Oct 17, 2020
The Week In Stablecoins — 6 Highlights 10/17/20
As stablecoins continue their march to $1 trillion market cap, here are the five stories we found most illuminating this week:
1. The Chinese Government Airdropped About $30 Of It’s DCEP (Digital Currency, Electronic Payment) To 50,000 Residents
50,000 Shenzen residents were winners of a lottery where the prize was having a$30 worth of DCEP, China’s central bank digital currency (CBDC), airdropped in to their government issued digital wallets. In addition to giving the Chinese precision control over its monetary policy, DCEP could be the trojan horse that allows the Yuan to emerge as a competitor to the dollar as the world’s trading and reserve currency.
One digital Yuan recipient described the experience as “… not really different from using popular e-pay apps such as WeChat Pay and Alipay.”
2. MakerDAO’s Embrace of Centralized Stablecoins Offers Risks and Rewards
As the dominant “decentralized “ stablecoin, dai has struggled to maintain it’s peg to the U.S. dollar:
Dai’s inability to maintain it’s peg is due to the massive demand driven by DeFi/yield farming. So Maker decentralized governance voted to make it easier for to use centralized stablecoins as collateral to mint new dai. As a result, Ethereum accounts for only 40% of total collateral today, while 51% of dai outstanding was minted using centralized stablecoins (e.g. USDC, Paxos Standard, and TrueUSD) as collateral. While this has helped to get dai closer to the peg, the use of centralized stablecoins comes with its own set of risks.
3. Bloomberg’s Chief Crypto Analyst, Mike McGlone, Predicts Tether Will Surpass Ethereum In Market Cap in 2021
Q4 Bloomberg Crypto Outlook — October 14
Based on regression analysis dating to the start of 2019, Tether’s inexoraable market cap growth suggests it’s “… on pace to match the capitalization of Ethereum in a bit less than a year.”
4. The Digital Dollar Project Proposes Nine “Pilot” Scenarios To Accelerate The Rollout Of a U.S. CBDC
Proposed Pilot Programs — October 12th
The Digital Dollar Project is a collaboration between Christopher Giancarlo’s , Digital Dollar Foundation and the U.S. consultancy Accenture to advance exploration of a U.S. CBDC. Giancarlo, the former head of the Commodity Futures Trading Commission, leads the project, and this week’s proposal seeks to illuminate various use cases for a U.S. CBDC. One pilot envisions the Depository Trust & Clearing Corporation, which provides clearing and settlement services to the financial markets, to test atomic settlements of tokenized cash and securities.
The U.S. is far behind China and other countries in developing a CBDC, and the Digital dollar Project is trying to rectify that situation. Progress has been slow.
5. The Financial Stability Board Warned That Stablecoins Pose Systemic Risk To The Monetary Systems Of Nation-States
Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements — October 13th
The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009. On Tuesday last week, The FSB published a 73 page report opposing the trans-national ambitions of “global stablecoins,” such as Facebook’s Libra project. There were dozens of risks outlined in the 73 page report including:
- If a GSC were widely-used as a common store of value, even a moderate variation in its value might cause significant fluctuations in users’ wealth.
- If widely used for payments, any operational disruption in the GSC arrangement might have significant impacts on economic activity and financial system functioning.
- If users relied upon a stablecoin to make regular payments, significant operational disruptions could quickly affect real economic activity, e.g. by blocking remittances and other payments.
- The potential failure of a GSC might expose financial institutions involved in the GSC arrangement to adverse confidence effects.
- Macrofinancial risks may arise particularly if households and businesses come to hold substantial portions of their wealth in GSCs, rather than in local currencies, impacting exchange rates and domestic bank funding and intermediation.
6. Tether Continues To Increase It’s Dominant Position Or Trading Pairs
The Tetherization of Trading — The Block, October 12th
While Tether’s initial trading pair growth was driven by trading on spot exchanges, growth is now being driven by it’s increasing share of trading on derivatives exchanges as BitMEX’s market share dwindles.
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