Digital Asset Alliance is a NEO backed initiative discussing security token related issues. We aim at building an open-source platform for the security token life-cycle service providers, and developing best practices for the growth of digital networks.
Projects Introductions and Discussions
- Harvey Xu (Alchemint, https://alchemint.io/#/home )
- Christoph Klocker (Novem, https://novem.ag/)
- Sebastien Hess (Alprockz Ltd, https://www.alprockz.io/)
- Lili Zhao, Sarah Song (NGD team, https://neo.org/)
2. Lili: what're the advantages of the gold-backed stable coin compared to other types of stable coins.
Christoph: “I guess this leads back to what gold is about, gold is a store of value for thousands of years and it’s going to be a store of value in the future as well. Just the same as the value of Bitcoin due to its scarcity and that there is no endless amount of it. Comparing it to fiat currencies, gold is less influenced by politics. Just look at the euros, it is exposed to the political risk and economic risk of those unstable countries behind it if you use that. So we think that gold is maybe like an alternative and additional choice to fiat and fiat stable coins. It is always an international value of exchange, it does not matter who and where you are. Maybe one of the biggest advantages that we learned about is that if you used stable coins, just to get out of the risk of the volatility in cryptocurrency and switch to the US dollar or another fiat backed currency, you will get taxed. But in some jurisdiction, you will not get taxed if you switch to gold, it is less volatile and you won’t get taxed and that would be a huge advantage in terms of trading.”
3. Lili: Is there any regulatory authority or regulations applied to create ROCKZ, a Swiss Francs backed stable coin?
Sebastien: “Switzerland doesn’t have a specific license for crypto companies, the regulatory standpoint in Switzerland is clear. They apply the exact same laws and regulations as they would for security if it’s a security. And, if it’s not a security or STO, it has been categorized in two types of solutions: one is utility token like any of the early ICO tokens that you’ve seen around and another one is payment token like Bitcoin. So in our case, we didn’t follow any specific guideline for the cryptocurrency company. We actually followed a normal financial intermediary guideline, which means that we had to set up the company in terms of KYC/AML procedures in order to be able to operate. Now, FINMA actually gave ruling where they actually decided that ROCKZ token is a payment token which means we do not need to follow any of the STO regulations which makes it so much lighter in terms of listing, etc.
Now we are a financial intermediary, we deposit money with third-party custodians. People purchase ROCKZ and provide us with assets whether its fiat currencies like the Swiss franc or Euro, we would deposit this money in a bank account, and we issue the stable coin on demand, which means that we are fully backed and we don’t pre-mint any of the ROCKZ. Now ROCKZ can be also bought with Bitcoin / Ethereum. We worked with some partners, where we sell Bitcoin/ ETH against Swiss franc and then collateralized the fiat, which enables us to have at any point in time one hundred percent backing. We have what we call segregated accounts, which means it’s not an account we can touch. We have one custodial account with three banks in Switzerland, and that enables us to mitigate the risk. For our users, if we bankrupt as a company, the funds are not at risk and if the financial institutions we are using have issues, we actually deposit across several of them in order to mitigate the risk that we could have also as a counterparty risk on the banks. Besides, we’re audited by a big four auditor on a monthly basis and partnered with VQF as our yearly auditor for every KYC/AML. ”
4. Christoph: is there any E-money regulation as well in the European Union or because you’re in Switzerland you don’t have to deal with this?
Sebastien: “We are not seen as e-money, but a payment token. Swiss law didn’t actually create any of these frameworks. Now, in the European Union, if you were to have an entity outside of Switzerland, E-Money would typically be the license you will need to operate. ”
5. Lili: How many ROCKZ are in circulation?
Sebastien: “The supply of ROCKZ is fluctuating with the market. We’re growing organically. For now, we restricted the access to the platform to only our private sell contributors, and we are now scaling up and also looking for partnership in order to increase our ecosystem.”
6. Sarah: Can ROCKZ be circulated in US or Asia market?
Sebastien: “Asia is no problem. But we cannot on board any US citizen as a platform user and as a token investor for compliance reasons in Switzerland. For Asia, there’s no problem. We are listed in a Korea exchange and we have users from Japan, Singapore. ”
7. Lili: What’s the biggest challenge and advantage of creating a cryptocurrency backed stable coin?
Harvey: “Alchemint is the first stable coin on NEO, and we are decentralized stable coin. So all users can log in to “Alchemint.io”, to issue their own decentralized stable coin-SDUSD. Decentralized stable coin has better transparency than centralized stable coin as compared to USDT/PAX/ TUSD etc. As for the challenge, the main challenge goes to the code complexity. We have deployed about seven complicated smart contracts to fulfill our whole function so it might be one of the most complex programs on NEO. Secondly, risk management is important and challenging. Due to the high volatility of cryptocurrency, we need to guarantee that each SDUSD is backed by NEO, which values at least 1.5USD. ”
8. Lili: What’re the most likely applications of Alchemint in the near future?
Harvey: “We think that the best users scenario for the decentralized stable coin is dApps. I believe that decentralized stable coin can be widely used to measure value in this distributed and decentralized business, just like dApps. But most of dApps such as game dApps and the market prediction dApps, they don’t want to use the stable coin as their basic currency. They want to issue their own token, to raise money or for other reasons. But to be honest, from my point of view, I don’t believe that is a good option and for non-fungible tokens such as Crypto Kitties, it is quite a good choice to choose stable coin as their internal token to do transactions. ”
9. Lili: What’s the main advantage of ROCKZ compared to other fiat backed stable coins?
Sebastien: “I think there are several aspects. Firstly, as a ROCKZ holder or investor, you are a guaranteed under Swiss law that the funds are fully backed 100%. You cannot have the fractional reserves as what we’ve seen with Tether. Secondly, I think it’s from a regulatory or a financial environment, we use Swiss banks which are in Switzerland, and we have a long history in Switzerland of financial freedom and security of our financial assets. We have over a quarter of all offshore financial assets in custody with Swiss financial institutions, so that there’s a level of security that you don’t find with banks abroad. If you look at the US, the regulators can freeze assets. So look at GUSD or PAX, they have a line of code that enables them to freeze the stable coins if the regulator asks for it. So all of that makes our solution more robust and also more transparent. Plus, it is a payment token and not security which makes it way easier to transact with, pay with versus security.”
10. Lili: what are your current priorities?
Christoph: “As a gold backed token, we’re seen as a security. So we need to get all the regulations related work to be finished. Then, we can talk to exchanges which can list security tokens and get more liquidity.”
Harvey:“ We will do some cross chain work and diversify the types of collateral asset.”
Sebastien: “I think I’m very pessimistic about listing and pursuing large exchanges is really a strategy for a stable coin. I personally saw from my experience that this doesn’t bring once you would assume it brings especially in terms of volumes. Our main priority now is to develop an ecosystem around our solution. We’re talking with large brokers in Switzerland and, network or ecosystem just like NEO is very appealing as well. Our focus is really to create adoption for real use case. ”
11. Lili: Do you think that there are too many stable coins in the market or do you think we still need more? Do you see any consolidation can be applied?
Christoph: “If we look at all of the stable coins out there, most of them are not really fully backed. So I guess it’s a good thing that competition comes in, only the real and the good projects will stay and succeed. But I think it will take some more time until that really happens. Now, new stable coins will just come on and you’ll see what works best. ”
Sebastien: “I think it’s very good to have an alternative because I don’t think the markets really reflect many of the risks attached to all the different stable coins because there is a lack of transparency. And, we can see clearly what happened with Tether, it is a great example and it is not the only one. But in the long run, we don’t need ten plus or fifty plus USD backed stable coin. I think the stable coins that have a real crypto portfolio which means they’re part of the decentralized blockchain like Ethereum and NEO, will consolidate in the end. But it doesn’t mean that for certain segmented use cases like WhatsApp payment or banking settlements, you would have more and more solution coming to the market like JP Morgan coin and Facebook coin. However, when you look at the largest cap at the moment, there is already too many of them. And if you look at real volumes behind those stable coins, it’s pretty clear that there’s not enough space today or any room for all of them.”
Harvey: “I don’t think there are too many stable coins in the market. We can issue decentralized stable coin based on different chains. And the centralized and decentralized stable coin are not the same. So I think that they will compete with each other, and we’ll see which one will survive in the future. ”
NGD will keep holding roundtables with different players which including issuance platform, KYC/AML provider, broker-dealer, OTC platform, security token exchange, custodian, and etc.
The team has also created a Global Blockchain Compliance hub:
Global Blockchain Compliance Hub
Blegium: Non-profit/For-profit Company Registry Requirements Belgium: Team Member Nationality Requirements Belgium: Tax…
We’d like to invite NEO global community to join us, and together create a public sourcing platform of compliance and regulation.
Disclaimer: The information contained in this article has got approvals from all attendees for publishing, and should not be construed as legal advice on any subject matter.