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Facebook’s crypto Diem strikes a deal with a risk assessment firm to counter illicit activity

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Facebook’s Diem Networks US has partnered with a risk assessment company called K2 Integrity to develop innovative solutions for the Diem Networks US Financial Intelligence Function [FIF]. According to the official announcement, the main objective of the FIF is to safeguard the Diem Payment Network [DPN] from illicit financial activity.

Diem Networks US has reportedly developed a blockchain-powered payment system for the purpose of making payments cost and time-efficient without compromising the security of its users and the integrity of the financial system. It aims to revamp the payments landscape by incorporating the benefits of blockchain technology to consumers, including those underserved by the current banking system and businesses across the globe.

Stuart Levey, who happens to be the Chief Executive Officer of Facebook’s Diem Networks US, revealed that designing a framework that puts high financial crime compliance standards have been one of the Diem project’s top priorities and went on to add,

“This is an area where we are continuing to innovate. We are excited by this opportunity to partner with K2 Integrity, a team that has a wealth of experience in this space and is respected internationally for their leadership on anti-money laundering and counter-terrorist financing [AML/CFT] issues.”

The official press release highlighted that Diem intends to meet compliance standards, an issue plaguing the entire market.

Facebook Diem Controversies

Formerly known as Facebook Inc’s Libra project, the Digital currency group Diem Association has recently revealed its plans to roll out a US dollar stablecoin. Diem Networks US is one of the units of the widely reported stablecoin project. Since last year, the company has been under the regulatory scanner of regulators around the globe for its potential to disrupt the national sovereignty of currencies.

Due to the fanfare and controversy over the original idea, the Libra cryptocurrency changed to Diem. This was clearly an effort to show that the project has “organizational independence” as it attempted to be more agreeable to governments. However, its ambitious roadmap still seemed to threaten traditional government-run financial systems.

In fact, Facebook Inc.-backed Diem token and Tether [USDT] stablecoin were the main focus of Treasury Secretary Janet Yellen’s closed-door meeting US regulators held on the financial risks posed by stablecoins. Yellen had reportedly urged watchdogs not to delay and “act quickly” in laying down rules to ensure the safety of stablecoins.

Circle publishes USDC stablecoin attestation to increase transparency

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USDC stablecoin has managed to garner significant traction over the past few months. Since the beginning of the year, the dollar-pegged stablecoin had grown more than 2,600%. in terms of circulation. In the latest development, Jeremy Allaire, the CEO of the team behind the digital token, Circle has published a new post wherein he elucidated that the stablecoin is backed by trust, transparency, and accountability.

Allaire claimed in his blog post that Circle and the Centre Consortium has guaranteed the “pillars of trust” to ensure that the community recognises that USDC remains backed on a 1:1 basis with dollar-denominated assets. The exec also underscored that the “pillars of trust” includes ensuring that the USDC ecosystem remained under the governance of the highest level of regulatory and prudential standards.

While stating that the commitment to openness, competition, and responsible financial services innovation remains a foundation for both the Centre Consortium and Circle, Allaire went on to add,

“Providing assurances demonstrated by reserve attestations issued by Grant Thornton, one of the world’s leading accounting firms, that dollar-denominated assets can meet circulation for USDC outstanding. Core economic activities underpinning USDC are built inside the perimeter of the U.S. financial system, and not outside of it.”

Circle’s future plans for USDC

Allaire revealed pondering over different mechanisms to share this in an on-chain, Oracle-linked format while developing and publishing comprehensive analytics on the core liquidity profile of USD Coin, such as the history of creation and redemption behaviour associated with market conditions.

As the stabkecoin issuer moves ahead with its ambitious plans with the upcoming transition to a public company, Circle aims to enhance opportunities for greater transparency, accountability and disclosure around its wider business and functions. Collectively, Allaire asserted that this expanding public accountability can, in fact, aid in enhancing trust in Circle, the USDC stablecoin and ventures building on the standards and market infrastructure that the team has been generating over the past several years.

Tether [USDT] CTO Paolo Ardoino says “everyone takes from king” on competitor’s rising market cap

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Tether, the issuer of the stablecoin USDT, has been constantly under regulator’s scrutiny. Over the past couple of months, USDT appears to be shrinking while its competitor USDC advances at a rapid pace. But this exec is not worried.

Paolo Ardoino, who happens to be the CTO of both Bitfinex and Tether, iterated the famous adage “Let everyone grow so that the sum of all voices will be louder,” and asserted that the “stablecoin industry is much more solid [with competitions] around in the long run.”

Taking a jibe at the recent reports regarding USDC “eating away USDT’s market share,” Ardoino clarified that does not mind seeing growth and that he welcomes everyone provided there is a level playing field. His tweet read,

“Everyone at Tether is proud that the idea that they created in 2014 is now copied by many parties. Ain’t good if no one bothers. So we are flattered. Alone is harder to make history. With a bigger representation of stablecoins, we can aim for fairer regulations.”

USDT’s decline in dominance

The dwindling price of the cryptocurrency market has had no effect on the transaction volume of stablecoins. In fact, the figures have stayed widely unfazed. As per Messari’s latest report, stablecoins witnessed impressive growth in the second quarter of this year amidst market-wide sideways movement. In addition to that, stablecoins have reportedly facilitated a staggering $1.7 trillion in transaction volume, meaning a rise of 1,090% year-over-year and 59% since the previous quarter.

USDT, on the other hand, had failed to impress the charts, as the parabolic growth in the market cap of the world’s oldest and largest stablecoin giant came to an abrupt halt in May.

For almost two months, Tether has not issued a single USDT on the Ethereum network. This has been one of the major factors that have affected the asset losing its market dominance. Additionally, China’s renewed crypto crackdown on USDT is another contributor in addition to the mounting regulatory threats.

Academic paper calls Stablecoins are Wildcats; argues the need for regulation

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Stablecoins have been the talk of the town. Lawmakers around the world have held their reservations about this cohort of digital assets citing its use in cross-border transactions as a threat to the use of state-issued currencies. More recently, two prominent financial experts have now weighed in a paper whose title read, “Taming Wildcat Stablecoins.” Interestingly, these digital tokens are inherently stable that helps investors in times of wild volatility in assets such as Bitcoin, Ethereum, etc.

However, it is not this characteristic that the Yale economist Gary Gorton and the United States Federal Reserve attorney Jeffery Zhang are worried about. A major aspect that stood out on the 49-page document, was the comparison drawn between stablecoin and the Free Banking Era – a world of wildcat banking back in the 19th century if the former is remains unregulated.

“Stablecoin prices are independent of geography but not independent of the perceived risk of their backing assets. If they succeed in differentiating themselves from fiat cryptocurrencies and become used as money, then they will likely trade at time-varying”

The writer also added that protecting the monetary sovereignty of the state is crucial for building monetary policy and stated that the policymakers should learn from history and repeat the same mistakes again. According to the paper, regulating stablecoin issuers as banks and issuing a central bank digital currency [CBDC] is the only way to combat risks associated with these digital tokens.

Community Reactions to Gorton-Zhang’s stablecoin paper

Nobel laureate and member of the American Philosophical Society, Paul Krugman lauded the duo’s academic paper and asserted that they are just a modern version of free banking, wherein the “private banks issued their own notes supposedly backed by specie.” He also went on to call the existing system “crisis-ridden.” Krugman is one of the many digital asset skeptics. Hence, his latest comment has faced some criticism.

The joint scientific effort for the paper did not see a very good response from the cryptocurrency community either. Arturo Portilla, a popular XRP proponent and a fintech lawyer tweeted,

“LOL. Option a): Require stablecoin issuers to become banks. Option b): Require stablecoin issuers to become unprofitable businesses. Option c): Introduce CBDCs and tax stablecoins to death. I’m guessing Jeremy Allaire isn’t having a good time right now.”

Tether Community Unveils non-profit Initiative – Tether Impact

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The stablecoin realm and Tether have been under regulatory scrutiny for a long time. But this has not deterred the community members from launching an initiative in a bid to boost USDT’s use cases across the world. Dubbed ‘Tether Impact,’ the new brand-new organization that will be run by the community and will be a non-Profit, independent organization.

Tether Impact will essentially interact with the world’s largest stablecoin issuer Tether and the crypto ecosystem for the purpose of supporting and incentivizing the use of USDT in third world countries, emerging economies as well across the decentralized finance DApps. This was revealed by a community member, Daniele McDonald. As of now the official website for the initiative consists of just two paragraphs, one of which described its goal as,

“Tether Impact aims to be the bridging point between USDT and its users, raising awareness and educating the general Cryptocurrency Community on any ongoing Tether initiative.”

Growing Tether conundrum

While stablecoin, in general, has been a controversial subject among global lawmakers, USDT, particularly, has been firmly in the regulatory crosshairs. Among those raising an alarm about the potential risks of the world’s third-biggest cryptocurrency, Boston Fed President Eric Rosengren’s comment has stood out. In June, Rosengren not just listed USDT among the “financial stability challenges” the US central bank is eyeing, but also called it “new disruptors” to short-term credit markets. This was also one of the rare moments when an executive in the Feds explicitly cited USDT in a speech.

Currently, there is more than $60 billion worth of USDT in circulation which makes USDT deposits exceed that of many US banks.

Since the beginning, Tether has not been a transparent product, unlike its peers. This changed after the long battle with the New York attorney general [NYAG]. To conform with the settlement terms, the stablecoin has now started publishing the public with quarterly breakdowns of the investments used to back the stablecoins.

Stablecoins facilitated an astonishing $1.7T in transaction volume in Q2: Messari

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Stablecoins are non-volatile assets that mostly remained got fresh attention this month after the USDC issuer, Circle revealed its plan to list on the New York Stock Exchange, that too on the same day, when China’s central bank warned about these tokens citing serious risks to global financial systems.

The price of the cryptocurrencies might have taken a backseat, but the transaction volume of stablecoins has remained widely unfazed. According to Messari’s latest report, these tokens saw impressive growth in Q2 this year. In fact, this cohort of cryptocurrencies reportedly facilitated an unprecedented $1.7 trillion in transaction volume, an increase of 1,090% year-over-year and 59% since Q1.

Messari’s Senior Research Analyst, Ryan Watkins noted,

“The stablecoins story continues to rhyme each subsequent quarter – climbing up and to the right.”

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USDT’s dwindling market dominance paves the way for other stablecoins

Watkins also mentioned that the stablecoin monetary base climbed above $107 billion in the second quarter of the year, and was 70% since the first quarter in addition to raking in 803% year-over-year. While Tether [USDT] still leads the figures, its dominance has been dwindling of late, owing to serious controversies that have damaged its reputation. As a result, USDC, BUSD, and DAI have been on a rapid increase. So much so that their market share has applied by 23%, 9%, and 5%, respectively.

USDC, for one, has experienced a tremendous leg up in Q2. Currently, more than 50% of the total supply now sits in smart contracts which is almost equivalent to $12.5 billion. While this share is not as high as DAI, USDC still leads by a wide margin in terms of dollars.

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In addition to that, Messari also observed that the decentralized stablecoins have also maintained a consistent upward trajectory. Fortunately, decentralized tokens such as DAI’s continue to win share from centralized stablecoins. At the beginning of the second quarter, the decentralized ones surged to an all-time high of almost 10% of the total stablecoin supply.

Besides, DAI remained the market leader this quarter with a 61% share of the market. Interestingly, its share had taken a hit in Q1 due to Terra’s rise.

US Financial Regulators Raise Concerns About Growing Stablecoin Dominance

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The cryptocurrency market has grown by an exponential rate over the past year with the pandemic forcing people to move towards quick, contactless payment methods. Even though the industry was growing in size pre-corona, the last 12 months have really opened up the eyes of the regulators to what cryptocurrencies can actually do.

One of the recent concerns raised by regulators was related to the burgeoning size of the stablecoin market, specifically cryptocurrencies such as Tether [USDT]. They claimed that the size of the market allowed several billions of dollars to be transacted without ever coming under the purview of the country’s financial watchdogs.

During a recent Senate Banking subcommittee, members discussed the various ways cryptocurrencies could hamper financial overwatch. Officials added that a majority of stablecoin holders were unaware of the fact that their funds do not come under the jurisdiction of the Federal Deposit Insurance Corporation. The FDIC is responsible for protecting the claims made during financial transactions in the United States. Josh Lipsky, the director of the Atlantic Council’s GeoEconomics Center stated:

The most immediate way that some stablecoins might come under attack is from enforcers, such as what happened with the New York attorney general, who could pursue issuers for lying to consumers. Stablecoin issuers could eventually work in tandem with international governments’ projects to issue their own digital currencies but that the U.S. and others will have to develop regulations to ensure consumers aren’t hurt.

The Senate Banking members are not the first to speak against stablecoins as the industry has also been attacked by government officials such as Senator Elizabeth Warren and Federal Governor Lael Brainard. These comments came in the wake of Tether’s growing dominance on the cryptocurrency charts, currently sitting pretty at number 3. The world’s largest stablecoins holds a market of roughly $63 billion with a daily trading volume of $58 billion. Tether’s growth also allowed it to surpass major cryptos like XRP and Bitcoin Cash on the charts.

Banking officials stacked on their arguments by reminding everyone of Tether’s trading ban a few years back. Tether General Counsel Stuart Hoegner assured everyone that Tether and all its resources were maintained at the highest levels of safety and security. Hoegner promised:

We continue to look for avenues of regulation globally and are pursuing regimes in several countries

While regulators are trying to bring stablecoins under their thumb, the US government has revealed tentative plans to create a state backed digital asset. A CBDC will be controlled by the state while using blockchain technology and all the core fundamentals of a stablecoin. Although the US is not the first country to initiate or even begin working on such plans, its statements may play a huge role in how the groundwork is laid out.

Stablecoin issuer Tether releases breakdown of its reserves

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The stablecoin issuer Tether released a report consisting of a breakdown of its reserves as of 31st of March 2021. This is the first of its kind since Tether’s launch in July 2014.

The pie chart below shows that the company held approximately 76% of its reserves in cash and cash equivalents and other short-term deposits and commercial paper.

Tether

With a share of 65.39%, commercial paper formed the major chunk of the stablecoin giant’s cash and cash equivalents cohort. Fiduciary deposits, on the other hand, accounted for 24.20% of the same category, while cash, reverse repo notes, treasury bills comprised 3.87%, 3.60%, and2.94% respectively.

The remainder of the platform’s reserves were split up across three groups. For instance, secured loans [none to affiliated entities] formed 12.55% of the total reserves while corporate bonds, funds, and precious metals collectively represented 10%. Moreover, other investments, including digital tokens, constituted 1.64%.

Reason Behind Tether’s First-ever Reserve Composition Release

The latest report essentially underscores the company’s efforts to remain in compliance with a settlement with the New York Attorney General [NYAG] whose probe ended in March. Tether and its sister company/cryptocurrency exchange Bitfinex had to pay an $18.5 million fine in addition to agreeing on the release of quarterly breakdowns of its reserves. In line with this, Tether stated,

“Today’s publication reflects our continued dedication to making this information public as part of our ongoing commitment to transparency and setting the standard in our industry. We embrace that commitment to our community.”

Earlier this month, its stablecoin [USDT] on-chain’s volume had climbed to a new milestone of a whopping $1 trillion for the first time ever. Despite several controversies and the emergence of several stablecoins over the past few years, Tether continued to dominate the realm. At the time of writing controls well over 60% of the market share of the total stablecoin transaction volume.

Here’s What MasterCard CEO Thinks Of Bitcoin, CBDC, and Stablecoins

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MasterCard CEO is all in for CBDC and stablecoins, but Bitcoin is still not in his good books.

It has been quite a ride for Bitcoin. From gaining notoriety for being the most volatile asset of recent times to the mainstream embrace, the world’s largest cryptocurrency has seen it all. Trading a little over a decade, Bitcoin has not only gained a massive fanbase but has also managed to flipped previous critics into its staunch supporters.

But this executive of a payment giant does not feel the same. In a recent interview with Fortune, MasterCard CEO Ajay Banga expressed his views on CBDCs, stablecoin as well as Bitcoin. His exact words were:

“Central bank digital currencies are really interesting. Stablecoins a little less so. Bitcoin, not really.”

Seems like not much has changed in the last couple of years. Banga has never been a fan of Bitcoin, the MasterCard exec has previously questioned its volatility. Despite his efforts to connect 1 billion people worldwide to the banking system, he had previously revealed that he does not see much usecase for cryptocurrencies such as Bitcoin in that push for greater financial inclusion.

MasterCard CEO Bullish On CBDC But Not Bitcoin

Citing Bitcoin’s volatility as the reason, MasterCard’s Banga had earlier questioned Bitcoin’s role in the world. While he is may not be a big fan of cryptocurrencies, the exec is, however, bullish on the growth of more stable cryptocurrencies especially by central banks which he believes could be an important milestone since it would be backed by each country’s existing currencies.

MasterCard CEO had opined,

“Fiat currencies, if they were to go digital, would they be helpful in cross-border trade flows and improving the efficiency of those – yes for sure.”

Back in 2018, the exec had termed cryptocurrencies as “junk”. But as Bitcoin and by extension the cryptocurrency slowly started becoming an important part of the payments world, MasterCard announced the supporting selected cryptocurrencies directly on its network.

USDC Goes Live On Stellar’s Decentralized Exchange

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The world’s leading stablecoin backed by Circle and Coinbase, USD Coin [USDC] went live on Stellar’s decentralized exchange, on the 2nd of February. David Puth, the CEO of Centre Consortium, asserted that the partnership of Stellar and Centre would further advance the growth of USDC while strengthening the Stellar ecosystem at the same time.

According to the official announcement, at launch, the Stellar USDC was available on Stellar’s decentralized exchange, accessible to any Stellar account through integrated wallets and tradeable across Stellar’s ecosystem of over 9,000 assets which includes stablecoins such as NGNT, BRLT, ARST, EURT, TZS and ZAR.

Notably, Stellar was previously announced as an official chain of the stablecoin back in October 2020 by Stellar Development Foundation [SDF] and the Centre Consortium, which was co-founded by Circle and Coinbase. ‍

Following the announcement, Denelle Dixon, CEO and Executive Director of the Stellar Development Foundation was quoted saying,

“This integration is going to be a powerhouse for growth in the Stellar ecosystem and a catalyst towards achieving our mission of creating equitable access to the global financial system. It presents significant business opportunities for both new and existing companies to build on the respective strengths of USDC and Stellar.”

Furthermore, the latest integration also aims to benefit businesses and developers from Circle’s scale and liquidity to deliver on the kinds of products and use cases the Stellar especially with respect to cross-border payments and tokenization.

Rise in Circulation of USDC Tokens

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USDC was first developed on Ethereum blockchain but with the partnership, Stellar has become the fourth blockchain to support the stablecoin.

Besides, owing to the wider adoption of the cryptocurrency over the last couple of months, stablecoins in circulation have exploded at an astonishing rate. Moreover, the number of USDC tokens in circulation also saw a parabolic rise of more than ten-fold over the last 12 months. Most notably, the stablecoin gained momentum after July when prices of Bitcoin and altcoins picked up the pace.

At the time of writing, USDC’s market cap was found to be at $5.93 billion.