greater use of digital finance at a time when 78% of payments in the euro zone are in cash. It also wants a rapid shift to “instant” payments generally as pandemic lockdowns showed the growing role of cashless payments.
The EU executive will present a draft law to clarify how existing rules apply to crypto assets and set out new rules where there are gaps, the documents said.
“By 2024, the EU should put in place a comprehensive framework enabling the uptake of distributed ledger technology (DLT) and crypto-assets in the financial sector,” the documents said. “It should also address the risks associated with these technologies.”
Interestingly, on the final point of risk management, the ECB released a paper on stablecoins and their monetary implications. It looks at taxonomy and the current regulatory framework and concludes that if Libra was really successful it might pose a systemic risk but that they (the ECB) have all the tools they need to regulate them (Facebook).
So in summary, we see the Chinese striving to be first with a two tier distribution system, the Europeans believing that Legislation can pave the way for innovation and Libra/Facebook building much more than payment rails.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
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