Stablecoin issuer Tether is set to launch a stablecoin pegged to the British Pound Sterling in early July, using Ethereum as the first support blockchain.
According to a June 22 blog post from Tether, the GBPT will have a 1:1 ratio to the Pound Sterling and will provide a faster and less costly way of transferring assets:
#Tether To Launch GBP₮ Tether Tokens Pegged to the British Pound Sterling 🇬🇧
Tether executives are reportedly working with UK regulators to prepare the next steps for rolling out the GBPT. Paolo Ardoino, CTO of Tether, cites the UK as the “next frontier” for blockchain innovation.
We believe that the UK is the next frontier for blockchain innovation and the wider implementation of cryptocurrency for financial markets. We hope to help lead this innovation by providing cryptocurrency users worldwide with access to a GBP-denominated stablecoin issued by the largest stablecoin issuer,
Paolo Ardoino, CTO, Tether
Welcome to the Family
The GBPT joins the family of fiat currency-pegged stablecoins from the company, which also includes the recently launched MXNT, the Mexican Peso-pegged stablecoin.
On May 31, Tether announced that USDT had been integrated into Polygon, one of the largest Ethereum sidechains, providing more than 19,000 applications on the Polygon ecosystem with the ability to use USDT.
Tether is expanding its family of stablecoins at the same time that the company is denying claims that its commercial paper portfolio is mostly backed by Chinese commercial paper, the reason why a US$4 billion hedge fund has placed a short bet against Tether.
Last month’s Terra’s UST collapse has caused a domino effect on several stablecoins in the market. This time, Abracadabra’s Magic Internet Money (MIM), another US dollar-pegged stablecoin, started de-pegging on June 18, falling to US$0.92 per token in nearly three hours.
The de-pegging started on June 17, around 7:00 am UTC. According to Twitter handle Autism Capital, an insider revealed that Abracadabra had accrued US$412 million in bad debt as a result of Terra’s UST meltdown “because liquidations couldn’t happen fast enough to cover the protocol’s MIM liabilities”:
We have a scoop from one of our associate autists: MIM (Magic Internet Money) may be nearly insolvent. MIM is one of the larger stablecoins, with a market cap of ~$300M.
We can't believe that a project called Magic Internet Money has been acting irresponsibly either.
Autism Capital shed some light on the founder of MIM, Daniele Sestagalli, who allegedly created more “bad debt” by letting his SPELL position get liquidated. SPELL is an Ethereum-based token that governs Abracadabra.
Accordingly, Wonderland, a crypto venture firm that shared team members with Abracadabra, withdrew US$50 million in USDC from the MIM Curve pool on June 17, causing considerable pain to the pool’s balance:
Not sure what's going on with $MIM, but the Wonderland treasury addy withdrew $57m $USDC single-sided from the MIM Curve pool today.
The thread further explains that Abracadabra decided to buy CRV instead of using funds from the MIM treasury to pay the debt. But Abracadabra took down its analytics dashboard to “upgrade it” and the timing of its dashboard shutting down was a mere coincidence.
Sestagalli refuted the allegations, stating that the MIM treasury has more funds to pay off debt. For proof he shared the treasury’s address, which currently holds over US$13 million.
Terra Domino Effect Persists
The collapse of Terra’s UST stablecoin not only affected investors worldwide but has also caused a domino effect on stablecoin projects. Soon after Terra’s meltdown, TRON’s algorithmic stablecoin USDD started losing its peg with the US dollar on June 7. To prevent a Terra-type fiasco, TRON announced that USDD would be overcollateralised by a ratio of at least 130 percent.
Before TRON and Terra, the Waves Protocol-backed Neutrino Dollar (USDN) also lost its peg to the US dollar, dropping more than 15 percent amid speculation of market manipulation.
Tron blockchain founder Justin Sun has declared that US$2 billion will be deployed to “fight” investors shorting Tron’s native currency, TRX, in an attempt to stabilise the Tron-based algorithmic stablecoin USDD:
Funding rate of shorting #TRX on @binance is negative 500% APR. @trondaoreserve will deploy 2 billion USD to fight them. I don't think they can last for even 24 hours. Short squeeze is coming. pic.twitter.com/VRExM6UK70
— H.E. Justin Sun 🅣🌞🇬🇩 (@justinsuntron) June 13, 2022
USDD lost its US dollar peg on June 13, dropping as low as US$0.91 on the KuCoin exchange.
Many investors now fear the Tron ecosystem may follow in the wake of Terra, which spectacularly collapsed last month after its algorithmic stablecoin, UST, suddenly and dramatically depegged. At the time of writing USDD had still not regained its peg. CoinGecko was reporting its price as US$0.98.
USDD Over-Collateralisation Fails to Prevent Depegging
In the wake of the Terra collapse, Tron announced USDD would become an over-collaterised stablecoin – that is to say that each USDD would be backed by more than US$1 in assets held in the Tron DAO Reserve. This move was intended to shore up investor confidence in the new stablecoin and to prevent the kind of depegging event we are now witnessing.
Since USDD lost its peg this week, the Tron DAO Reserve has added another US$650 million worth of USD Coin to its reserves in what it describes as an attempt to “safeguard the overall blockchain industry and crypto market”:
To safeguard the overall blockchain industry and crypto market, TRON DAO Reserve have increased 650,000,000 #USDC supply on #TRON. Currently USDC supply on TRON has reached $2.5 billion.
In his tweet about the depegging of USDD, Sun indicated that the massive shorting of TRX was the cause and he believes the deployment of US$2 billion to protect TRX will be enough to swiftly restore USDD’s peg.
Although Sun’s big talk may appease some Tron diehards, it likely won’t comfort the broader market. The Terra-based algorithmic stablecoin experienced a similar ‘minor wobble’ the day before it depegged catastrophically, with no amount of spending by the Luna Foundation Guard, the Terra equivalent of the Tron DAO Reserve, sufficient to save it.
Leading Australian digital payments company Novatti has announced that it will be partnering with Ripple to bring its Australian dollar stablecoin, AUDC, to the XRP ledger.
The company had previously announced a partnership with Stellar in May to bring the stablecoin to the Stellar blockchain.
Novatti’s AUDC stablecoin will be dollar-for-dollar backed by real Australian dollars – which seems a wise decision, given the recent chaos surrounding under-collateralised algorithmic stablecoins.
Development to be Largely Funded by Ripple, Stellar
Announcing the Ripple partnership, Novatti CEO and managing director Peter Cook said that much of the cost of developing the AUDC stablecoin will be borne by Ripple and Stellar:
Ripple and Stellar are largely funding the development work and even some of the marketing work that we do to get our stablecoin service out.
Peter Cook, CEO and managing director, Novatti
Cook said grant funding from the two blockchain networks would underpin the project until it started generating sufficient transaction fees to amass revenue on its own.
“For the next year at least, revenues will be from a number of payments from Ripple and Stellar for their grant programs that ameliorate our tech build costs and some of our marketing costs. As we start to monetise later this year, we’ll start to get transaction fees from the stablecoin service as well.”
Novatti Sees Opportunity in Stablecoins
Cook said the creation of AUDC and partnerships with Stellar and Ripple provide Novatti with the opportunity to expand its traditional payments business into the world of digital assets, potentially broadening its market and the use cases for its platform.
“Stablecoins for us is essentially a major foray into digital assets – we are still a payments company, a traditional payments company, but this now gives us a major entree between cryptocurrency, which goes up and down and is subject to other market forces, and real utilitarian crypto-based assets,” Cook said.
“So we build the stablecoin, it becomes part of our ecosystem or our infrastructure, which is licenses, tech, commercial partnerships, and from there we leverage and monetise it for either our financial services customers or end business type customers,” he added.
We will provide services such as stablecoin-as-a-service and also holding and transacting of funds for things such as cross-border payments, on-ramps/off-ramps for cryptocurrencies, and other services yet to be seen.
Peter Cook, CEO and managing director, Novatti
Both Stellar and Ripple have been active recently in partnering with organisations to develop use cases for their tech. In early June, Stellar announced it had partnered with MoneyGram to facilitate stablecoin remittance payments and last November Ripple joined forces with Pacific island nation Palau to develop an eco-friendly digital currency.
The Japanese government has agreed to pass a law that will regulate stablecoins, defining them as digital money and protecting Japanese citizens from potential losses on their crypto investments.
This follows last month’s implosion of Terra’s UST and LUNA:
Under Japan’s law, stablecoins can only be issued by established financial institutions like registered banks, money transfer agents, and trust companies.@shaliniX0 reportshttps://t.co/7HFKrx47Nn
In 2021, Japan’s Financial Services Agency prepared a bill to clarify the legal status of stablecoins. This week, that bill successfully passed through the upper house of Japan’s parliament and will come into effect in 2023. Under the legislation, stablecoins must be linked to either the yen or another legal tender, with holders guaranteed the right to redeem their stablecoins at face value.
The move will mean a safety net for investors who are currently on edge or recovering from large losses after the TerraUSD (UST) crash that saw LUNA tank. The legislation also means that stablecoins can only be issued by a licensed bank, trust company, or registered money transfer agent:
Japan to guarantee stablecoin #JPY pegs. A move to full reserve banking if they hold reserves in bonds. If JPY is held in a bank then bank can create more $JPY with the $JPY backing – Japan Passes Crypto Stablecoin Bill That Enshrines Investor Protection https://t.co/clIGJjvGMK
— Simon Dixon (Beware Impersonators) (@SimonDixonTwitt) June 3, 2022
Currently, Japanese exchanges do not list stablecoins, and it is worth noting that this newly passed law will not address overseas asset-backed stablecoins and their algorithmic equivalents. The law also takes aim at money laundering.
Controversies Surround Stablecoins
Following last month’s fall of Terra, a South Korean LUNA investor attempted to take matters into his own hands after losing US$2.4 million in the collapse. The investor literally knocked on the front door of Do Kwon, founder of Terraform Labs, to speak with him about the loss. While the act was not technically deemed to be trespassing, the investor was arrested and is likely to face a fine.
Last week, the Bank of England (BoE) agreed to “rescue” collapsed stablecoins to protect holders. The announcement came from HM Treasury and suggested that the BoE is eager to amend financial legislation to pull crypto under its jurisdiction.
Closer to home, the Australian and New Zealand Banking Group (ANZ) announced plans to extend the usage of A$DC – its cash-backed stablecoin – to meet demands from institutional customers.
TRON has announced that its recently launched algorithmic stablecoin, Decentralised USD (USDD), will be over-collateralised by a ratio of at least 130 percent in an effort to prevent a UST-style depegging event and to inspire confidence in the new coin.
📢#USDD has officially upgraded to be the first over-collateralized decentralized #StableCoin! Currently collateralized at over 200% with a guaranteed minimum collateral ratio of 130%!
When USDD launched on May 5, just before the Terra collapse, it was structured like most other algorithmic stablecoins with little in the way of collateral backing its value. Since then, TRON has prioritised increasing USDD’s collateralisation – according to data on the TRON DAO Reserve website, the ratio at the time of writing was 219.8 percent.
Ratio Among Highest In Crypto
The claimed guaranteed minimum 130 percent collaterisation of USDD touted by TRON makes it perhaps the most highly collateralised stablecoin in all of crypto, outdoing the previous standard bearer, DAI, with its collateralisation ratio of 120 percent.
According to TRON, the TRON DAO Reserve (TDR) currently consists of around US$1.37 billion of what it describes as “highly liquid assets”, including 10,500 Bitcoin (BTC), 240 million Tether (USDT), and 1.9 billion in TRX, TRON’s own coin. Currently there is around US$667 million USDD in circulation.
Move Intended to Instill Stability, Confidence
TRON founder Justin Sun says the over-collaterisation of USDD is one of several strategies being used to maintain the coin’s stability and promote market confidence:
Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralised USDD will add more diversified features to underpin its stability. The US$10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralised stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.
Justin Sun, founder, TRON
As seen with the catastrophic collapse of Terra, having collateral as backing is no guarantee that an algorithmic stablecoin won’t suddenly and spectacularly lose its peg. During Terra’s collapse, the Luna Foundation Guard deployed billions in Bitcoin and other assets to restore UST’s peg, to no avail.
Since the launch of USDD, TRON has become the third-largest blockchain for DeFi by total value locked (TVL), soaring to over US$6 billion and promising intrepid users Terra-like annual rates of return of over 20 percent.
In the wake of the Terra ecosystem collapse, the UK’s financial and economic ministry, HM Treasury, has released a consultation paper on systemic failures within what it terms “digital settlement assets including stablecoins”. Its recommendations have taken some by surprise.
A significant move by the Bank of England to manage risks associated with failure of stablecoins
The institute has also included regulation of transfer of digital assets in its agenda to future proof the financial system of threats & protect investors https://t.co/DXZaPZ7XHm
— Nischal (Shardeum) ⚡️ (@NischalShetty) June 1, 2022
Managing ‘Systemic Failures’
As per the consultation paper, HM Treasury has announced that the Bank of England (BoE) would intervene to direct and oversee collapsing stablecoins if, in its judgement, a stablecoin issuer has “reached a system scale fail”.
The government considers that it is important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA [digital settle asset] firms for the purposes of financial stability.
HM Treasury consultation paper
The document prepared was delivered in response to a consultation process in relation to the entire crypto sector which began earlier this year and concluded last month.
HM Treasury offices. Source: Wikipedia
The British government is reportedly keen to amend prevailing financial legislation in order to bring crypto under the jurisdiction of the BoE, including instances where specific stablecoin issuers reach financially precarious positions.
Interestingly, the paper suggests that the revised rules would apply in in the case of stablecoins and “might include – but [are] not limited to – the issuer of a stablecoin, a wallet, or a third-party service provider”.
The government clarified that the central bank would intervene in the event of a “systemic collapse”, defined as “deficiencies in a system’s design or disruption to its operation [that] may threaten the stability of the UK financial system or have significant consequences for businesses or other interests”.
Broad Powers to the BoE May Flow On
At this early stage, the nature and extent of the central bank’s powers are largely unclear. However, on a closer inspection of the language used throughout the consultation paper, it’s evident that HM Treasury is looking to offer the BoE the broadest possible powers given the proliferation of references to “direction” and “oversight”.
While the UK has thus far proved to be crypto-friendly, one of the main concerns flowing from the USDT/LUNA fiasco was fears of increased regulation. It now appears that such fears were warranted given this latest move by the British government. One should probably expect the other G7 nations to imminently follow suit.
The Australian and New Zealand Banking Group (ANZ) wants to extend the usage of its cash-backed stablecoin, A$DC, amid demand for access to it from its institutional customers. It also seeks to target additional use cases through a pilot program with the federal government and extensive engagement with regulators.
A$DC was launched by ANZ in March and has so far been used primarily to ease crypto trading for one of its major corporate clients, Victor Smorgon Group. It’s a fully collateralised stablecoin, unlike the recently collapsed Terra-based UST which was an algorithmic stablecoin.
Stablecoin to be Extended to More Institutional Customers
Speaking to the Australian Financial Review, ANZ executive Nigel Dobson said the bank was looking to extend the use of A$DC to a wider number of institutional customers, driven largely by customer demand:
Are we going to extend it [the A$DC]? Yes, absolutely we will. And this will be based on our institutional customers’ demand, as they reveal, increasingly, their own tokenisation strategies.
Increasingly, real-world assets, such as real estate and art, are being tokenised and traded on blockchains. Dobson believes this trend will continue and will provide several advantages over the way these assets have traditionally been traded:
“We believe that tokenised assets can be inexorably developed to deliver greater efficiency, speed, transparency, and value for customers over time,” Dobson said.
Pilot to Collect Excise Tax, Plans for Carbon Credits
A$DC is also being used in a pilot program, in cooperation with the federal government, designed to ease the collection of excise tax in the distilling industry. The program uses smart contracts to facilitate the collection of excise – according to KPMG, this single-use case could result in the recovery of at least A$45 million per year in lost tax revenue.
Another application on the horizon is the use of stablecoins to increase liquidity in carbon credit markets, an area in which ANZ sees huge potential for growth:
We think that’s going to have exponential growth over the next 10 years, and the elements of tokenisation that can be applied to that marketplace to make it much more efficient, more global and, frankly, more available to a wider range of consumers but certainly to institutional investors.
Nigel Dobson, ANZ Executive
As part of its push for increased usage of its stablecoin, ANZ has been working closely with several regulators, including the Australian Prudential Regulation Authority (APRA), the Securities and Investments Commission (ASIC) and financial intelligence agency AUSTRAC, to develop a framework for the use of stablecoins in the Australian economy.
Dobson said that so far, the conversations with regulators have been positive, explaining that “it is nice to see APRA, ASIC and AUSTRAC all on the same virtual call together. We’ve got this kind of coalition of the curious going on at the moment, which I think is wonderful, and you know, the integrated interactions have been incredibly constructive.”
ANZ into NFTs, Crypto Not So Much
ANZ seems to be focused more on the potential of tokenised assets and NFTs rather than cryptocurrencies such as bitcoin. The bank sees its role primarily as providing a stablecoin that can streamline transactions and simplify the sale and purchase of assets.
“We believe stablecoins form a very important element of the settlement value and the settlement process,” Dobson said.
Initially A$DC will only be offered to institutional customers, but in the longer term, retail customers may well gain access to the coin to simplify crypto trading and the purchase of both metaverse-based digital assets and tokenised real-world assets:
We think that the growth area is not going to be so much in crypto, but in NFTs. NFTs are already in the market around sports memorabilia and [can extend to] anything digitally created.
Nigel Dobson, ANZ Executive
ANZ Bank has had an interest in developing stablecoins and CBDCs for some time; last September, the bank was one of 15 finalists in the Monetary Authority of Singapore’s Global CBDC challenge, which attracted more than 300 submissions from 50 countries.
International cross-border remittances company MoneyGram is partnering with the Stellar blockchain to allow Stellar wallet users to transfer USDC stablecoins redeemable for fiat currency through MoneyGram:
JUST IN: MoneyGram has partnered with #Stellar to allow users to convert fiat – $USDC.
In an attempt to drive down remittance costs, Stellar and MoneyGram seek to enable speedy low-cost transfers with a sleek user experience.
Currently, most international remittances are expensive and inconvenient. MoneyGram’s partnership with Stellar aims to reduce both the costs and friction of remittances by granting Stellar wallet holders the ability to receive USDC stablecoins that can then be converted into fiat currency worldwide.
Speaking to Bloomberg, MoneyGram CEO Alex Holmes shared his optimistic view of the crypto sector:
It [crypto] is here to stay and it’s going to be here for a long time despite recent selloffs and volatility.
Alex Holmes, MoneyGram CEO
MoneyGram CEO stated that crypto and fiat are not really compatible and MoneyGram goal is to establish a bridge between the two;hence the partnership with stellar blockchain to convert fiat to USDC.MoneyGram is already providing Bitcoin services to clients.MoneyGram is doing well
Notably, the company has opted for an asset-backed stablecoin in the form of USDC, not an algorithmic one such as USDT, which recently imploded. In fact, Circle, the company behind USDC, has come out publicly amid the USDT/LUNA fiasco and assured that a depegging of its stablecoin is highly unlikely as it is fully backed by safe liquid assets:
We’re not taking the dollar and putting it in the reserves and then lending it out. Instead, the reserves are strictly cash and US Treasuries.
Dante Disparte, CSO, Circle
El Salvador a Potential Market
In the interview with Bloomberg, Holmes commented on El Salvador’s move to adopt bitcoin as legal tender, saying he was working with authorities to drive adoption:
If a country like El Salvador is going to make Bitcoin seamless with US dollars in country, I think that consumers, through MoneyGram, should be able to transfer Bitcoin to El Salvador or transfer dollars and convert them to Bitcoin. If that’s where the world is going, let’s participate in that world, and let’s see how we can help fulfill that opportunity.
Alex Holmes, CEO, MoneyGram
Few would argue that the world needs cheaper and faster remittance technology. Recipients are often those who can least afford the exorbitant fees, often as high as 20 percent if one takes into account the minimum amount required to be sent.
Tron has become DeFi’s third-largest blockchain, with the launch of its new Terra-like algorithmic stablecoin promising yearly returns of more than 20 percent.
#TRON is shining as the best performing top project in the "freezing" May!☀️
Also, #TRON is experiencing rapid growth📈 in #DeFi, ranks as the third largest blockchain in terms of #TVL on-chain, trailing only @ethereum & @BNBCHAIN.🚀
In terms of total value locked (TVL), Tron now trails only Ethereum and BNB Chain. The surge in TVL can be attributed to its algorithmic stablecoin USDD, which has grown to US$545 million on the promise of 30 percent “risk-free” yields.
Top 10 ecosystems. Source: DeFi Llama
Tron’s USDD follows a similar stabilisation method to Terra’s UST stablecoin, which suffered a US$40 billion loss last month. According to data from DeFi Llama, Tron’s DeFi ecosystem has grown by almost 44 percent over the past 30 days, from US$4 billion to US$5.99 billion at the time of writing. BNB Chain and industry leader Ethereum are at US$10.8 billion and US$93 billion, respectively.
What is Driving Tron’s Growth?
The growth observed on the Tron network is primarily driven by the double-digit returns promised by USDD – very similar to what Terra’s UST offered. USDD is not backed by anything, but governing the stablecoin’s dollar peg is an arbitrage trade between USDD and TRX, Tron’s native token.
Investors can always swap 1 USDD for US$1 worth of TRX, and if the price of USDD falls below the dollar peg, they can buy the discounted USDD and swap it for TRX, thus pocketing the difference by selling TRX on the open market.
