As the cryptocurrency markets continue to sink to alarmingly low levels with almost all digital assets at all time lows, it seems that investors are running to the safe haven of the stable coin. These are mushrooming like there’s no tomorrow and probably it will only be a matter of time before the SEC in the US will turn its attention to this class of digital assets. It is quite obvious that the days of regulatory uncertainty when regulators and governments around the globe were only trying to understand the concept of cryptocurrencies, let alone the legal frameworks according to which they should be regulated, are long gone. One by one, the U.S. financial regulators seems to be figuring out how to classify and, by extension, how to regulate cryptocurrencies.
Perhaps the most fearsome of all regulators for the cryptocurrency community, the U.S.
Securities and Exchange Commission, is waging an all-out war on dozens of ICOs at this very moment. About a month ago, they settled charges against Zachary Coburn, the founder of EtherDelta, over operating an unregistered securities exchange.
The total amount fined was almost $400,000.
That same month, the SEC fined two startups $250,000 each for not registering their ICOs as securities offerings. Airfox and Paragon Coin Inc. were also ordered to return all the money they raised – $15 and $12 million respectively – to their investors. This was the first action of such magnitude SEC has ever taken against a cryptocurrency company and it was based on the regulator’s 2017 report which basically classified ERC-20 tokens as digital securities. Technically, that includes ether too.
This means that ethereum and all the startups that created their tokens on the Ethereum platform will now have to fully comply with SEC’s regulations, apply for an exemption or face dire consequences. The SEC’s 2018 report already mentions ‘dozens’ of ongoing investigations, so virtually any startup that recently had an ICO is probably currently being investigated by the regulator. As of right now, SEC can only impose fines and nothing else, but many experts seem to agree on a wider cryptocurrencies crackdown being inevitable.
When it comes to bitcoin and other cryptocurrencies based on bitcoin’s source code, the situation is slightly different. Several court cases in the U.
S. this year set the precedent of altcoins and bitcoin being viewed as commodities, which brings them under the jurisdiction of the Commodity Futures Trading Commission (CFTC). Just to hammer the point home, when Wall Street investment funds launched bitcoin futures trading, the CFTC posted a customer advice notice, where they clearly stated that bitcoin is a commodity and it will be regulated as such.
Clearly, regulators were keen to finally put bitcoin and ICOs – the poster children of the cryptocurrency world – into an appropriate regulatory framework for various reasons. Classifying bitcoin as a commodity clearly means that most other cryptocurrencies can be classified and regulated as such while obliging ICOs to register as securities offerings is an obvious step toward the protection of investors and their funds. Frankly, everyone should’ve seen this coming – too many scammy ICOs took off with too much investors’ money over the last several years.
Stasis Gregory Klumov and Maltese PM Joseph Muscat Stasis
The chances are that stablecoins are next.
Gregory Klumov, the CEO of tokenization platform STASIS —which was behind much of the Maltese legal framework for digital assets—argues that new regulatory approaches are a must for this emerging asset class: “When cars were disrupting horses 100 years ago, humanity did not have a clue about what speed limits to impose on drivers, so people were given rights to experiment and figure it out.” .
Klumov added that the STASIS Foundation continues to develop institutional-friendly infrastructure to tokenize assets. Its flagship product EURS more than doubled its amount in circulation and monthly transactions in November with third-party custody and frequent verifications will be joining the ecosystem shortly.
We also spoke to a number of stable coin officials on their projects and how, in their different ways, they are changing the cryptocurrency markets as well as what they expect in 2019.
Ken Lang, ndau Collective Member and CTO of COSIMO Ventures
ndau is a buoyant digital currency, built by Oneiro, to optimize long-term store of value and assets which are supported by a decentralized ecosystem. Unlike stablecoins, ndau is not pegged to fiat currencies or commodities, allowing for more desirable characteristics for long-term holders in particular.
The story of ndau starts about five years ago, when an anonymous group of early bitcoin enthusiasts and experts — now called the ndau Collective — saw that blockchain and Bitcoin had a big future, but a few barriers holding it back from being all that it could be.
Some of these largest barriers were volatility, dependability, and governance. They eventually decided that all of these issues were fixable, and this led to the development of ndau.
“Some of these solutions came in the form of built-in economic structures to incentivize holding assets for a long period of time. One structure is called the Ecosystem Alignment Incentive (EAI), that rewards holders with additional ndau based on the duration of their holding time.
There’s also a Stabilization Incentive Burn (SIB), which dissuades holders from selling their ndau during down markets by tacking on an additional fee for selling or moving ndau off the ndau blockchain. This additional fee is removed from circulating supply permanently, or “burned”.
”, Lang adds
ndau also has a guided price regime that goes up over time, making this a “buoyant” digital currency. While stablecoins are useful for crypto holders who want to make everyday purchases and avoid downside volatility, they are not ideal for storing value. With digital currencies pegged to fiat currencies, such as the USD, holders run the risk of inflation each year that depreciates the value of the asset over time. ndau is a superior store of value because its monetary policy can help keep the price stable while ensuring appreciation over time.
Glover claims that ndau is ideal for retirement accounts, pension funds, collateral accounts, bank reserves, and other purposes that would require a dependable, long-term store of value that can increase over time. ndau is also a safer medium of purchasing tokens during an ICO for both companies and investors.
Its lower volatility than BTC and ETH make it an ideal long-term store of value for blockchain projects post-ICO, Glover adds.
“We’re getting closer to going onto our own native blockchain and being listed on exchanges so that anyone can have access to buy and hold ndau”, Glover concludes.
Eiland Glover, CEO of Kowala
The Kowala protocol represents the next iteration of cryptocurrency development. It is an algorithmic stable coin protocol that is not asset-backed, a key differentiating feature in the space right now.
“Really, the drastic difference between an asset-backed stable coin and an algorithmic stable coin, in our opinion, is the removal of the need for trust. Rather than relying on the existence of assets in a bank vault, the miners in our model create the stablecoins that are produced in times of increased market demand, so they become, essentially, the issuers of newly-minted stablecoins under our model — as opposed to having a centralized authority to issue those stablecoins”, Glover explains.
Glover explains that on the technical side, the protocol is a fork of the Ethereum codebase with an updated and a modified version of the Tendermint consensus protocol. There are two tokens: on the one hand, you have a stable cryptocurrency like the kUSD, designed to track the value of one U.
S. dollar. Then, on the other hand, you have a mining token. Mining tokens really represent ownership of mining rights and give users the ability to associate those tokens within a node, actually being able to mine on the network.
“Thus we have a truly decentralized stable coin, paired with a fast separate blockchain. We think this to be a winning combination. Our coin is designed as a means of payment more than anything else, and we hope to fulfill the initial promise of the Satoshi whitepaper, which was to create a truly decentralized payment platform”.
Charles Manning, CEO of Kochava
“Kochava is a 7-year old tech platform measuring advertising for the digital ecosystem. We track impressions, clicks, conversions, and post-conversion activity.
We are, effectively, a vendor that is the system of record on behalf of advertisers to verify and validate that purchased ads are delivered”.
“I was very interested in how distributed ledger technology (DLT) technology could be used in digital advertising. Our thought process was — unlike a small startup who attempts to change the world by getting into this transformation technology like blockchain — we have a unique position where we can facilitate the transformation of big companies using blockchain for digital advertising”, Manning explains.
Charles Manning states that the token is used in three areas that some of the biggest, global brands use already: utility of buying and selling media, earning transaction fees because they are a delegated proof-of-stake system, and governance.
“We are excited to sell tokens as a utility to show the value & efficiency of our platform across the ecosystem. We want players across the board in the digital advertising space — sight providers, supply-side providers, data management providers, publishers, affiliates, and others — to own tokens, so they have an equal say in that participation and can be part of driving the direction of the exchange moving forward”, he concludes.
Vladislav Kiselev, CEO and Founder, The Joy :
“From a short-term perspective, Stablecoins are undoubtedly the key to mass-implementation of cryptocurrencies in everyday life.
That said, I think scalability and trust will be the biggest problem in 2019. This is because Stablecoins are asset-backed, yet ironically they do not have enough assets behind them in order to grow. By grow I mean where we see volumes on a scale that are average with state currencies. The biggest one, Tezos, claims to have billions on its account but it hasn’t provided any framework to prove this”.
Kiselev states that on the other hand, countries or rather governments, are generally by definition much more transparent. They not only have the assets but also the power to sculpt the suitable legal conditions to launch their own Stablecoins.
“As a result, in 2019 we can expect to see the emergence of the first state-backed Stablecoins with a specifically designed regulatory framework governing the use of cryptocurrencies”, he concludes.
Hosam Mazawi, Alprockz
Alrpockz AG is the company behind ROCKZ (RKZ), the first Swiss Franc backed stable coin.
Founded by a group of experienced Regulators and Banking & Finance professionals the company recently formed a partnership with companies such as Geneva Swiss Bank, Swisscom and Wisekey in order to bring their product to market by the end of the year.
Mazawi claims that ROCKZ (RKZ) offers the highest grade of stability and security provided that each ROCKZ (RKZ) is backed by the equivalent amount in Swiss Francs (CHF) – 1 RKZ = 1 CHF
Some interesting points on Alprockz are the following:
The Swiss Francs reserves will be held off-chain as collateral with third-party custodians in Switzerland never to be made accessible to Alprockz AG
Up to 90% of reserves will be held as physical banknotes in high-security vaults in the Swiss Alps, 10% with Swiss banks to provide liquidity
The funds held as collateral for ROCKZ (RKZ) will be audited on monthly basis by an independent third party
ROCKZ (RKZ) can be redeemed for their underlying assets at any point in time in a legally enforceable way
ROCKZ (RKZ) are considered a cash equivalent since it’s intrinsic value lies in the underlying fiat currencies collateralized
ROCKZ AG was recognized as a financial intermediary in Switzerland by VQF. VQF will audit and control the company in order to ensure it fully follows the regulatory frameworks in terms of compliance and anti-money laundering
“Compared to the other stablecoins on the market, we give full ownership over the underlying asset to the users. ROCKZ (RKZ) are considered a cash equivalent since its intrinsic value lies in the underlying fiat currencies collateralized. If you compare it to USDT, Paxos, USDC, GUSD, none of them counts as cash or can be used as cash, they are there just to facilitate the trading pairs, nothing else”, Mozawi says.
Mazawi explains that today there is no ideal way for traders and crypto investors to harvest their profit in a secure manner without returning to fiat currency. Investors who momentarily wish to take profit out of the system before entering a new position, incur high fees every time they exit and re-enter. The alternative is to keep assets on an exchange or wallet, where they face the inherent security and counterparty risks of the exchange, or the market risks of holding main coins such as Bitcoin or Ethereum.
The project was initially funded by private investors from Switzerland, with 2 capital raise rounds in 2018 and they recently opened their doors for funding through their utility token APZ, that will eventually provide access to the ROCKZ platform.
Where art thou stable coin in 2019?
Stablecoins have been one of the main talking points for the cryptocurrency community in 2018 and could be the driving force behind new regulatory standards, especially in light of Tether, the most popular stable coin, losing its alleged stability and falling to $0.91 back in October. For a fiat-pegged stable coin, the whole point is to maintain parity with the price of the traditional asset.
Tether is supposedly backed by the U.S. dollar, but the company behind Tether has never allowed an independent audit of its reserves. As of December 2018, the circulating supply of Tether tokens are over 1,850,000,000 and it is genuinely hard to believe that a company that switched banks immediately after the fall of its ‘stable’ token and moved to the Bahamas has almost $2 billion dollars in its reserves.
Nevertheless, Tether remains the most popular stablecoin on the cryptocurrency market. But its recent fall prompted many exchanged to expand their stablecoin options. In particular, Binance, who claim to be the world’s largest cryptocurrency exchange by volume, has recently added TrueUSD (TUSD), USD Coin (USDC) and Paxos Standard Token (PAX) to the platform. Paxos Standard Token was even listed as a base pair recently, which means it can be traded against every single cryptocurrency on Binance.
Considering how popular stablecoins have become recently and the fact that they are very closely linked to fiat, it’s clear that financial regulators in the U.S.
will soon find the legal framework they deem appropriate for stablecoins, especially the ones pegged to the U.S.
dollar.
Experts are currently speculating on which particular agency will regulate stablecoins, but some insiders are confident that very soon they will be classified as commodities, meaning that stablecoins will fall under the CFTC’s jurisdiction. We’ll just have to wait and see what happens.
Disclaimer: the author does not own any of the coins mentioned in this article..
