Bringing stablecoins to the next level

The extraordinary expansion of the cryptocurrency markets leads to the need for a stable digital currency, a currency that can be a safe haven in fiat currency terms, without exposure to the volatility risk of the market while being a means of exchange for market participants.

What is a stable coin?

The prime function of a stablecoin is stability.

For a currency, to function as a medium of exchange, it must represent a standard of value accepted by all parties for the short and medium term. To be used and exchanged as “unit of account” people are looking for a stablecoin because they want to be sure its value tomorrow will be predictable and close to today’s value.

This criterion favors fiat-backed tokens as they will track the price of the underlying asset rather than other digital assets and therefore most of them are easy to value.

Stablecoins already exist, the best-known being Tether. Their cryptocurrency USDT is pegged to the US Dollar. It was recently announced that Tether received subpoena from the U.S. Commodity Futures Trading Commission (CFTC). Because stablecoins users are looking for a safe haven, they are particularly demanding in terms of transparency on banking relationships (tier 1 or tier 2 banks) and on regular access to external auditing. According to recent press releases, the current solutions do not follow the transparency standards that prevail in the traditional financial world. Everyone agrees there is room for improvement.

GLOBCOIN’s vision for a smart stablecoin implies the following criteria:

1. A global currency, which offers stability. By stability, we understand low volatility against one or a group of national fiat currencies.
2. A currency that not only is stable but also acts as a store of value. That means this currency has to protect the purchasing power of its holder in the Global Economy. That also mean its performance has to be simple and rational by construction and not depend upon the effectiveness of any black-box system.
3. It has to be truly global and be exchangeable with all major national fiat and cryptocurrencies.
4. It has to be liquid i.e. it has to provide a tradable price at any moment for small or large amounts, from the equivalent of 10 dollars right up to 50 million dollars. In our vision, liquidity has to be achieved by having an elastic supply.
5. It has to be robust to market stress. The crypto market is volatile and there is a renewed interest for fiat-backed cryptos. Some projects promise to launch a stablecoin backed by a portfolio of cryptocurrencies and algorithmic smart contracts. However, we believe that algorithmic pegs are by nature fragile against tail-event type of scenarios (black swans) where cryptocurrency markets would undergo significant moves. At the same time, the ability to protect investors’ capital in times of significant cryptomarket volatility is the very reason why stablecoins are a necessity. To compensate for this fragility algo-pegs sometimes over-collateralize in order to create a capital cushion in case the strategy would fail to properly track the reference index. This now creates another flaw by making the algo-peg capital inefficient. Fiat-backed stablecoins do not suffer from these 2 flaws because they use a hedge with no market risk. Of course, on the other hand they create a different challenge since a true fiat hedge means being able to connect successfully with the traditional financial world. See next point.

6. It has to be 100% transparent and trustworthy. In its content; its creation; its redemption. We want Globcoin users to have the safety of a Tier 1 Bank and a regular auditing process by a recognized firm.

Who needs a stable coin?

Allocating to cryptos may be risky but the risk return has been hugely positive in the last few years. However, the lack of price stability still prevents the wide adoption of cryptocurrencies from several sectors such as institutional money. There are also a set of cases where a stablecoin is required even for a very short period:

• Investors who want to park money in a safe haven for a while, waiting for reallocation to new crypto opportunities
• Traders wishing to lock-in some profits on existing positions during a period of high volatility or the anticipation of market downtrend
• A crypto exchange wanting to transfer money without incurring in costs linked to fiat.
• An exchange wants to keep client money in crypto rather than fiat, especially for cost reasons
• An ICO sponsor wants to protect the value of the money raised in cryptos in something stable to pay current expenses of the company such as salaries and rents
• Many exchanges struggle to collaborate with banks that hesitate to partner with the crypto world. They need a stable unit of account for their own operations and their clients’ accounts. Now the crypto community needs more than stability.

What is Globcoin?

The Globcoin platform will initially support, among other instruments, a basket of the 15 largest currencies in the world and 5 % Gold, the Global Reserve Currency Index (GRCI). It will be the first peg product that will be implemented but others could be offered based on demand from the markets/investors.

Subject to the granting of a regulatory agreement, Reserve Currency Solutions — RCS SA, a Swiss company created in 2010, will issue fiat IOUs , pegged to the deposits of the currency components and gold of the basket at a prime bank. A prime auditing firm having direct access to the company’s bank accounts will provide a proof of reserves.

The GRCI basket (tokenized as GLX in the future) follows an intuitive and unbiased approach based on Purchasing Power Parity (PPP) that evolves as the world economy evolves. These characteristics allow the GLOBCOIN GLX to act as a global store of value, effectively creating the world’s first independent “reserve currency”. The portfolio of the basket aims to capitalize on the market trend towards a globalized and multipolar world by using a transparent rule-based weighting scheme based on each country’s GDP adjusted for PPP.

The currency allocation is well diversified and covers 85% of the world economy. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets. For example, the Chinese renminbi (accessed through non- deliverable forward contracts) accounts for 20 per cent, Indian rupee 8 per cent and Brazilian real 5 per cent. In contrast, the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies.

Our sister company Optiminvest in Geneva has been trading this basket for over 5 years. It has proven to be a true protection of purchasing power for clients from most countries in the world, and a very effective store of value under diverse market environments.

Composition of the Basket

Operational process

After obtaining all authorizations from Swiss and foreign regulators, RCS plans to issue Globcoin’s GLX as an ERC20 format token on the Ethereum Blockchain. RCS will hold deposits in the 15 currencies and Gold at a Bank, so tokens represent a claim on the underlying deposits. The digital token has value because it represents a claim on another asset with some defined value.

The token has value because it represents a claim on the multi-currency account held at the Bank. RCS will provide a transparent, auditable, and secure protocol. We are conscious that this model is centralized but the quality of the Bank and of the third party, auditing Firm will make holders comfortable in terms of counterparty risk and transparency.

Our team managed up to 23 Billion USD of currency mandates for institutional clients with daily reporting, providing full transparency on the positions that were held at a custodian as a result of the currency management activities with our pool of Foreign Exchange banks.

How GLOBCOIN brings stablecoins to the next level

By construction, the 16 components of the basket bring a huge diversification effect. Intuitively, if one currency goes down, others will go up. Since we started trading this basket five years ago, it proved to more than half the volatility of all usual fiat currencies against the major ones, for example: on average over the past year, the volatility of the British Pound against the US dollar is 8% and against the GLX is only 4%.

Even taking Gold or the Swiss Franc as a safe haven example, the basket demonstrates a perfect stability with a tendency to appreciate against major G7 currencies such as USD, Euro or the British Pound. Performance is also predictable, as it does not depend on human judgment or effectiveness on any black box system. The basket is managed according to a very detailed rulebook that will be at the community disposal upon request.

Store of value.

The basket covers almost 85 % of the world economy. We live in a Global World. For us a true store of value is to keep the purchasing power not only against a national but also against the world economy. Globcoin will do that, including an exposure to the fast growing economy of Asian and Latin American countries. Thanks to Blockchain technology, it is now possible to couple stability with performance to not only protect but also create value.

Liquidity

One of the challenges facing all stablecoins is instant liquidity. If an exchange, an investor or a hedge fund manager decides to purchase a certain quantity of stablecoins, he must be able to do so at any time of the day and for almost any size. The foreign exchange market is the most liquid of the world. According to the Bank for International Settlements, foreign-exchange trading volumes are over $5.3 trillion a day. The GLX derives its liquidity directly from the FX market.

Scalability

Because of the nature of the underlying assets (i.e. FIAT currencies) when issuing the token, the token is completely scalable due to the depth of the FX market.

Transparency

Furthermore, the conversion from the exchange of the cryptocurrency GLX against each of the component of the basket will be easy and transparent. As one example, we will publish on our website the theoretical value of the basket in real-time against each of its components. The components of the GLX are pegged toRCS segregated accounts at a Tier 1 bank. Audits will be performed daily by a prime name of the industry, through a direct web access to the accounts. Communications to the market will be done on a regular basis.

Security

This segregation means that the GLX related accounts are completely separate to the RCS operating account. The necessary purchases of currencies will be made every day from our Zug office with this bank. Our independent Swiss accredited auditor will have full access to monitor and verify these daily transactions from our Bank accounts.

All the operational processes of RCS will be submitted to the regulatory authority of Switzerland (FINMA) after the Sale has been completed. This will be our application for a license to operate on the following basis:

• Banking relationship — the right to open segregated accounts at our chosen Tier 1 bank
• Audit and Proof of Reserves — the auditor will be chosen from a Big 5 firm and discussions for this are already advanced. The auditor will have daily access to all the segregated accounts and be wholly responsible for daily auditing for Proof of Reserves / Proof of Liabilities.

Main features of the GLX

Digital Token ERC20 standard ✓

100% BACKED by national currencies , TRUST✓

Stable (more than Swiss franc) ✓

Usable as a Medium of Exchange ✓

Store of value ✓

One to one reserve ratio ✓

Proof of Reserves, auditable by a big five ✓

Fit for Individuals, Exchanges, Crypto currencies holders ✓

Transparent ✓

Unit of Account ✓

Conclusion

So far, the major stablecoin in circulation has been Tether. Today Tether (USDT) has a market cap of USD 2.210.000.000 and 24h volume of over USD 2.5 Bio , according to press articles ,it fails to offer the full amount of safety required to be an ideal safe haven. Alternatives in the form of black-box, algorithmic stablecoin are being offered. However they are either capital inefficient or would fail to offer perfect hedges in the situation of significant market stress in the cryptocurrency markets.

Globcoin builds an alternative that fills most of the needs of our crypto community for a stablecoin while having the full operational capacities of a cryptocoin. One could contest that it is a centralized model but being a basket of fiat, GLX introduces a proven diversification, is very stable , has a truly intrinsic value and is fully transparent, audited and managed by FX industry professionals .Globcoin will appeal to those looking for a fully transparent, reliably built, and professionally managed stablecoin.

The GLX is 100% backed by independently audited currencies at a Tier 1 Bank, 100% backed by a proven working system, 100% backed by an experienced team.

www.globcoin.io

*Written by: Helie d’Hautefort — Globcoin CEO