KRWR : A New Stable Crypto Backed Stable Coin
by Jay Jung (CFO & Token Economist)
Within an economy, money performs four functions: a measure of value, a store of value, a medium of transaction, a means of accounting.
In order to perform these functions smoothly, the monetary value must be stable. A measure of the value of money, which is a function of money, means that money is a tool for measuring the value of different goods or services. If monetary values are volatile and not stable, this function can not be performed properly. For example, if pen is $0.50 and a notepad is $1.50, it means that you can buy three pens or a notepad with $1.50, and one notepad is worth as much as three pens. However, let’s say the value changes dramatically. If a pen was $0.50 yesterday, $1.00 today and $0.30 tomorrow, the market does not function properly. Sellers will not sell goods when the price is high, and the buyers will hold as much as possible to buy when the price is low. When this happens, not only does the market fail, but the whole economy collapses.
In addition, the value of money is relative. If the value of the currency is fixed to gold, as it was before President Nixon’s 1971 declaration of the suspension of the dollar-gold conversion, or before that, the value of the currency between countries will be fixed by the number of units of money they have to pay to purchase a unit of gold, and so the exchange rate will be fixed. However, after the 1971 U.S. President Nixon’s declaration of suspension of the dollar-gold exchange rate, the exchange rate changed to free float, and the currency was traded freely in the foreign exchange market, as was the case with other financial instruments, and the transaction price became the benchmark for the exchange rate.
Let’s take a look at the case of Korea. As you can see, Korea was bailed out by the International Monetary Fund in 1997 due to the foreign exchange crisis caused by the won’s appreciation. On the macro level, the foreign exchange crisis was caused by the addition of the global imbalance in the international financial system in addition to the structural problems of the Korean economy due to rapid growth, but on the microscopic level, Koreans realized how much the financial system and exchange rate affected individuals. In particular, we have witnessed that the impact of exchange rates can lead to serious changes in not only macroeconomics but also in individual economic activities.
Remittance is one of the areas where exchange rate fluctuations have the greatest impact on individual economic activities. Especially, migrant workers who are not able to use banks for remittances are key users, so trivial exchange rate fluctuations and commissions also have a big influence. In the book “Saving Capitalism from the Capitalists”, Luizi Zingales, a professor of business administration at the University of Chicago and Raghuram Rajan, a professor of economics at the University of Chicago, said that even for the poorest people, capitalism and the current economic system can not be alienated. It has emphasized the need for a fair, transparent and mutually beneficial financial system that does not only serve the interests of the rich and the greedy. The REMIIT Team has been continuously working to create an remittance platform using blockchain as a kind of financial system that benefits everyone. One of the milestones is the KRWR, a KRW pegged stable coin.
The problem with many cryptocurrency, including bitcoin, as we have seen in the decaying bubble and its collapse from 2017 to 2018 is the overly high volatility. The cryptocurrency that rose to the grounds to solve this volatility problem were the various stable coins that are backed by USD. Tether, a representative stable coin, has a mechanism for depositing dollars in the bank accounts held by the company or foundation and maintaining the value by issuing USDTs corresponding to the dollar amounts. On the other hand, TrueUSD, USDCoin and StableUSD, like USDT, are valued in dollars, but their issuing process is different : market participants wishing to issue stable coins must sign contracts with the issuer or a trusted third party contracted with the issuer (in this case, a bank or equivalent financial institution) and send US dollars corresponding to the value of the stable coin to be issued. Given these issuance processes, the above mentioned TrueUSD (TUSD), USDCoin (USDC), and StableUSD (USDS) are all types of IOUs, redeemable certificates, or certificates of deposit on the blockchain.
However, these swaps are hard to achieve in South Korea. Since the government regards the transaction as a means of cryptocurrency as illegal, it is not possible to maintain the value of the cryptocurrency in Korean won by depositing the Korean won in a bank or a financial company. Even if this is possible, it violates the “Act on the Regulation of Conducting Fund-Raising Business Without Permission”. Therefore, we are trying to issue a stable coin KRWR with a value corresponding to the dollar pegged stable coin. Through this process, it is possible to issue a stable coin which can maintain the value without linkage with the won. To put it easily, the dollar-denominated Stable Coin and KRWR exchange process is similar to the SWAP transaction in financial markets. However, if SWAP transactions are exchanged between two parties with money or financial products that are needed by one another, KRWR is the way in which REMIIT becomes an intermediary when the exchange takes place.
In this way, market participants can exchange the stable coin denominated in dollars and the stable coin denominated in KRW without using fiat currency or exchange rate, which means that remittances can be made through the KRWR exchange process. In other words, if “A” in the United States sends a remittances to “B” in Korea, if “A” sends the USD pegged stable coin to “B”, “B” can exchange it for KRWR and then exchange it to Korean fiat won. This process is an intermediate step for us to go to remittances using REMI and REMD, which you can find in the white paper. In other words, staking REMI to acquire REMD to use it for remittance is our ultimate goal. KRWR is a stable coin denominated in KRW, which can be acquired through the staking of the USD pegged stable coin. Extending this approach not only allows us to develop in our desired direction, but it can scale to a platform where more cryptocurrency trades can take place.
South Korea is the world’s 10th largest economy in the international economy, and it is the fifth largest in the cryptocurrency market. In this market, fiat currency pegged stable coins will have a positive effect on both the economy and the cryptocurrency market, and the REMIIT Team will work harder to achieve the goal of building a remittance platform using blockchain.
More information can be found on the REMIIT Website
https://remiit.io
