Written by Werner Vermaak
Welcome to Part IV, our final chapter, where we’ll look at new stablecoins issued by Big Business and leading cryptocurrency companies like IBM, JP Morgan, Wells Fargo, Binance and Bitfinex.
In Part I of our Guide to Stablecoins (2014-2019), we discussed the history, features, benefits and current landscape of this new digital asset class.
In Part II: Libra- A Future Under Fire, we dove into Facebook’s fledgling Libra project.
In Part III: Central Bank Digital Currencies, we investigated the impact that powerful new government-owned stablecoins might have.
Table of Contents
- Binance Venus- a “Belt & Road” Libra
- Tether’s Offshore Digital Yuan
- Wells Fargo takes on Swift
- JP Morgan’s JPM coin and IIN alliance
- IBM’s triple threat- World Wire, USD Anchor & Hyperledger
- Ripple’s XRP-backed stablecoin
It’s been a devastating week for Facebook’s Libra stablecoin, with PayPal, Mastercard, Visa, Stripe, and eBay all jumping ship in the face of unrelenting regulatory pressure (as discussed in Part II).
Where does this leave other large stablecoin projects? As discussed in Part III, the genie is out of the bottle, and it brought a big bogeyman with it for U.S. regulators which might not be Libra, but in fact, China’s coming central bank digital currency (CBDC).
While the Chinese government maintains that their digital yuan is only for domestic spending, there is a big possibility that it will also be used to facilitate easier trade with the other 65 countries in China’s Road & Belt initiative, which could severely impact the greenback.
As Michael Casey, chairman of Coindesk’s advisory board explains:
“Imagine a Russian importer and Chinese exporter using smart contracts and atomic swaps to hedge exchange rate risks between digital versions of the renminbi and ruble – it would make the dollar obsolete as a trusted, stable intermediary for international trade.”
Binance’s Venus- a “Belt & Road” project
Binance vs Libra
Binance, the world’s leading digital exchange, didn’t rest on their laurels after Libra’s announcement. In fact, they soon launched their own competing project that runs on their native Binance Chain and also ties in with China’s ambitious Belt & Road initiative.
While Binance already has a faithful customer base and high brand awareness in the crypto market, their regulatory track record is also hardly spotless (including an exchange hack in 2019), so it’s likely that their anti-Libra project codenamed Venus also runs into regulatory hurdles.
While both projects want to operate on a global mainstream scale, Binance aims to “develop localized stablecoins and digital assets pegged to fiat currencies across the globe”, which means they will approach countries case-by-case in order to avoid the regulatory deluge that hit Libra.
Binance’s Venus: A Libra for non-Western countries
Binance has long been smitten with stablecoins, thanks to their ability to keep exchanges liquid and their potential to onboard millions of more users as an efficient “fiat gateway to crypto”.
Binance’s Venus project, announced during August 2019, took its inspiration from Libra and is set to directly compete with it. The ambitious project aims to build a global infrastructure and court regulators, tech companies and governments in order to create localized and fiat currency-pegged stablecoins for many countries worldwide.
The leading exchange said in interviews that they will try to avoid Libra’s mistakes, take a more conservative approach to fulfilling compliance and actively engage regional regulators first before they launch new stablecoins. Venus projects will mainly target non-Western countries, with China firmly in their sights.
In their Chinese-language press release, Binance described Venus as an “independent and autonomous, regional version of Libra”.
Is Binance’s Digital Yuan coming?
Binance hasn’t announced a stablecoin to mimic China’s renminbi (RMB), but it’s surely imminent. Here’s why.
OTC exchange in China
Founded by Chinese citizens who were forced to relocated the company to Japan in 2017 after China’s government started clamping down on cryptocurrencies, Binance is eager to return to Mainland China, a market that presents a cornucopia of lucrative opportunities.
The exchange recently made its first investment in China after leaving in 2017, by participating in a $200 million investment round of Beijing’s Mars Finance. Next, Binance is set to roll out a fiat-to-crypto OTC exchange in China this month (October 2019) that will deal exclusively in RMB.
A “Belt and Road” version of Libra
He Yi, Binance co-founder,said in August 2019 that Venus would constitute a “Belt and Road” version of Libra that will resemble that of the eponymous China government initiative, the Belt and Road project that aims to connect Asia with Europe and Africa through land (Road) and sea (Belt) networks that stretch along six corridors.
Binance previously issued the Bitcoin-pegged BTCB and British Pound-equalling BGBP.
Binance’s U.S. Dollar-pegged BUSD
In September this year, Binance teamed up with established stablecoin issuer Paxos to release USD-pegged stablecoin, BUSD.
BUSD is now only the third stablecoin (after Paxos and Gemini Dollar) to be approved by the New York Department of Financial Services (NYDFS).
The USD-pegged stablecoin operates on the company’s native Binance Chain and forms part of Binance’s ongoing “Venus” project as well as its new and regulated U.S.-based exchange, Binance US.
On September 24, while Bitcoin experienced a flash crash of nearly 20% down to $7800, 1 BTC briefly traded against the Binance Dollar for a staggering $1800! The anomaly only lasted for a minute and was attributed to the low liquidity of the Binance Dollar at this early stage.
Tether’s digital Yuan
With China’s central bank rumored to soon release their own digital Yuan, it’s no surprise that Bitfinex’s Tether is also jumping on the Chinese stablecoin bandwagon. Tether has just launched the Ethereum-based digital Yuan, CNH₮, to go along with its virtual U.S. Dollar (USDT) and Euro (EURT). The new stablecoin is intended for use outside of China and is collateralized with offshore RMB.
Big Bank Coins
Surprisingly, the U.S government and financial bodies have done very little to counter the threat that central bank and commercial stablecoins pose to the USD”s global reign. Instead, it seems they’re putting most of their resources into derailing Libra before it has the chance to launch. This has led many industry insiders, including lawmakers, to openly question the Fed’s preparations for this new digital economy.
While the U.S.government might appear unprepared, their powerful big financial institutions, who are also at risk of losing their position as global intermediaries, are certainly not taking a backseat though. It’s ironic in a way that big banks are now embracing blockchain, as Satoshi Nakamoto invented Bitcoin in reaction to the 2008 banking crisis, which was caused by these very same banks.
Wells Fargo- taking on SWIFT
The biggest U.S. banking institutions are finally waking up to the potential of blockchain after denying its benefits for years. Following JP Morgan’s permissioned stablecoin JPM, launched in February 2019 with the aim to facilitate internal and cross-border payments, the banking behemoth Wells Fargo has announced their own stablecoin in late September 2019.
Wells Fargo Digital Cash is taking the SWIFT banking standard head-on, to make internal cross-border money transfers faster and more efficient, but doesn’t consider to be a cryptocurrency.
Wells Fargo’s DLT is built on R3’s Corda Enterprise platform, which was designed by and for financial institutions. Corda’s solution helps to establish correct data confidentiality control, is highly scalable for business size and boasts very high security. It is an internal blockchain that will not be interoperable with other blockchains like JPM and Libra.
The project is set to roll out next year and will be used to settle payments at all Wells Fargo branches worldwide.
JP Morgan’s JPM Coin and IIN
When U.S. banking giant JP Morgan announced their JPM coin in 2019, there was much derision from the cryptocurrency industry, since JP Morgan CEO Jamie Dimon was for years one of crypto’s most vocal critics and the company itself got bailed out by the U.S government during the 2008 banking crisis.
The JPM coin is pegged to the U.S. Dollar and acts as a virtual USD that regulated financial institutions can use to settle cross-border payments. The cryptocurrency doesn’t resemble a public blockchain asset such as Bitcoin. Instead, it functions on a proprietary permissioned DLT called Quorum, a custom-built Ethereum blockchain developed by JP Morgan. Its increasingly powerful banking network is called Interbank Information Network (IIN) and currently has nearly 350 banks as members around the globe, with new banks signing up every week.
JP Morgan recently said that their solution helps to “exchange information in real-time as a way to verify that a payment has been approved,”
According to them, their IIN platform “minimizes friction in the global payments process, helps beneficiaries get paid faster with less red tape and reduces the time needed for compliance adherence and technical issues that could stall payments.
Most banks use IIN to clear US Dollar transmittals through blockchain payments, with 40% in the Asia-Pacific region. However, with the recent joining of Deutsche Bank, the network will now also start processing other currencies like the Euro.
JP Morgan is targeting a total member count of 400 banks before the end of 2019.
IBM’s Hyperledger, USD Anchor and World Wire
JP Morgan’s IIN faces stiff competition from IBM’s Blockchain World Wire, a cross-border payment solution announced in March 2019 that runs on Stellar Lumens (XLM).
The IBM network allows central banks to create their own digital assets. World Wire supports foreign exchange and payments from banks such as Brazil’s Banco Bradesco, Bank Busan (South Korea), and the Philippines’ Rizal Commercial Banking Corporation.
The World Wire network currently uses XLM and IBM’s USD-pegged stablecoin, USD Anchor, to support cross-border settlement through IBM’s partnership with the startup Stronghold.
Blockchain World Wire currently encompasses 72 countries, 47 currencies, 44 banking endpoints over 1000 unique currency trading pairs.
IBM is also exceptionally well-positioned to take advantage of the current migration of business to blockchain technology. IBM Hyperledger, their Linux-based suite of enterprise DLT solutions is becoming increasingly popular with businesses worldwide.
IBM’s suite of technology such as Hyperledger Fabric and Indy helps private businesses build their own permissioned blockchains, control their data privacy, scale as needed and interoperate with public chains as needed.
Ripple to launch an XRP-funded stablecoin?
US-based Ripple Labs, founded in 2012, is one of crypto’s biggest success stories, with its XRP digital token enjoying meteoric success in late 2017 and gaining as much as 8000% in value over the course of that year. The Ripple Labs payment platform was seen as the Big Great Hope to end the absolute rule of big banks over financial payments.
However, Ripple and XRP are centralized by nature, and unlike other cryptocurrencies, all XRP coins have been pre-mined and the vast majority is owned by Ripple CEO Brad Armstrong and colleagues. This means that the company isn’t that different from the other corporations mentioned in this article.
While XRP’s price is struggling, Ripple continues to make strides, aggressively signing partnerships and investing in new technology and companies.
In October 2019, CTO David Schwartz mentioned that they are also considering a USD-pegged stablecoin. However, their stable asset would be collateralized via XRP funds, not physical assets, similar to how Dai operates.
What does the future hold for stablecoins?
There are currently over 100 stablecoins in development, many of which are not properly funded enough to make it to market.
With regulatory organizations like FATF and FinCEN increasingly targeting crypto and introducing new Anti-money-laundering (AML) aimed at both countries and businesses, the stablecoin revolution might turn out to be yet another costly failed blockchain experiment, riddled with scams and fly-by-nighters, continuing the narrative set by the criminal ICO pump and dump of 2017.
However, this is very unlikely, now that Big Business has started integrating blockchain for its myriad benefits. This sends a strong signal that blockchain and cryptocurrency technology are maturing and slowly gaining mass adoption.
While commercial stablecoins theoretically pose a massive threat to the current world pecking order and the wealth stability of nations, a truly global cryptocurrency that can operate unfettered by bureaucratic red tape and bloated intermediary financial institutions presents many incredible benefits to ordinary citizens.
For example, with the ability to make lightning-fast payments from Africa to America to Afghanistan within seconds, without prohibitive fees and gatekeepers who take their cut each time, there is real potential to alleviate global poverty and streamline a new digital economy that is impervious to trade wars, trade barriers and the whims (and tantrums) of politicians.
It seems likely now that such a coin(s) will come from big corporations or central banks, not startup projects, which might explain the dramatic slump in altcoin prices.
With so many stablecoins in progress, which ones will thrive while the rest die off slowly? Well, ultimately, as with any disruptive technology, in the end, it all boils down to what we, the consumer, can and want to do with it. Therefore, the future of the global digital economy still remains in our hands. And it sure feels like we’re only getting started.
Thank you for reading our Stablecoin series!
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