Historically we see GREEN, before rallies start to top out.
Stablecoins continue to make headlines as we move into the New Year. Last week, the President’s Working Group on Financial Markets released a statement providing an initial assessment of key regulatory considerations for participants in “significant stablecoin arrangements with a U.S. nexus that are primarily used for retail payments.”
“The statement reflects a commitment to both promote the important benefits of innovation and to achieve critical objectives related to national security and financial stability. Regulators will continue to look closely at stablecoin arrangements, and look forward to future dialogue on these issues,” said Treasury Deputy Secretary Justin Muzinich.
This is not the first regulatory attempt at providing clarification around stablecoins. Earlier this month, three US Congressmen introduced the STABLE Act, proposing regulation for the issuance of stablecoins and related commercial activities. The purpose of this legislation is to shield Americans from potential dangers by requiring any prospective issuers to maintain reserves at the Federal Reserve and to obtain a banking charter.
What are Stablecoins?
Stablecoins are a class of cryptocurrencies, whose value and stability is pegged to a reserve asset. The reserve asset could be a fiat currency such as the dollar, the euro, the yuan or a commodity such as gold. Stablecoins offer the instant processing, security and privacy benefits of cryptocurrencies, without the associated volatility.
Over the last three years, stablecoins have continued to make headlines. Tether (USDT), with a current market cap of $20.5B, was the first widely adopted stablecoin and mostly used as a tool for traders to easily go in and out of their cryptocurrency positions into a fiat-backed unit of account, without having to go through the arduous process of cashing back out into fiat itself.
Key Developments in 2020
Tether was quickly followed by other centralized stablecoins such as USDC (currently used by Coinbase), TrueUSD and PAX to name a few, and decentralized, or algorithmic-based stablecoins, such as the DAI and the USDN. Centralized stablecoins are backed by a reserve of fiat or a commodity within a centralized bank or vault, while decentralized stablecoins derive their value from an algorithmic network.
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Stablecoin development, however, didn’t stay in the hands of start-ups for long. In 2019, Facebook FB announced the development of their own stablecoin, Libra, now known as Diem, which was planned to be pegged to a basket of fiat currencies and other assets. The currency would become available to all 2.7 billion Facebook users, including 380 million monthly gaming users. The proposed currency set off a number of regulatory probes into stablecoin compliance, congress hearings and public debate.
In the meantime, China pursued its own government-backed stablecoin – the digital Renminbi, handing out $3 million of digital yuan to promote the use of currency for online retailers and through popular apps such as WeChat.
Stablecoins and Gaming
In last week’s announcement, the U.S. Department of the Treasury made a particular emphasis on the “retail” uses of stablecoins anticipating widespread use in e-commerce, social applications and of-course, gaming and esports.
The COVID-19 pandemic has given an extra boost to the gaming industry, with more consumers enjoying home-based entertainment. The gaming industry is projected to attract 3 billion players by 2023 with consumer spending on games projected to grow to $196B by 2022.
Gaming has been at the forefront of cryptocurrency adoption since the beginning, with the earliest crypto applications developed as payments for digital goods within games. Dubbed as non-fungible tokens or NFTs, companies like WAX, CryptoKitties and Decentraland popularized the concept of digital goods available for trade and purchase.
SHANGHAI, CHINA – December 19: Liu “Mlxg” Shi-Yu competes on day 2 of the 2020 League of Legends … [+]
Riot Games via Getty Images
Established players are also capitalizing on the blockchain and gaming trend. Earlier this month, Microsoft MSFT and Ernst & Young announced plans to use a blockchain-based platform to enable Microsoft XBOX gaming partners, artists and content creators to track and manage payments and royalty contracts. According to the press release, “the expanded solution reduces processing time by 99%, with 100% near real-time calculation of royalties using digital contracts across game development partners.”
This news follows Circle’s September announcement of an initiative to build a payments platform in partnership with Dapper Labs, the creators of CryptoKitties, one of the first widespread blockchain games. The company plans to integrate USDC into Dapper Labs’ new Flow network. This is the first time credit and debit card payment options are added for decentralized apps, collectibles and marketplaces with global settlement in USDC. Circle also announced a partnership with Visa V with a plan to enable businesses around the world to take advantage of stablecoins.
“Stablecoins like USDC represent a promising payments innovation and provide an emerging platform for fintechs and digital wallets to enable new payment flows,” said Cuy Sheffield, Head of Crypto at Visa.
Stablecoins are a logical step for the gaming and the esports industry, providing seamless borderless payments for a global network of participants. While physical sports are tied to a city or a region, virtual sports were designed without geographies in mind, bringing with it certain execution challenges. For example, Epic games recently announced a $100 million for Fortnite esports tournament prize pool for its global audience only to then run into challenges making payments globally through traditional channels. Blockchain technology can streamline this process.
Zytara is one of the latest fintech companies looking to tackle gaming payments using stablecoins, though a newly formed partnership with Prime Trust.
Zytara will launch its own branded stablecoin, ZUSD, to serve a variety of use-cases within the rapidly growing industry of gaming and esports, while creating its own banking platform and payment network designed for Millennial and Gen-Z gamers. Prime Trust will serve as the issuer of ZUSD and hold 1:1 USD reserves. Prime Trust provides similar infrastructure to TrueUSD and a handful of other stablecoins.
“Our goal is to bring financial innovation and gaming together. This new digital banking platform will combine all the capabilities of a bank account with features for gamers and esports enthusiasts. The Zytara dollar will allow users to transact instantaneously, replacing traditional payment methods,” said Al Burgio, Founder and CEO of Zytara.
ZUSD is initially slated to launch on Ethereum before migrating to DigitalBits, an emerging blockchain in the gaming space. The latter is a fork of Stellar, which has also been actively involved in furthering the stablecoin industry. Stellar recently announced a partnership with banking institution Bankhaus von der Heydt to issue a Euro stablecoin called EURB.
With the global pandemic keeping more of us indoors, online gaming continues to reach new highs. Esports audience is on track to reach 646 million viewers by 2023, growing 11% year over year, and already surpassing that of many other professional sports. This level of growth is continuing to garner the attention of fintech companies globally, looking to use blockchain technology to capture a slice of the $196 billion gaming industry.
Finance.vote, the governance layer for DeFi communities, is conducting a series of airdrops of its FVT token to onboard a new wave of users. Participants who claim their free tokens and use them to mint a voting identity can engage with the platform’s prediction markets, earning reputation and voting power for correct calls.
The finance.vote platform uses a quadratic voting system, which has famously gained significant attention from Vitalik Buterin, to support decentralized governance. This ensures that token-holders can cast meaningful votes, whatever the size of their stake. In the finance.vote system, participants who make correct DeFi market predictions will earn a share of the weekly reward pool.
Prediction markets differ in several key ways from betting markets. Aside from the former’s decentralized architecture, as popularized by platforms such as Augur and Gnosis, the emphasis with prediction markets is on sourcing the wisdom of the crowd. Moreover, prediction markets incentivize participants for extrinsic reasons and not just financial gain.
While finance.vote supports DeFi prediction markets, based on the performance of various ERC20 assets, the platform has broader aspirations. By sourcing the wisdom of the crowd, finance.vote aims to become a portal for filling the knowledge gap for new tokens and projects. This will enable DeFi users to separate signal from noise, identify potential scams, uncover fledgling communities that align with their interests, and make smarter trading decisions.
On December 10, finance.vote collected the ETH addresses of airdrop participants in its Telegram channel before issuing them 100 FVT tokens apiece, with a view to completing several more random airdrops in their Telegram group. After minting an identity using a web3 wallet such as MetaMask, token-holders are able to start voting on prediction markets. The dashboard displays the user’s $V power, which determines their voting power, based on the quadratic voting formula, and displays the time left in which to vote in the current window. They can also view the size of the reward pool, denominated in FVT.
Because the decentralized finance industry is still small, in relative terms, and scattered, information blackholes are inevitable. Few cryptocurrency holders have the time or inclination to scrutinize hundreds of emerging projects each week and to stay in the loop for existing projects. Information asymmetry is endemic, with more knowledgeable traders able to profit at the expense of outsiders.
Finance.vote is creating a more democratic system, in which knowledge providers are rewarded for their insights, while knowledge seekers are given the informational edge they’re seeking. The platform’s prediction market is how finance.vote has gamified knowledge sharing, giving participants who act on their alpha, by placing predictions, the opportunity to earn rewards.
A secondary application for the finance.vote ecosystem is to support the creation of ‘miniDAOs.’ Tied to specific tokens and projects, they allow nascent DeFi projects to be guided by their community from an early stage, resulting in greater engagement, loyalty, and more egalitarian decision-making. finance.vote also enables private groups to be established as de facto DAOs, complete with the formation of micro-liquidity pools for trustless trading of tokens. For example, a group of well-connected and influential traders could assemble to share insights, while being directly rewarded for their input.
Be it for the bragging rights or the monetary rewards, in-the-know DeFi users now have a way to put their wisdom to work. Those who are just getting started in DeFi, meanwhile, can view the predictions of more experienced heads who have skin in the game. Join the finance.vote announcement channel to discover details of their future airdrops.
The latter half of 2020 has seen record Bitcoin (BTC) prices and a number of key regulatory developments, such as the Office of the Comptroller of the Currency’s, or OCC’s, approval of crypto custody at national banks. Legal policy for the digital asset industry currently faces an uncertain future, however, as a number of government roles are set to change heading into 2020, according to former Coinbase exec and current acting leader of the OCC, Brain Brooks.
“I can’t speak to the specific price movement, but I’ll tell you what I’m worried about,” Brooks told CNBC in a Friday interview, fielding a question on his primary interest regarding Bitcoin’s blazing highs. Brooks explained:
“All of this is happening in an environment where we’re about to have a change of presidential administrations and there’s calls on Capitol Hill to dismantle some of the regulatory protections we’ve put in place with this stuff.”
Recent weeks have shown a number of crypto regulatory proposals, including rumors of a ban or limitations on self-custodied crypto wallets. Multiple congressional leaders responded with concern against the possible action. A new bill proposal also seeks to place stringent regulatory requirements on stablecoins.
“My agency has tried to make it safer for people to custody in national banks,” Brooks said. “We’ve talked about banks supporting some of these stablecoin projects,” he added. “If those protections aren’t in place, I really worry about the environment for these kinds of things.” Brooks pointed toward a desire for retaining safety within the crypto space.
Brooks’ strides toward crypto industry safety and growth were met with recent backlash expressed in the form of a letter from several congresspeople in early November. Several government leaders lobbied that the OCC concentrated too much on the sector under Brooks’ watch.
In his CNBC interview, Brooks noted crypto is at a crossroad in terms of regulation. “We’re at a really critical inflection point right now,” Brooks said. “It’s kind of a fork in the road.” The OCC leader said one road looks to increase safety for people in the market by targeting the ecosystem surrounding illegal crypto transactions. He described banks as vital to the equation.
The second road looks more dire for the crypto space. “The other path, which is a very real potential here, is that we politicize some of these tech issues, whether it’s crypto or fintech more broadly,” Brooks explained, adding:
“We politicize it by undoing all of the good work this administration has done to make it safer, to make it more real, and if we do those things, as for example, Chairwoman Maxine Waters’ letter recently suggested, then I’m not sure if we have enough of a foundation to move forward here. So it’s all about consolidating regulatory gains and consumer protections that we’ve tried to put in place.”
In early December, Waters sent out a letter requesting a halt on financial regulatory developments until government positions are solidified in 2021. Waters made a splash in the crypto space back in 2019, when she halted Facebook’s Libra (now called Diem) after its white paper release.
