Financial institutions join the stablecoin trend: 2020 will be the year of the real stablecoin

For most people, the term "stable currency" reminds us of cryptocurrencies like Tether or Libra. However, there are actually many versions of stablecoins-from stablecoins that are collateralized by fiat currencies to stablecoins that are collateralized by real assets or even other digital currencies.


Source: Pixabay

In short, the main purpose of stablecoins is to solve the problem of volatility by binding digital assets to another asset with stable value.

As the interest of financial institutions accelerates, the new year has become an exciting time for stablecoins. There are rumors that companies such as Wisdomtree are considering plans to introduce regulated stablecoins. Wisdomtree is a New York-based asset management company and a leader in exchange-traded funds (ETFs), managing more than $ 68 billion in assets.

Similarly, government financial institutions have now stood out, stating that they will research or discuss stablecoins as a potential solution. International entities, such as the Group of Seven (G-7) working group, in cooperation with the International Monetary Fund and the International Settlements, have issued a survey to study the impact of stablecoins.

In addition, last year, banks such as Banco Bradesco, Buscan Bank and Rizal Commercial Banking Corporation joined the stablecoin trend to issue their own stablecoins on IBM's blockchain.


News of WisdomTree's plans to launch a regulated stablecoin has caused much speculation in the cryptocurrency space that competition in this area will increase. For WisdomTree, the move is considered a natural extension of its ETF business.

William Peck, the company's director of corporate strategy, said, "The structure and purpose of a regulated WisdomTree stablecoin may be similar to ETFs that use USD-denominated assets such as short-term US Treasuries as collateral.

Peck further added that as stablecoins will be powered by the blockchain, this option may be attractive to cryptocurrency traders. In the long run, Peck believes that the regulated stablecoin issued by WisdomTree can make the company a leader in a rapidly growing industry.

For US stablecoin issuers, one of the biggest obstacles is the welcome of regulators. For WisdomTree, however, the situation may be different because the company is a regulated money manager. As a result, asset managers' recommendations are more likely to be well received by regulators.

In addition, because WisdomTree is among the industry giants such as BlackRock and Fidelity, it can bring an enterprise-grade approach to the crypto industry. Although WisdomTree has not yet made public and formal recommendations to the relevant authorities, the company has shown sufficient interest in the field, and it is reported that the company is a major investor in a new startup called Secucurrency, which can secure the district Blockchain systems comply with regulations.

State Street Bank

State Street, another US financial services company, is joining the stablecoin world. Last month, the company announced plans to launch a digital asset pilot phase in partnership with Gemini Trust.

The plan is to combine State Street's back-end reports with Gemini's research on digital assets to enable users to integrate traditional assets provided by State Street with digital assets processed by Gemini. The Gemini Trust, founded by the Winklevoss twins, is one of the pioneer issuers of regulated stablecoins. According to their white paper, Gemini (GUSD) is a regulated stable value coin built on Ethereum at a 1: 1 exchange rate with the US dollar.

When the company announced plans to enter the crypto space with Gemini Trust, Ralph Achkar, Managing Director of State Street Bank said:

"The digital asset space is still in its infancy, but it provides opportunities for things that may fundamentally affect how State Street operates."

Like WisdomeTree, State Street acknowledges that its new project is nothing more than a natural extension of the services it provides to its customers. The financial services provider has $ 32.9 trillion in custody assets and nearly $ 3 trillion in managed assets.

Although State Street's move is not directly related to Gemini's stablecoin, it still clearly shows that the financial company is taking steps to help customers invest in digital assets. According to Achkar,

"The digital asset space will affect the future market, and we hope to exist when this happens."

IBM collaborates with multiple international banks

In March 2019, IBM announced the launch of its global payment network, which includes payment locations with 44 bank endpoints in 72 countries. The tech giant has signed partnerships with Banco Bradesco, Bank of Busan and Rizal Commercial Banking Corporation to enable them to issue stablecoins on IBM's blockchain network.

Unlike most companies in the stablecoin space, IBM is not a publisher of stablecoins. However, the banks that have worked with it have signed letters of intent, issued their own stablecoins and supported multiple fiat currencies.

Jesse Lund, vice president of IBM Blockchain, said that IBM "has created a new type of payment network that, in a sense, simplifies the ability of businesses and consumers to transfer funds globally in real time."

Lund further added that the company is "building a brand new network in 72 countries that will support collection and payment endpoints in 48 currencies."

Central bank of russia

At the end of 2019, the Russian Central Bank began testing the idea of ​​using a stablecoin. Unlike most stablecoins based on fiat currencies, they will be linked to real assets and placed in a regulatory sandbox. Russian Central Bank President Elvira Nabiullina said that the purpose of testing stablecoins is not necessarily to use them for payment.

However, the plan is to propose a "special set of rules that allow innovative companies to test their products and services" in a limited environment without the risk of violating financial laws (commonly known as sandboxes).

Nubiullina also pointed out that as the project continues to explore the possibility of issuing its own central bank digital currency, the project will enable the central bank to learn about "potential uses of stablecoins."

Although Russia is taking action to learn more about the stablecoin, Nabiullina made it clear that the government's official position is against private currencies and that the Russian Central Bank cannot support digital currencies designed to replace private currencies.

Central bank of france

France also plans to launch a pilot project to test cryptocurrencies designed for financial institutions. At a press conference in Brussels, European Central Bank President François Villeroy de Galhau said the country's central bank plans to begin testing digital euro projects by the end of the first quarter of 2020.

The digital euro will only target the country's private financial institutions to strengthen France's financial system. The official report also states that the main focus of the pilot project is to make France a global leader in digital currencies issued by the central bank. Earlier, France and Germany were skeptical of Facebook's Libra project, saying it posed a risk to the European financial industry. Now, it is clear that their plan is to launch a common set of rules for virtual currencies in the euro area.

Although it takes time to develop a regional stablecoin, the French Finance Minister said: "In the long run, this fact does not prevent us from starting work and achieving results next year."

Digital RMB in China

Another central bank preparing to become the first to issue its stable digital currency is the People's Bank of China. In a rapidly digital economy, the central bank's move is to try to manage technological change. An official at the People's Bank of China told Bloomberg that the move involves not only economic issues but also sovereignty issues.

Although the People's Bank of China plans to launch digital RMB, it may not become a cryptocurrency. First, unlike the decentralized cryptocurrency, the digital version of the RMB will be fully supported by the People's Bank of China. This means that the digital element will not have any presumption of anonymity.

In addition, given that China's payment traffic recorded a peak of approximately 92,771 transactions per second, Chinese Central Bank officials expressed doubts about the ability of the blockchain to support such traffic.

Although China is already a highly cashless society, the move to launch a digital renminbi will protect the country from the hassle of adopting other increasingly popular digital currencies such as Bitcoin. The People's Bank of China's plan is also in line with the government's agenda to combat the strengthening of the U.S. dollar, especially after the trade war and the rise of multiple stablecoins supported by the U.S. dollar.

Where is the stablecoin position?

So why do all these financial institutions, central banks, and companies embrace the idea of ​​stablecoins? Biser Dimitrov, co-founder of the BlockEx digital asset platform, told Cointelegraph, "Stablecoin makes sense for any type of financial services company," he added:

"For example, in a retail or investment bank, stablecoins can facilitate faster intraday settlements and be completely transparent. More importantly, banks can provide better and faster services on top of blockchain networks with stablecoins, And enable loyalty point conversions, faster mortgages and generally effective loan origination processes. "

However, as the adoption rate of stablecoins increases and regulations face challenges, Gregory Klumov, CEO and co-founder of Stasis, a European-backed stablecoin, sees a solution. Klumov told Cointelegraph that the regulation will first develop in the retail sector before the e-money decree:

"In the private company space, no one will regulate the solutions used by a particular company. A good analogy is antivirus software or project management software. The core value of any stable asset is fungibility. The more the counterparty supports, The greater the network effect it will achieve. "

Dimitrov believes that although regulatory issues may become a problem for stablecoins, he believes that for 90% of stablecoins that have been issued, since these developed assets will be used for internal purposes, supervision will be more relaxed in the future.