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Michael J. Casey is Chair of the CoinDesk Advisory Board and Senior Consultant for blockchain research at the MIT Digital Currency Initiative.
TThis essay is part of the No Closing Bell, a series that preceded Invest: Asia 2019, which focused on the interactions between Asian cryptography markets and global investors. To keep the conversation in person, sign up for Invest: Asia 2019 to be held in Singapore on September 11th and 12th.
The Libra Facebook project, in which a group of companies managing a trust currency basket will maintain a digital token at a stable and redeemable value, eliminated the idea of "stablecoins" in the crypto-echo chamber and the has propelled into the public arena.
But if the heated debate that Libra has elicited between government officials, financial leaders, and business people seems overwhelming, you'd better get used to it. A flood of competing banknotes immisce in the global economy. And Asia, with its dynamic cross-border trade, could be Ground Zero in its battle for supremacy.
It's both exciting and somewhat terrifying.
The most important player here is by no means a startup, a bank or even a technology company. It's the Chinese government.
The upcoming digital currency of the People's Bank of China, the CBDC, is not a stable currency in itself – its value is not simply expressed in terms of fiduciary money; it is an all-digital version of the renminbi itself. Nevertheless, China's initiative will inevitably push other entities – private and public – to develop their own digital currency, real or de facto.
CBDCs and stable employees could solve one of the biggest problems of smart contracts and blockchain projects. Until now, designers of blockchain solutions for, for example, supply chains or remittances had two payment mechanisms: they could perform the integration on the channel. a volatile cryptocurrency such as bitcoin that most people did not use or could not run. inefficiently, out of the chain through the existing banking system, clumsy. If, on the other hand, a proven monetary unit such as the dollar possesses programmable and intelligent qualities, significant new economies of trade would theoretically be possible.
As China comes to the fore, I see other central banks doing the same, partly out of fear that a digital renminbi will gain a greater role in international trade, particularly in the 65 Belt Initiative countries. and Road. (For geopolitical reasons, imagine a Russian importer and a Chinese exporter using smart contracts and atomic conversions to cover the exchange rate risks between the renminbi and ruble digital versions, so the dollar would become an obsolete and stable instrument for international commerce. )
Notably, a few days before the daily China Daily published its first report on the CBDC's progress in China, Agustin Carstens, director of the Bank for International Settlements, made a surprising U-turn. While he had previously rejected the value of digital currencies, he was now telling the Financial Times that the other digital currencies of the central bank could arrive "sooner than we think."
We have already seen regional central banks, such as Thailand, experimenting with digital currencies for interbank transfers.
One of the problems is that the CBDCs are going to be afraid of surveillance by the state, especially China, whose encroachment on civil liberties fueled violent protests in Hong Kong. Businesses and citizens do not want their governments, let alone foreign governments, to monitor their spending.
This is an opportunity for investors from non-government developers and crypto-currencies, especially if they can offer stronger privacy assurances than the Facebook Libra designers.
Of these, the choice now lies between reserve stable coins and algorithmic coins.
The former market was once dominated by the Hong Kong-based USDT, but since doubts were expressed about its opaque reserve management system, a new set of coins backed by more closely regulated entities has taken over. the importance, especially the Gemini GUS, the Paxos PAX. and the USDC from Circle and Coinbase.
Among the logical investors, the leader is clearly Dai, a dollar-denominated token developed by MakerDaothat, an Ethereum-based company, based on smart loans backed by ether contracts.
Algorithmic coins have the advantage of not relying on a trusted third party, while the reserve model requires an identified entity to subscribe to its declared holdings in fiat money. However, channel chains like Dai could potentially be used by high frequency commercial bots and depend for their growth if they want to overcome the challenge of their sizing and the continued expansion of the volatile and potentially risky secured loan market. by ether.
Be that as it may, as the TradeBlock report showed last month, the volume of these private bank notes is growing rapidly and their total value has exceeded that of Venmo in the second quarter.
Image via Shutterstock
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