During the US House Financial Services Committee meeting on September 30, the chairman of the Federal Reserve, Jerome Powell, confirmed that he doesn’t have any intention to ban private cryptocurrency.
For months now, many US crypto investors have been concerned that the government could ban bitcoin and other cryptocurrencies on the issuance of a central bank digital currency, as seen with China. This was based on Powell’s comment in July, where he precisely said: “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency.”
However, in the recent meeting, Powell claimed he had “misspoken”. In his words, there is “no intention to ban” cryptocurrencies in the US; however, stablecoins need to be regulated.
Stablecoins are like money market funds, they’re like bank deposits, but they’re to some extent outside the regulatory perimeter, and it’s appropriate that they be regulated.
Jerome Powell, US Federal Reserve chairman
China Took a Different Approach to Crypto
Evidently, the Chinese government’s approach to crypto is similar to the previous statement made by the US FED chairman. While China is in the pilot phase of testing its long-planned central bank digital currency, it has prohibited the trading, investing, and use of private cryptos in the country. Several mining pools and exchanges have ceased supporting users from China following the latest announcement by the central bank.
Nevertheless, the crypto market was pleased with Powell’s clarification, as bitcoin and other crypto began to spike thereafter. Just a day after the FED chairman clarified his previous statement, the price of bitcoin spiked to nearly US$48,000, resulting in the liquidation of over US$47 million short positions within an hour.
Bitfinex, the company behind stablecoin Tether (USDT), has secured an important win in a class-action lawsuit levelled against the controversial company. Half of the complainants’ claims were summarily dismissed.
NY Court dismisses half of class action plaintiffs' claims against Bitfinex: https://t.co/zNaCkRrqs3
We are grateful for Judge Failla's opinion, which exposed many deficiencies in the plaintiffs' case.
Court documents suggest that iFinex (Bitfinex’s parent company) was successful in its application to dismiss claims that it had manipulated the crypto market. In total, the court dismissed five claims and part of one. Six other claims, however, remain in play. Importantly for Bitfinex, all claims under the Racketeer Influenced and Corrupt Organisations Act (RICO) were dismissed.
The initial complaint was made in 2019 and claimed that the firm had manipulated the crypto market by issuing unbacked USDT “in an effort to signal to the market that there was enormous, organic demand for cryptocommodities”. The argument was that Bitfinex sought to inflate crypto prices “thereby creating and sustaining a ‘bubble’ in the cryptocommodity market”.
Tether took to its website to announce the victory:
With half their case now dismissed, their primary expert debunked, and their lead law firm embroiled in its own internecine war – with its partners and former partners trading allegations of fraud and ethics violations – this case is doomed … Litigation will expose this case for what it is: a clumsy attempt at a money grab, which recklessly harms the whole cryptocurrency ecosystem.
Tether blogpost
Tether – No Stranger to Controversy
Aside from the latest court case, Tether has often made headlines for the wrong reasons. In what has become known as “Tether FUD”, one of the persistent criticisms out there is that USDT artificially props up the crypto market and that its eventual demise will see all of crypto collapse. The argument suggests that USDT isn’t backed by real dollars and that it is simply printed out of thin air. One of the strongest arguments against this is that you can actually redeem USDT for US dollars. Historically, Bitfinex has done itself no favours by refusing to disclose its reserves.
In February, Bitfinex and Tether had a case settled with the Office of the New York Attorney General over mismanagement of USDT reserve funds following civil action by a group of crypto investors. A sum of US$18.5 million was agreed for settling the case in exchange for submitting to periodic reporting of their reserves.
Crypto exchange Binance has launched an affiliate program that gives people the chance to earn stablecoins and other rewards for creating and sharing quality content to promote its platform.
The Binance Affiliate Content Program gives social media influencers and content creators the opportunity to monetise their content to earn crypto rewards.
Affiliates can win prizes valued at up to 3,000 BUSD (USD-denominated stablecoin) per month by publishing original content – such as articles, videos and infographics – on topics set by Binance.
Content is scored by a panel of judges who assign a score out of 30 based on creativity, quality, and alignment with the Binance brand. By submitting content via the program, participants transfer copyright to Binance.
Aside from the prizewinners, all eligible content submissions that receive a grade of 18/30 or higher will earn creators a guaranteed 300 BUSD.
Quality content can earn creators up to 3,000 BUSD in rewards each month.
Additional rewards on offer include referral links, Binance swag, and the chance to be featured via Binance’s social media accounts.
To access topics and submit content for scoring, creators must first apply and be accepted into the Binance affiliate program.
The price of Cardano (ADA) continues to soar as the company makes strides. The ‘Alonzo’ hard fork set for release next month, along with the unveiling of its new stablecoin Djed, is keeping Cardano on everybody’s lips.
ADA’s new stablecoin, Djed, is the first coin to eliminate price volatility using formal verification, thereby overcoming one of the biggest barriers to crypto mass adoption.
NEW BLOG: Driven by a governing #algorithm, Djed is the first #stablecoin to use formal verification to eliminate price volatility. Want to ensure #price stability? Drive #cryptocurrency use via more reliable exchange rates? 1/2
In the crypto market, volatility is a major concern and stablecoins aim to minimise this. Stablecoins are cryptocurrencies pegged to commodities, other cryptocurrencies, stocks and fiat currencies that include mechanisms to allow low price deviation from their target price. With the aid of their built-in mechanism they can remove volatility, making them excellent to exchange or store value.
Some stablecoins, such as Tether and USD Coin, lack transparency about their reserve and liquidity, thereby compromising price stability.
In an effort to resolve some of the issues surrounding stablecoins, IOG has partnered with Emurgo, and the Ergo blockchain, to work on a stablecoin contract called Djed. Emurgo is one of the three founding partners of Cardano and Ergo employs UTXO-based accounting, like Cardano.
Djed is based on an algorithmic design, which means it uses smart contracts to secure price stabilisation. Thus the coin will be useful for DeFi operations.
How It Works
Source: Input/Output Global
Djed will work by using an autonomous “central bank line” contract, consisting of the reserve, equity and liabilities. To further ensure stability, Djed will allow the contract to sell stablecoins and use the charging fees and reserve assets to maintain a target price.
IOG, the developers of Djed, assert that their stability mechanism will benefit holders of the coin as it will enable them to “boost the reserve with funds while assuming the risk of price fluctuation”.
Djed is a crypto-backed algorithmic stablecoin contract that acts as an autonomous bank. It operates by keeping a reserve of base coins, and minting and burning stablecoins and reserve coins.
Input/Output blog
Charles Hoskinson, CEO of IOG and inventor of Cardano, shared his enthusiasm for Djed, citing that the coin’s properties are “proven by mathematical theorems”.
Djed's paper is out. We already have a Plutus team working on a Prototype. Very excited for this work https://t.co/lrgqpLKP1y
The mathematical theorems will help Djed to maintain a constant peg to the central assets with lower bound maintenance, no insolvency, no bank runs, and robustness during market crashes.
Djed will launch in two versions: Minimal and Extended Djed. Minimal Djed will be as “simple, intuitive and straightforward as possible, without compromising stability”. Extended Djed will have more incentives to keep the reserve ratio “at an optimal level”, and will have more stability benefits.
Imminent Hard Fork Pushes Cardano Up 60% in Past Month
The ‘Alonzo’ hard fork, set for release on September 12, is generating much excitement among traders and investors. ADA is currently trading at US$2.52, reaching all-time highs, and is up 17.32 percent in the past 24 hours. Cardano is the third-largest cryptocurrency by market cap.
The release will enable smart-contract functionality on the Cardano network and will allow ADA to add more applications such as DeFi platforms that will allow for automated trading and lending of cryptocurrency. This move addresses one of ADA’s biggest shortfalls and will put it in a better space to challenge Ethereum.
By Jana Serfontein, Crypto News Australia Guest Author
Stablecoins are a class of cryptocurrency developed to solve the problem of price stability as they are pegged to a reserve asset such as the US dollar. They provide price stability and liquidity to markets that operate on the blockchain.
The first fiat-backed coin was introduced in July 2014. Called Tether (TUSD), it is backed 1:1 by the USD. Since then there have been many more stablecoins emerging to help provide liquidity to crypto investors and traders while also supporting various networks to provide compatibility conversions for decentralised finance.
Blockchain-powered stablecoins have provided the world with global liquidity, instant processing of cryptocurrency payments, volatility-free stable valuations of fiat currencies, and interest-bearing liquidity providers. Let’s take a look at the different types of stablecoins and the best stablecoins to use in Australia.
Types of Stablecoins
There are essentially three types of stablecoins:
Fiat-backed – these are backed off-chain by fiat currency such as USD.
Crypto-backed – these are backed on-chain by cryptocurrencies such as BTC.
Commodity-backed – these are backed by physical assets such as gold and silver.
*marketcap displayed in Australian Dollars as at August 9, 2021
Tether (USDT)
Tether (USDT) is the first and one of the most popular stablecoins on the market with a market capitalisation of over US$62 billion. The premise of Tether’s appeal came from its value being pegged to the US dollar. Each Tether issued into circulation was said to be backed by a one-to-one ratio. Although 1 USDT tries to be worth 1 USD, it does fluctuate between $0.9992 and $1.0024 micro values, as seen in the graph below.
USDT Stablecoin Price Fluctuations
Tether has also come under scrutiny with claims that USDT is not backed by an equal amount of USD fiat currency, as its market cap grows by large $2 billion amounts minted on the blockchain. The company has since altered its claim from being backed by cash reserves to now being backed by “reserves”, of which fiat cash is just a small portion. Tether insists that the value of its assets equals the number of Tethers in circulation, although this claim has been consistently challenged.
USD Coin (USDC)
USD Coin (USDC) is a fully collateralised digital stablecoin that is pegged to the USD and runs on multiple blockchains including Ethereum, Stellar, Algorand and Solana, and also works on the Hedera Hashgraph system. The USDC coin was created by Circle and Coinbase, and reserves of the US dollar for this stablecoin are audited by Grant Thornton LLP.
USDC has recorded growth of over 450 percent since the beginning of 2021. Investors can also use stablecoins such as USDC to earn yield on holdings, attracting interest rates as high as 11% by staking USDC coins on Zipmex.
Wrapped Bitcoin (wBTC)
Wrapped Bitcoin (wBTC) are crypto-backed stablecoins in the form of an ERC-20 token. The stablecoin operates on the Ethereum blockchain and represents the exact price of Bitcoin. The goal of wBTC is to bring Bitcoin’s price value into play and combine it with Ethereum’s programmability.
Each wBTC is backed 1:1 with BTC, as a wrapped token allows for bitcoin transfers to be conducted faster on the Ethereum blockchain and opens up the possibility for BTC to be used from within the Ethereum ecosystem.
Bitcoin is held in custody by the centralised custodian, BitGo, who provide the converted wrapped and unwrapped Bitcoins between parties using smart contracts.
Binance USD (BUSD)
Binance USD (BUSD) is a stablecoin created by Binance exchange, which is 1:1 USD-backed and approved by the New York State Department of Financial Services (NYDFS), issued in partnership with Paxos.
You can use BUSD for storing funds and transacting across the Binance platforms, including direct trading pairs and converting to other stablecoins with zero transaction fees. You can also earn yield when staking your BUSD coins with Binance.com Lending.
Maker Dai (DAI)
Maker Dai (DAI) is the native stablecoin for the Maker protocol and the world’s first crypto-collateralised and decentralised stablecoin. The value of DAI is soft pegged to the USD, which means it is backed by a diversified portfolio of collateral crypto assets instead of fiat currency with institutions.
DAI is a decentralised stablecoin with MKR token holders governing the decisions around the Maker Protocol as to which DAI is used. There are some common myths about DAI which you can read to find out more.
Reserve Rights (RSR)
Reserve Rights (RSR) is the governance token for the Reserve Project, which aims to create a censorship-resistant stable crypto that countries with high inflation can use for decentralised fiat on/off ramps.
Ultimately, Reserve’s goal is to create a universal store of value, particularly in regions with unreliable banking infrastructure and where hyperinflation is an issue.
Standard (PAX)
Paxos Standard (PAX) is backed one-to-one by USD deposits available to buy from New York-based blockchain company Paxos. On redemption, PAX tokens are immediately removed from the supply to keep the supply elastic based on demand fluctuations.
PAX claims to be the most liquid regulated stablecoin in the world, with the fastest USD conversions. The ERC-20 PAX token is listed on over 150 crypto exchanges, making it one of the most widely available stable cryptos for use for trading. There is also a token called Pax Gold (PAXG), which is an asset-backed token where one token represents one fine troy ounce of a London Good Delivery gold bar, stored in professional vault facilities.
Huobi USD (HUSD)
Huobi USD (HUSD) is another ERC-20 token pegged 1:1 to the USD created for Huobi crypto market. This was done to allow multiple stablecoins such as PAX, USDC, TUSD and GUSD to be deposited and automatically converted into HUSD for easy display and use within the Huobi platforms.
True USD (TUSD)
TrueUSD (TUSD) is yet another ERC-20 based stablecoin pegged to the USD. There are versions of True for other fiat currencies including:
TUSD – pegged to the US dollar USD
TGBP – pegged to the British pound GBP
TAUD – pegged to the Australian dollar AUD
TCAD – pegged to the Canadian dollar CAD
THKD – pegged to the Hong Kong dollar HKD
These digital asset tokens are built on the TrustToken platform where they can be staked to earn staking rewards.
Synthetix (sUSD)
Synthetix (sUSD), previously known as Havven, is a crypto-collateralised network enabling the creation of on-chain synthetic assets on the Ethereum blockchain. These assets are over-collateralised to provide sufficient liquidity for users to redeem collateral at face value.
Beyond sUSD, Synthetix plans to offer stablecoins for other legal tenders such as the euro, yen and the Korean won, to drive the DeFi ecosystem liquidity and utility to new levels.
Earlier this year, the crypto industry celebrated Gary Gensler’s appointment as US Securities and Exchange Commission (SEC) chairman on the back of his pro-blockchain and bitcoin stance. From a crypto perspective, Gensler has remained largely out of the limelight, until now.
Gary Gensler. Source: MIT
‘Nakamoto is Real‘
After working on Hillary Clinton’s failed 2016 presidential campaign, Gensler soon migrated to MIT to teach fintech, with a special focus on blockchain and money where his lectures have received millions of views.
Crypto advocates could therefore be forgiven for expecting a lot more out of his appointment than has been experienced to date. With over a dozen crypto ETFs awaiting approval, a definitive statement from the chairman has been a long time coming.
In remarks made before the Aspen Security Forum, Gensler spoke of the intersection between crypto and national security by outlining the history of Bitcoin and the problem it sought to rectify.
Nakamoto had solved two riddles that had dogged these cryptographers and other technology experts for a couple of decades: first, how to move something of value on the internet without a central intermediary; and relatedly, how to prevent the “double-spending” of that valuable digital token … Subsequently, his innovation spurred the development of crypto assets and the underlying blockchain technology.
Gary Gensler
After noting his time spent researching, writing and teaching about fintech, he viewed the crypto field as being filled with “a lot of hype masquerading as reality”, however he continued to say that “Nakamoto’s innovation is real”.
— Documenting Bitcoin 📄 (@DocumentingBTC) August 3, 2021
Welcome to the Wild West
Speaking of the broader crypto ecosystem, Gensler commented: “Frankly, at this time, it’s more like the Wild West.” Specifically, he noted that, going forward, there would be a focus on tokens that are classified as securities, trading and DeFi platforms, stablecoins, and financial products tied to crypto such as exchange-traded funds.
I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.
He also homed in on so-called stock tokens, which have drawn the attention of regulators around the world in recent months.
Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.
Gary Gensler
Speaking of stablecoins, he commented that they “may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like”. He highlighted the impact this could have on national security.
Gensler went on to note that large parts of crypto were presently operating outside of regulatory parameters intended to protect investors and consumers, guard against illicit activity, ensure financial stability, and protect national security.
Regulation Good or Bad?
Much like other regulators, the SEC has demonstrated that it is willing to take action, as it did earlier this year against BitConnect relating to the sale of some US$2 billion in unregistered securities. Since 2013, it has collected US$1.7 billion in penalties against crypto-related entities. This must of course be seen in the bigger context of the traditional financial sector.
While some crypto investors decry any form of regulation as antithetical to the crypto ethos, others are bound to welcome greater regulatory clarity. From blatant scams and rug-pulls to outright fraud and 125x leverage, it may be argued that these negative aspects of the industry have the effect of undermining any positive gains made by the sector.
Like most things, a delicate balance should be sought – in this case between investor protection and the free market. Naturally, crypto enthusiasts would prefer a lighter regulatory touch.
Mastercard is planning to leverage USDC and other stablecoins to enable easy conversion of cryptocurrencies to fiat currencies, according to a July 20 announcement. This will essentially streamline the process for crypto users to spend their crypto in any outlet that supports Mastercard.
Mastercard Partners Circle, Paxos to Enable Easy Conversion of Crypto
Mastercard has partnered with industry leaders including USDC issuer Circle, Paxos, and Evolve Bank & Trust to roll out this new improvement. USDC stablecoin will be used as the bridge currency between fiat and digital currencies once the offering goes live.
Today, not all crypto companies have the foundational infrastructure to convert cryptocurrency to traditional fiat currency, and we’re making it easier. […] Mastercard expects to deliver on our promise of consumer choice to provide options to people around the world on how and when to pay.
The new card offering will allow crypto businesses and banks to give customers the option of paying with cryptocurrency. This shapes as a milestone in that it will gradually take crypto to the mainstream as a payment currency.
Mastercard Dives Deeper into Crypto
The update comes five months after Mastercard predicted it would roll out crypto services later this year. At the time, the payment giant noted it would mostly focus on stablecoins, which are a kind of cryptocurrency pegged to external assets for price stability.
The company has also confirmed its partnership with Gemini exchange to launch a cryptocurrency reward credit card, which solidifies its interest in the crypto space.
Circle, the company behind USDC, has announced that it will soon become a publicly traded company on the New York Stock Exchange (NYSE) in a historic day for crypto and stablecoins.
Details of the Deal
Circle co-founder, chairman and CEO Jeremy Allaire made the announcement on the company’s website and outlined the mechanics and underlying rationale of the transaction.
Allaire noted that the move would be accomplished through a combination with Concord Acquisition Corp, a publicly traded special purpose acquisition company (SPAC). The transaction puts Circle’s enterprise value at US$4.5 billion, and once closed Circle expects to trade on the NYSE under the symbol “CRCL”.
A central component of our mission has been helping to establish and grow USD Coin (USDC), the fastest-growing dollar digital currency in the world. USDC has grown over 3400 percent since early 2021.
Circle co-founder, chairman and CEO Jeremy Allaire
According to Circle, USDC has now settled $785 billion in on-chain transactions to date and is widely used by various crypto exchanges, fintech clients, and DeFi users worldwide.
Despite their growth, some regulators view stablecoins as a threat to their central bank digital currency (CBDC) projects. Many remain confused about the difference between the two and whether they are able to co-exist or not. For now, those questions remain largely unanswered.
The number of stablecoins on all crypto exchanges has reached a record peak, which signals a likelihood of incoming buying pressure on the market again.
Stablecoin Reserve on Exchanges. Source: CryptoQuant
All Exchange Stablecoin Reserve Exceeds $16 Billion
Following the on-chain data from CryptoQuant, there is currently more than US$16 billion worth of stablecoin held in all cryptocurrency exchanges.
Although USDC supply has been growing faster than Tether (USDT) since the beginning of this year, there’s a much higher number of USDT in exchange reserves than USDC. Over US$7 billion worth of Tether (USDT) is held in crypto exchanges.
USDT Reserve on Exchanges. Source: CryptoQuant
At the same time, over US$6 billion BUSD and US$2 billion USDC are held in exchanges’ reserves, according to CryptoQuant.
Stablecoin reserves often serve as an indication for some analysts and traders to position themselves for market pumps. Thus, this latest massive increase in stablecoin reserve suggests the bulls are prepping for a comeback if these coins are being stored for buys.
Bitcoin Liquid Supply is Declining
Bitcoin has been trading below US$35,000 over the past few days due to the bearish state of the market. However, Bitcoin’s liquid supply has been dropping for quite some time, which serves as another indicator that BTC is likely to resume an upward curve, especially in the presence of demand.
Bitcoin’s liquid supply simply refers to the availability of Bitcoin on exchanges for easy buying and selling. A decrease in Bitcoin liquidity indicates that people are starting to move their coins off exchanges. This can result in a scarcity of BTC, which is probably bullish provided the demand increases.
Everything is being dematerialised and it’s no surprise that money is quickly moving in that direction too. Central banks around the world have recognised that digital currencies are here to stay and in response they are forming their own stablecoins, CBDCs.
What are CBDCs?
A CBDC (central bank digital currency) is simply a digital form of a fiat currency issued and regulated by a central bank and/or government authority. They can be classified as either retail or wholesale.
Retail CBDCs
Issued for all people and companies (or, put differently, the general public)
Wholesale CBDCs
Only used by permitted institutions such as banks
Used as a form of settlement for interbank transfers
Stablecoins are a type of cryptocurrency whose value is tied to an outside asset, such as the US dollar or gold. Unlike CBDCs, issued by public authorities, stablecoins are issued by private companies. Therein lies the primary difference between the two.
Usually the entity behind the stablecoin will set up a regularly audited reserve asset base backing the stablecoin. Fiat is the most common collateral for stablecoins (as is the case with Tether and USDC), but others are pegged to precious metals or other cryptocurrencies.
What’s the Current Regulatory State of Stablecoins and CBDCs?
Over the past few years, stablecoins have continued to enjoy increased levels of acceptance among regulators. Most notably in January, the US Office of the Comptroller of the Currency (OCC) announced to the 1,100 banks and federal savings associations that they can issue payments with stablecoins to their clients. The UK Treasury also took steps towards regulation, recognising the important role stablecoins may play in settling and clearing large transactions in capital markets.
Some argue that CBDC projects have been initiated largely in response to the growth in the use of stablecoins, but not all governments agree. At present, there are 77 CBDC projects in either research, pilot or close to production stages.
At this stage, it remains unclear how stablecoins and CBDCs will coexist in a future fully digitised economy. In some respects, it looks to be a race between corporates and governments.
In the short term, it is unlikely that growth in the use of stablecoins between merchants, corporates and retail will subside. It also seems reasonable to expect more robust regulatory frameworks and increased competition and development of CBDCs over the coming year.
Despite a lack of clarity, one thing is certain: the race is on as to which digital currency will be the first to be recognised as legal tender.
