Tag Archives: stablecoin

Ripple’s Stablecoin: The ‘Death of $XRP’ or Its Perfect Companion?

Ripple’s Stablecoin: The ‘Death of $XRP’ or Its Perfect Companion?

In early April 2024, blockchain company Ripple (XRP) announced plans to launch a US dollar-pegged stablecoin to support the growth of its public blockchain XRP Ledger (XRPL).

While Ripple CEO Brad Garlinghouse called the stablecoin launch a “natural step for Ripple,” the company will find itself in an overcrowded yet lucrative $150 billion stablecoin market that is often in the crosshairs of lawmakers and regulators.

What does Ripple’s stablecoin mean for XRP? Will it rival Tether (USDT), USD Coin (USDC), and other key stablecoin market players?

Key Takeaways

  • Ripple will launch a stablecoin on the XRP Ledger and Ethereum.
  • Ripple aims to launch a “compliance-first” stablecoin aimed at institutional clients.
  • Critics fear that a Ripple stablecoin will make the XRP token obsolete.
  • Meanwhile, Anndy Lian, an intergovernmental blockchain expert, said Ripple’s dual-asset approach could improve the overall payment experience for customers.
  • Tether’s early-mover advantage has made USDT the most popular stablecoin in the world, accounting for 72% of stablecoins’ daily trade volume.

Why Is Ripple Launching a Stablecoin?

Stablecoins are unique digital assets that offer the best of traditional and decentralized finance (DeFi). Crypto investors use these fiat-pegged tokens to facilitate trade, provide liquidity for currency hedging, and protect their portfolio against crypto market volatility. Another area in which stablecoins have shown immense promise is international remittances and inflation hedging.

Therefore, it is no surprise that Ripple, a company that provides cross-border payment, custody, crypto liquidity, and central bank digital currency (CBDC) solutions, is entering the stablecoin market.

The company said:

“Ripple will leverage both XRP and the stablecoin in its payment solution to further improve the customer experience and serve as the first enterprise use-case of the asset at scale. There is demand from Ripple’s customers in emerging markets to enable stablecoin payouts.”

According to Ripple’s statement, the company will issue US dollar-pegged stablecoins that will be 100% backed by US dollar deposits, short-term US government treasuries, and other cash equivalents. The stablecoin will be available on XRP Ledger and Ethereum (ETH).

In order to catch up to market leaders Tether’s USDT and Circle’s USDC, Ripple is prioritizing the issuance of a “compliance-first” and trustworthy stablecoin. Having a compliant stablecoin will be key for Ripple to keep hold of its primary clientele composed of institutions and governments.

What Does a Ripple Stablecoin Mean for XRP?

A burning question on every XRP investor’s mind is whether the upcoming Ripple stablecoin will complement the XRP token or render it obsolete.

Some think the Ripple stablecoin will bring the “death of XRP.” At the moment, XRP is primarily used as a bridging asset to facilitate cross-border payments on the XRP Ledger. For example, when a user converts Turkish Lira (TRY) to USD, the XRP Ledger first converts TRY to XRP and then converts XRP to USD. XRP is the bridging currency as it is the native token and, therefore, the most liquid asset on the XRP Ledger.

Now, the entry of a Ripple stablecoin threatens XRP’s position as the bridging currency. Not only will a stablecoin offer a non-volatile alternative for currency swaps, but the compliance-first nature of the asset will help calm the nerves of Ripple’s risk-averse institutional clients.

Back in 2021, money transfer services company MoneyGram International canceled its partnership with Ripple after the US SEC labeled XRP as an “unregistered security.” The case that began in December 2020 is still ongoing as of April 9, 2024.

Contrary to the lingering pessimism, Anndy Lian, an intergovernmental blockchain expert, was optimistic about Ripple’s “dual-asset approach” to creating blockchain-based enterprise-grade solutions that financial institutions need.

Lian told Techopedia:

“Ripple’s approach to leveraging both XRP and its stablecoin could offer the best of both worlds: the speed and technology of XRP with the stability and reliability of a stablecoin. Ripple’s USD-backed stablecoin is designed to be used alongside XRP in Ripple Payments to support greater liquidity and enable global on/off ramps to service cross-border payments demand at scale. This dual-asset approach could improve the overall payment experience for customers worldwide.”

The expert believes that while XRP serves as a bridge currency facilitating quick conversions between different fiat currencies, the introduction of a stablecoin could provide a less volatile option for the actual store and transfer of value, which might be particularly appealing in emerging markets where there’s demand for stablecoin payouts.

“The combination of XRP and a stablecoin in Ripple’s ecosystem is aimed at enhancing the efficiency and stability of cross-border payments,” he said.

Lian added that some analysts expect a 17% increase in XRP price following the stablecoin launch. He said:

“This is based on early on-chain movements that suggest investors are positioning for a positive price impact. Long-term predictions for XRP’s price remain optimistic, with some analysts suggesting the formation of a pennant structure over the past four years, indicating potential for significant price movements.”

Will the New Ripple Stablecoin Rival Tether and USDC?

Ripple will find it an uphill task to overtake market leaders Tether and Circle in the stablecoin market.

Despite clashes with regulators, Tether’s USDT continues to dominate the stablecoin industry. As of April 9, 2024, USDT’s market cap stood at over $107 billion, accounting for more than 71% of the total stablecoin industry market cap, CoinMarketCap data showed.

Tether’s early-mover advantage has made USDT the most popular stablecoin in the world. At the time of writing, USDT accounted for 72% of stablecoin daily trade volume.

Meanwhile, Circle’s USDC, which launched in September 2018, has eaten into USDT’s market share over the years due to its branding as the safest stablecoin in the market.

Circle’s close affiliation with influential crypto companies like Coinbase has also helped the USDC brand. As of April 9, 2024, USDC was the second largest stablecoin with a market cap of $32.6 billion (21% of cumulative stablecoin industry market cap) and a 24-hour trade volume of $7.8 billion (8% of total stablecoin daily trade volume at the time of writing).

Furthermore, Ripple’s plans to launch its stablecoin on the Ethereum blockchain means that its stablecoin will have to compete with innovative DeFi products such as MakerDAO’s multi-collateralized stablecoin DAI, Frax Protocol’s algorithmic stablecoin FRAX and Ethena Labs’ synthetic dollar USDe.

Ripple will find competition in the compliance-first stablecoin space as well. In the same week as Ripple’s stablecoin launch announcement, Agora announced the launch of its fully collateralized stablecoin, the reserve fund of which will be managed by global investment powerhouse Van Eck.

 

The Bottom Line

If there is one crypto product that has a product-market fit, it is stablecoins. Ripple’s venture into stablecoin could mark a new chapter for the XRP community.

For too long, Ripple has been associated with its fight against the US SEC. Maybe a stablecoin launch will bring back the spotlight on its blockchain products.

Source: https://www.techopedia.com/is-ripple-stablecoin-launch-bearish-for-xrp

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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USDT Hits $100 Billion Milestone as Tether Plans Stablecoin Recovery Tools

USDT Hits $100 Billion Milestone as Tether Plans Stablecoin Recovery Tools

On the day USDT reached a milestone $100 billion market cap, the company behind the stablecoin, Tether, announced recovery plans for holders if a blockchain was ever disrupted.

The $100bn market cap is a testament to the value of stablecoins in both the cryptocurrency realm and across TradFi, but it, at times, has been a rocky road to reach such widespread adoption.

On March 4, Tether released a recovery process to protect users’ funds if a blockchain is disrupted, as it attempts to allay concerns about the risk of using USDT.

USDT is now the third largest cryptocurrency by market cap, behind Bitcoin and Ethereum — with BTC itself narrowing in on its own ATH.

 

 

Key Takeaways

  • Tether, the stablecoin behind USDT, has hit a $100 billion market cap milestone.
  • With its widespread adoption on 14 blockchains, especially on the Tron network, Tether has become the third-largest cryptocurrency, trailing only Bitcoin and Ethereum.
  • In response to concerns about blockchain disruptions, Tether has introduced a recovery plan to safeguard users’ funds.
  • Users will be able to validate a transaction to another chain if disruption occurs.
  • Concerns about Tether’s backing have persisted since its inception, but the company seems to be shaking the reputation off through closer scrutiny of its reserves.

Tether tokens are available on 14 blockchains and have become especially popular on the Tron network, where low transaction fees are encouraging users in certain countries to buy and sell USDT as an alternative to devalued local currencies.

Tron has overtaken the Ethereum chain for the largest share of USDT in circulation, accounting for $50.4 billion compared with $40.6 billion on Ethereum, according to DeFi Llama data.

USDT Protection if a Blockchain Goes Offline

The new recovery tool aims to enable users to maintain access to their Tether stablecoins if the blockchain they are hosted on goes down.

The company said:

“In the event that any blockchain on which USDT is available becomes disrupted, Tether has developed and will implement its proactive measures to ensure uninterrupted accessibility for our holders, and safeguarding users’ accessibility to their USDT.”

Users would be able to migrate their USDT tokens to another blockchain through a web interface or command-line tools by cryptographically signing a migration request to verify ownership.

The web-based option supports popular browser extension wallets and hardware wallets, while the command-line interface allows users to enter their private key directly, enabling them to sign the request using an open-source script on their local machine.

Why USDT is Surging

Interest in crypto has surged since the approval of several bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission in January, in turn increasing demand for USDT as an on-ramp and off-ramp to convert funds to and from cryptocurrencies such as bitcoin.

Trading volumes in investment products reached a record of over $30 billion last week, driven by ETF demand, according to digital asset manager CoinShares, at times representing 50% of global Bitcoin daily trading volumes on trusted exchanges.

Total assets under management (AUM) reached $82.6 billion, approaching the all-time high of $86 billion at the peak of the market in early November 2021.

Fiat currency-pegged stablecoins such as Tether typically mint (or create) new tokens when users submit a transaction to convert their fiat at a value of 1:1.

So if a user requests to buy $100 worth of a stablecoin, 100 tokens are minted.

But Tether recently authorized a mint of $1 billion in USDT on the Ethereum blockchain to replenish inventory in preparation for an increase in issuance requests and swaps between blockchains, according to a post on X, formerly Twitter, by Tether’s chief executive officer, Paolo Ardoino.

 

Ardoino expects crypto demand to increase as more funds and companies invest in Bitcoin now that the ETFs give them the legitimacy that they need to convince accountants and auditors they should hold some on their balance sheets.

Ardoino said in a panel discussion last week:

“We are going to see a wide range of hedge funds and pension funds that will start to add Bitcoin to their portfolio now that the Bitcoin ETF is out there.

“More and more fund managers are interested in starting to add up to 5% of their portfolio into Bitcoin.

“But ultimately one of the most interesting things is companies more and more will start keeping part of their unused balance sheet in Bitcoin… and that will grow over time.”

Stablecoins are also at the forefront of retail interest in crypto.

Intergovernmental blockchain expert Anndy Lian, speaking to Techopedia about Tether, said:

“Tether is a remarkable achievement in the cryptocurrency space, as it provides a stable and convenient way to use fiat currencies on the blockchain.

“USDT as stablecoins that are pegged 1-to-1 with a matching fiat currency are widely adopted across major exchanges, OTC desks, and wallets, and have surpassed Bitcoin in terms of trading volume.

“USDT is a sign of how useful stablecoins are in the world, as they bridge the gap between the traditional and the digital financial systems.

“They offer the benefits of both worlds: the stability and familiarity of fiat currencies, and the speed and transparency of the blockchain. It also reduces the volatility and complexity that are often associated with cryptocurrencies, making them more accessible and appealing to a wider audience.

Tether’s reliance on a “trust me” status has raised doubts and suspicions among some investors and observers, who question the legitimacy and sustainability of Tether’s operations.

“Fast forward to today, Tether has refined its operations and is the widely used stablecoin in the world now. In my humble opinion, doubts about them have gone down a lot.”

“Stablecoins are becoming increasingly important,” according to Dina White, General Counsel at Zodia Markets, a digital asset brokerage and exchange platform.

“We are seeing this at Zodia Markets, particularly due to cross-border payment efficiencies and cost-savings. And they could become a widespread means of retail payment.”

Tether Strives for Legitimacy Amid Controversy

Tether’s growing popularity among crypto users extends to criminal groups, which are increasingly using USDT to transfer and launder money.

A recent United Nations Office on Drugs and Crime (UNODC) report on organized crime in East and Southeast Asia (PDF) found that “USDT on the TRON155 blockchain has become a preferred choice for regional cyberfraud operations and money launderers alike due to its stability and the ease, anonymity, and low fees of its transactions.”

The report added: “Between September 2022 and September 2023, a recent fund audit of USDT-based transactions by one independent blockchain data analysis company found transactions totaling 17.07 billion USDT connected to underground currency exchanges, illegal commodity trades, unlawful collection and payment processes, and various criminal activities.

“Law enforcement and financial intelligence authorities in East and Southeast Asia have also reported USDT among the most popular cryptocurrencies used by organized crime groups, demonstrated by a surging volume of cyber fraud, money laundering, and underground banking-related cases.”

Tether responded to the report with criticism that “the UN’s analysis ignores the traceability of Tether tokens and the proven record Tether has of collaborating with law enforcement.

“We are disappointed in the UN’s assessment that singles out USDT highlighting its involvement in illicit activity while ignoring its role in helping developing economies in emerging markets, completely neglected by the global financial world simply because servicing such communities would be unprofitable for them.

“Rather than focusing solely on risks, the UN should also discuss how centralized stablecoins can improve anti-financial crime efforts.”

Tether stated that it collaborates with the US Department of Justice (DoJ), the Federal Bureau of Investigations (FBI), and the US Secret Service (USSS) to monitor USDT tokens, ensuring that traceability surpasses “traditional banking systems that for decades have been the vessel for laundering substantial sums proven by the fines that have been levied on them.”

Tether has also developed a tool to monitor secondary markets with blockchain analysis firm Chainalysis.

“Tether tokens, using public blockchains, make it possible to meticulously track every transaction, making it an impractical choice for illicit activities. This is evident in our freezing of more than US$300 million within the last few months, showcasing our commitment to combating the criminal use of cryptocurrencies,” the statement added.

Is Growing Tether Usage Supported by Real Value?

Launched in 2014, Tether has long been controversial because of speculation about whether the full value of USDT in circulation is backed by real collateral.

In 2021, Tether paid fines of $41 million to the Commodity Futures Trading Commission (CFTC) and $18.5 million to the New York Attorney General’s Office for falsely claiming that USDT was backed by US dollars on a 1:1 basis between 2016 and 2019.

The company now publishes daily reserve data, monthly reports, and quarterly reviews breaking down its reserves, which it says are independently audited.

Its most recent report for December 2023 showed total cash holdings of $82.1 billion, $3.5 billion in precious metals, $2.8 billion in Bitcoin, $3.8 billion in other investments, and $4.8 billion in secured loans, along with $44 million in corporate bonds.

 

 

 

Source: https://www.techopedia.com/usdt-hits-100-billion-milestone-as-tether-plans-stablecoin-recovery-tools

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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Can Global Cooperation Achieve Consistent Stablecoin Regulation?

Can Global Cooperation Achieve Consistent Stablecoin Regulation?

In the ever-evolving landscape of digital finance, stablecoins have emerged as a pivotal bridge between traditional and cryptocurrency markets. As their influence grows, so does the imperative to establish a robust regulatory framework.

What are the ins of stablecoin regulation, and where could it be headed in the future?

FSB’s 10 Recommendations

In mid-July 2023, the Financial Stability Board (FSB) published its financial report on the regulation, supervision, and oversight of global stablecoin arrangements.

A total of 10 recommendations were endorsed by the member countries of G20. The FSB’s report reads: “The High-level Recommendations seek to promote consistent and effective regulation, supervision, and oversight of GSCs across jurisdictions to address the potential financial stability risks posed by GSCs, both at the domestic and international level, while supporting responsible innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches.”

One of the key recommendations issued by the FSB is the requirement for stablecoin issuers to secure local licenses before operating in specific jurisdictions.

Explaining why it would be vital for governments to regulate stablecoins, Andrew Silverman, a tax analyst at Bloomberg Intelligence, said:

“Stablecoins, in my view, are not significantly different from derivatives, and governments have regulated derivatives for as long as they have existed. Allowing a financial instrument to go unregulated gives people and companies the ability to circumvent the rules simply by using a contract to stand in for an asset, and that opens up opportunities for abuse.”

Silverman added that the introduction of local licenses would allow governments to have broader control over which stablecoin issuers are operating in their jurisdiction. This could also allow governments to periodically obtain information from licensees, which could be the best “disinfectant” to avoid any regulatory or legal issues.

“Countries can also use licensing to keep the holders of licenses current on applicable laws and regulations, both in terms of maintaining current contact information with licensees and requiring acknowledgment of the current set of rules when a licensee renews their license,” Silverman noted.

Singapore, the First Country to Issue Stablecoin Regulation

On 15 August 2023, Singapore’s financial regulator was the first in the world to announce that it had finalized a set of rules on stablecoin regulation.

According to Anndy Lian, the author of NFT: From Zero to Hero, such a move has helped shape Singapore’s reputation as a “global hotspot for cryptocurrencies.” The introduced regulations highlight a number of requirements that include:

  • The reserves supporting stablecoins need to consist of low-risk and easily tradable assets, and their value must always be equal to or greater than the circulating value of the stablecoin.
  • In case of a redemption request, stablecoin issuers are required to reimburse holders with the nominal value of the digital currency within five business days.
  • Issuers are also obligated to furnish users with suitable information, which encompasses audit outcomes of reserves, among other details.

Lian explains, however, that even though introduced, the regulatory framework surrounding stablecoins “remains intricating and swiftly changing.”

“Different governing bodies, whether at the federal or state level, wield varying degrees of jurisdiction over transactions, contingent on the asset’s structure and the specific circumstances surrounding it. In light of this context, Singapore’s decision to finalize regulations for stablecoins holds tremendous significance.

“This step addresses the pertinent regulatory obstacles and boosts the advancement of stablecoins as a reputable medium of exchange within the digital asset ecosystem,” Linn added.

Stablecoin Regulation Going Global

The attempts of several major companies to launch their own stablecoins were previously met with some opposition from governing bodies. At the start of August 2023, PayPal announced the release of its own US-dollar pegged stablecoin – PayPal USD (PUSD). The stablecoin was launched in collaboration with Paxos Trust.

Since both companies are unregulated, meaning they are not examined by a federal banking agency which is why governing bodies are starting to turn towards regulating stablecoins.

But with cryptocurrencies being accessible on a global scale, how can stablecoin regulation be reached?

Bloomberg Intelligence’s Silverman noted that if governing bodies work together, they could communicate a single message. He added that the United States often holds major influence over other countries’ financial decisions, especially in the industry of decentralized finance (DeFi).

“Having an impact on US law-making indirectly influences other countries’ rule adoption. I would note, however, that consistent stablecoin regulation is not necessarily the ideal for all.  Companies and individuals that can arbitrage differences in countries’ stablecoin regulation could benefit from those distinctions.”

Lian added that Singapore’s stablecoin regulations could “potentially become a template for other nations grappling with their own regulatory frameworks.”

“Given Singapore’s standing as a meticulously overseen financial hub, its method of handling stablecoin regulations might emerge as a beacon for countries seeking to establish their own guidelines. Nevertheless, it is essential to acknowledge the swiftly evolving and intricate nature of the regulatory environment surrounding digital currencies.”

Can Stablecoin Regulation Prevent Another Market Meltdown?

Stablecoins are unique due to their ability to keep a 1:1 peg with the asset they are paired with, oftentimes the US dollar. However, on 9 May 2022, stablecoins made headlines when one of the biggest coins in the category – terra USD (UST), broke its peg from the US dollar.

UST’s collapse had led to major losses in the cryptocurrency industry, with many investors losing trust in stablecoins, fearing another collapse may be inevitable.

Silverman explained that by regulating stablecoins and essentially excluding speculative and volatile assets from supporting stablecoins, the assets could become “safer investments, or at least it will allow them to be viewed as safer investments.”

“I think the sentiment is good, but it could actually have the opposite effect. People viewed money market funds and collateralized debt obligations (CDOs) as entirely safe before the financial crisis when that didn’t turn out to actually be the case. Perhaps, speculative and volatile assets will, in fact, be successfully barred from being included in stablecoins. Perhaps not.”

He added: “A safe asset can always quickly become volatile under the right circumstances. Giving people the impression that a financial instrument is entirely safe when it’s almost certainly never possible to guarantee safety is not ideal from a policy perspective.”

Lian suggested that regulation ensuring that the reserves supporting stablecoins focus on low-risk and highly liquid assets could function as “a safeguard, tethering the stablecoin’s value to assets that are less prone to drastic value wings and can be readily transformed into cash when necessary.”

The Bottom Line

Stablecoins have represented a significant milestone in the cryptocurrency industry by attempting to offer stability and versatility in an otherwise volatile industry.

Silverman noted that all regulations are intended to offer protection without doing much harm to the assets being regulated, however, every regulation has the potential to weigh in favor of companies or individuals.

“The impact of regulations and their interpretation also changes over time, so what is beneficial to companies today could be better for individuals in the future. We will see how things shake out. If a regulation is truly harmful it tends to be struck down in court or over-written by statute. There are checks and balances. The downside, of course, is that everyone has to put up with a subpar regulation for some time until it is changed.”

Source: https://www.techopedia.com/can-global-cooperation-achieve-consistent-stablecoin-regulation

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author. The latest book is Web4: The Age of Autonomous Intelligence.

www.anndy.com
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