Here is our pick of the 3 most important Stablecoin news stories during the week.
This week we have seen an interesting argument play out. Who should be first to innovate at scale in Digital Currencies? Should this be State (slow, considered, careful) or should the Private sector (with Regulatory cover) be allowed to move fast and maybe break a few things?
First, a recap of the current state of play. A new working paper by the Bank for International Settlements (BIS) looks at the state of central bank digital currency (CBDC) projects around the world.
According to the study, as of mid-July 2020, at least 36 central banks had published retail or wholesale CBDC work.
At least three countries, namely Ecuador, Ukraine and Uruguay, had completed a retail CBDC pilot, and six retail CBDC pilots were ongoing in the Bahamas, Cambodia, China, the Eastern Caribbean Currency Union, South Korea, and Sweden, the research found.
Meanwhile, 18 central banks had published research on retail CBDCs, and another 13 had announced research or development work on a wholesale CBDC, the paper says.
Staying in Switzerland (where the BIS is located) the private sector folks building the next generation of digital money understand the need to collaborate.
Stablecoins, digital tokens pegged one-to-one to the Swiss franc (CHF) in this case, are a prime example. SEBA Bank and Sygnum Bank, the two B2B players that hold banking licenses from the Swiss Financial Market Supervisory Authority and that specialize in digital assets, are both involved in stablecoin explorations, as is the country’s respected crypto conglomerate, Bitcoin Suisse. “Within the Crypto Valley and here in Switzerland, there’s a very good collaboration going on, where everyone’s working together to try to design a Swiss franc stablecoin which has more or less the same definition or is fully interoperable,” said Matthew Alexander, SEBA Bank’s head of asset tokenization.
However, Politicians in the EU are getting very concerned about anyone from the Private sector stepping into their turf. Germany, France, Italy, Spain and the Netherlands called on the European Commission to draw up strict regulation for asset-backed cryptocurrencies such as stablecoins to protect consumers and preserve state sovereignty in monetary policy.
LONDON (Reuters) – A project involving 13 of the world’s largest banks and aimed at launching digital versions of major currencies in 2020 is no longer likely to get going this year, the company set up to run the effort said.
Technological development work on the previously named “Utility Settlement Coin” initiative has progressed, but it still needs regulatory approval, said Fnality International Chief Executive Rhomaios Ram. It hopes to receive that approval by the first quarter of 2021, “The technology is the least complicated part of this whole thing,” said Ram.
So in summary we have the Private sector slowing down, the state sector spreading up and the Politicians worrying about what all this could mean.
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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EU to see comprehensive crypto regulation by 2024
The European Union, or EU, plans to incorporate crypto and blockchain technology into its main processes by 2024.
Over the next four years, the economic union aims to firm up fresh regulations that will promote blockchain and digital asset usage for international money transfers, according to internal documents that Reuters reported on Friday.
The documents detailed:
“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 […] It should also address the risks associated with these technologies.”
Finding that almost 80% of its population transacts in paper money, the European Commission, the union’s governing entity, wants to see digital payments become more common, while aiming for immediate transaction times, Reuters explained.
The commission’s reported aims include a desire for increased data access, financial activities availability — all while aiming for increased efficiency. “By 2024, the principle of passporting and a one-stop shop licensing should apply in all areas which hold strong potential for digital finance,” the documents noted. Over the next year, fast transaction avenues will likely take over, Reuters added.
Although the COVID-19 pandemic may have expedited the desire for digital payments across the globe, blockchain and crypto assets have been the talk of the regulatory town, with many countries looking toward central bank digital currencies to streamline their payments infrastructures.
UPDATE Sept. 18, 21:00 UTC: This article has been updated.
Angolan National Bank and Beta-i create fintech regulatory sandbox
The National Bank of Angola (BNA) and Beta-i, an innovation consultancy, have joined forces to create the first fintech regulatory sandbox in the nation.
The project will allow fintech start-ups to test their products and services in a real market environment. It will also provide guidance on regulations, and help form new laws.
BNA runs the initiative with the executive management of Acelera Angola and Beta-i.
The regulatory sandbox project came from the Laboratório de Inovação do Sistema de Pagamentos Angolano (Lispa).
About 70% of the adult Angolan population does not have access to banking services on a daily basis. Lispa is an acceleration and incubation program aiming to change that situation.
The program is open to any entity established in Angola. The sandbox will open four batches, each composed of 10 selected projects.
These projects will take part in eight months of regular development sessions. It has two main goals: guidance on regulation and acquisition of licences, and mentorship to build and refine a defined market growth strategy that boosts financial and social inclusion.
“We have concluded that we were getting behind other African countries in terms of fintech innovation,” says Pedro Castro e Silva, administrator at Banco Nacional de Angola.
We’ve then defined two clear objectives: to increase financial inclusion through technology and to create jobs, making room for innovators to establish themselves in the market,” he adds.
“Through tests and controlled environments, the sandbox comes as an opportunity for new projects to adapt themselves to the current legislation and evaluate the need for changes in the regulation, if applied.”
Lispa is also formed by Incubadora Fintech, a project that is already supporting 20 Angolan start-ups, mainly fintech.
It does this through mentorship on adapting operations to the real market and development of ideas. They aim to match with start-ups with investors to get investment at the end of the program.
Eduardo Sette Camara, head of acceleration at Beta-i and responsible for the design and implementation of Lispa’s initiatives, explains that the lab is an essential initiative for the ecosystem. “It has been structured to allow continued support to the start-ups, both in terms of business and regulation”.
During the 10 months of incubation, start-ups have access to Beta-i’s teams and mentors for technical guidance.
The CEO of Acelera Angola, José Carlos Santos, understands that although the nation has not yet achieved all the “desired excellency and dimension”, more services and products are being launched in Angola, “in a spirit of growth and effective collaboration”.
Why this prominent crypto analyst thinks Ethereum DeFi has topped for now
Despite weakness in legacy markets, Ethereum has performed well over the 36 hours since the launch of Uniswap’s UNI token. From the time of the announcement, the coin has gained in excess of five percent, outperforming a majority of other cryptocurrencies.
Decentralized finance coins, though, have not performed as well.
Per CryptoSlate market sector data, many top DeFi coins including Yearn.finance, Aave, UMA, and Synthetix Network Token have slipped over five percent in the past 24 hours, underperforming ETH by 10 percent and BTC by six percent.
Analysts think that this trend of DeFi underperforming Ethereum — something that hasn’t been seen in months — may be the beginning of the end for decentralized finance’s phase of growth in the short term.
One prominent market commentator released a Twitter thread on the matter, outlining why he’s calling the medium-term DeFi top.
This analyst is calling a top in Ethereum DeFi for these reasons
His primary contention with DeFi is that right now, it’s “too difficult to use” for the average user, especially those that are just being onboarded into the crypto space:
“While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away.”
He specifically cited the story of a user spending $1 million worth of Tether’s USDT on a contract where he couldn’t retrieve his funds.
DeFi thread – Why I am calling the top (At least for now)
1/ DeFi is too difficult to use.
While traction for DeFi (AMM + deposits/yield) has grown tremendously over the past few months, DeFi is difficult to use, the ability to lose funds scares most new users away.
— Theta Seek (@thetaseek) September 18, 2020
Theta also noted that the value of capital entering the DeFi space is likely slowing down:
“A more visible metric is the speed of increase in stablecoins market cap. Other than ETH, USDC is one of the most used stablecoin in the space. MarketCap of USDC increased by 800M (“new money”) in the past month while DeFi market cap inflates by more than 3B in the same period.”
This may be the case as many DeFi coins have printed technical tops over recent weeks, falling dramatically from the highs where they were at the end of August or at the start of September.
Only compounding this, Theta remarked that DeFi has reached a point where regulators may begin to target companies and innovators in the space, especially if there are any notable bugs, hacks, or other questionable trends transpiring in the space.
Not the only one fearful of a loss of momentum
It’s important to highlight that Theta Seek isn’t the only analyst that is fearful that it may be time for DeFi to cool down after a jaw-dropping rally over the past three months.
Crypto analyst Ryan Watkins commented on Sep. 17, referencing the ongoing network congestion:
“Ethereum is damn near unusable right now. I can only imagine what retail will think if they eventually come into this market and face $50+ gas fees and 10+ minutes transaction confirmations… This has been my biggest anxiety about this bull market. The protocols are ready, the infrastructure is not.”
Watkins is not alone in sharing this sentiment. Many others following the space have noted that a number of factors, largely user experience shortfalls, could put pressure on DeFi until technologies like ETH2 and EIP-1559 are implemented.
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