In a continuing effort to expand the functionality of their various services, digital securities issuance platform, TokenSoft, has announced new support for a variety of stablecoins. The stablecoins that will be added to their list of accepted forms of payment are as follows:
- Gemini Dollar (GUSD)
- USD Coin (USDC)
- Paxos Standard (PAX)
The acceptance of stablecoins represents an important move by TokenSoft, as many investors interested in digital securities utilize such assets. Their unique traits, which allow for sheltering from the volatility of crypto assets, all the while providing the benefits associated with them, make them an appealing tool.
Services offered by TokenSoft that will benefit from this development include, not only their issuance platform, but their Knox Wallet as well.
We have discussed the Knox Wallet in the past, as it looks to become a mainstay solution for providing custody for digital securities.
Along with digital securities, we have noted on a variety of occasions in which we believe stablecoins will play an important role in the developing world of blockchain and DLT. The following are a few articles demonstrating developments with regards to stablecoins, and their potential to change the way many investors and companies operate.
In their official announcement, TokenSoft touched on their decision to support a new bevy of stablecoins. The following is what they had to say on the matter.
“TokenSoft is proud to continue providing technology at the intersection of blockchain and securities laws. Providing stablecoin support for our issuers and their investors adds another layer of financial infrastructure to the fast-moving and innovative space surrounding blockchain technology.”
Operating out of San Francisco, California, TokenSoft is a young company which specializes in the tokenization and issuance of digital securities. TokenSoft, notably, acquired Marpine Securities in early 2019. This move allowed for TokenSoft to inherit the ability to offer broker-dealer services within the United States.
CEO, Mason Borda, currently oversees company operations.
In Other News
Beyond simply noting stablecoins as a current trend, there have been multiple instances of giant corporations jumping into the fray. In the following articles we discuss the potential entrance of both Facebook and Walmart into the ring.
The Managed Stablecoins are Securities Act of 2019 H.R. 5197
A new bill aimed at adding clarification to the budding stablecoin market could see some serious opposition from the cryptocommunity. The bill dubbed the “Managed Stablecoins are Securities Act of 2019 H.R. 5197″ was introduced to regulators last week. The goal of the new legislation is to amend the statutory definitions of the term security to include managed stablecoins.
Issues with Managed Stablecoins
Almost immediately, crypto analysts spotted issues with the wording of the new bill. For example, the new legislation states that “digital assets, known as managed stablecoins, are investment contracts and therefore are securities within the meaning given the term in section 2(a) of the Securities Act of 1933.” In this scenario, every stablecoin would fall under the new regulations.
The problem with such a blanket statement is that it has the potential to halt one of the most innovative sectors in the cryptocurrency market. The new legislation would be a death sentence for most of the stablecoins currently in existence. These negative effects would occur because this would require these tokens to trade exclusively on securities exchanges versus crypto exchanges.
Congress Drops the Ball
The new legislation was put forth in the wake of major tech firms such as Facebook seeking to launch stablecoins in the very near future. Regulators now believe that it will be easier to provide oversight to these projects if they fall under the securities laws. Unfortunately, the bill fails to accurately describe what is a “managed stablecoin.”
In essence, managed stablecoins are less about the token and more about the issuers’ actions. Only when a stablecoins issuer plays an active managerial role in adjusting the composition of assets that back the coin should the token fall under current securities regulations. This ruling would make sense as the company’s actions guarantee the token’s stability.
Hurt the Many to Regulate the Few
The problem with a broad categorization of stablecoins is the fact that most don’t have this active management as part of their strategy. In most instances, the digital asset represents a right in a trust. Basically, a company would peg the token to a real-world asset that represents a 1-to-1 exchange rate. Usually, this asset is some form of fiat currency.
Tether is the best example of a non-managed stablecoin. The firm holds dollars as a state-regulated trust company. This company adheres to trust regulations. Basically, the company can’t utilize these funds in any way which could detract from their 1-to-1 backing ratio. In this manner, Tether provides much-needed stability to the cryptospace without actively managing the value of the tokens.
You Can’t Douse the Stablecoin Fire
As regulators continue to explore ways to tackle the emergence of mega tech firm tokens, its interesting to see what concepts actually make it into regulations. The current Managed Stablecoins are Securities Act of 2019 H.R. 5197 lacks much of the clarification lawmakers sought to provide. As such, there is a good chance that this bill is only the start of a long regulatory battle to determine the future of these much-needed coins.
Bank of China Moves to Regulate STO
This month, executives from the bank of China unveiled some major announcements regarding the future of blockchain technology in the country. Apparently, the Bank of China will now create its own centralized cryptocurrency. Additionally, the bank intends to roll out a robust security token protocol in the coming weeks.
In the past, Chinese officials have been very critical of cryptocurrencies. The country famously banned exchanges back in 2017. Also, Chinese officials have been hard on miners in the country despite the fact that the Chinese government operates some of the largest mining facilities in the world.
Pivot Towards Blockchain – Bank of China
Now it appears as if Chinese officials got the memo that blockchain technology is here to stay. At the recent Finance Technology Summit in Beijing, the Chief Scientist of the Bank of China, Weimin Guo described the country’s new strategy moving forward.
National Digital Currency
China now intends to release its own cryptocurrency called China’s Digital Currency Electronic Payment (DCEP). This cryptocurrency will serve as the only national digital currency of the country. Interestingly, the token will be a stablecoin pegged to the Chinese RenMinBi (RMB).
Developers hope that the integration of blockchain and cryptographic technology will streamline the outdated financial practices currently in use. Blockchain tech brings some serious advantages to the table. For one, the tech eliminates the frictions seen in traditional payment systems.
Shade on Bitcoin
After acknowledging the huge benefits gained from blockchain technology, Guo stated that Bitcoin had failed its purpose to provide a safe haven from the traditional market manipulations. He stated that Bitcoin’s launch was poorly timed and its primary goal to disrupt the global economy was “impossible.”
Strict Regulations – Bank of China
While China loosens its blockchain leash, it’s obvious the country wants to keep the technology in check. For example, all STOs are to operate within a strict “regulatory sandbox mechanism” at first. Basically, the country wants to promote innovation with new technology but desires a measured integration to maintain complete control over the sector.
It’s no surprise that China feels the pressure from blockchain adoption. At one time, China controlled a large majority of the crypto market. Since that time, the country continually targeted crypto investors and traders.
Additionally, regulators expressed concern about major tech firms such as Facebook issuing a cryptocurrency. Not surprisingly, regulators only want currency creation to originate from a national bank or government agency.
China’s Big Hope
Chinese regulators now believe that the DCEP has the potential to evolve into a leading global currency. Bank officials seek to integrate the currency into the main economy as soon as possible. This integration will span the scope of the Chinese economic sector from retail all the way to major investment firms.
China Inches Back into the Game
It’s interesting to see how Chinese regulators continue to embrace blockchain technology. China has always been on edge over the emergence of cryptocurrencies, but as it stands today, the country has to embrace the technology or fall to the wayside against the growing competition.
A Brief Overview of the IOSCO Stablecoin Evaluation
The Board of the International Organization of Securities Commissions (IOSCO) released a public statement concerning the risks associated with global stable coin projects recently. The regulatory body met on October 30th in Madrid to discuss the new type of cryptocurrencies and the possible effects the coins could have on global economics. The news showcases the growing concerns regulators have towards major tech firms releasing cryptocurrencies, in particular, Facebook’s Libra.
The IOSCO is a leading international policy forum for securities regulators. The organization includes members from across the globe. Notably, the firm’s board includes 34 securities regulators. Today, the IOSCO regulates more than 95% of the world’s securities markets in more than 115 jurisdictions. Consequently, the organization enjoys recognition as the global standard-setter for securities regulation.
Risk vs Reward – Stablecoins – IOSCO
This latest report covers risks and benefits arising from stablecoin initiatives, specifically, stablecoin projects with a potential for global reach. Projects such as Facebook’s Libra create a unique scenario in which a stablecoin could see massive global adoption. In turn, this adoption could upend the current financial markets. Notably, the IOSCO believes many of these projects fall under current securities market regulation.
The IOSCO report begins with an acknowledgment that stablecoins can potentially offer benefits to market participants. These benefits include a more efficient and secure transaction process that extends to consumers and investors alike. Despite the upside of stablecoins, IOSCO believes that potential risks exist in many areas. The areas of most concern include consumer protection, market integrity, transparency, conflicts of interest, and financial crime. Additionally, systemic risks are another of the group’s main concerns.
Standardization – IOSCO
The group seeks to discover what principles and standards could apply to global stablecoin initiatives. The firm proposes a case-by-case approach to the evaluation of these projects. Basically, regulators want to review the rights and obligations conferred by a particular stablecoin to determine if it falls under their regulatory reach. Also, the body wants to ensure that the obligations of the sponsor are understood fully.
Speaking in the report, Ashley Alder, Chair of the IOSCO Board described how many global stablecoin initiatives include features that are typical of regulated securities. He explained that in these circumstances, IOSCO Principles and Standards may apply. Importantly, a project’s structure is the determining factor. This can include disclosure, registration, reporting, and distribution methods.
Alder reinforced his statements after citing the most recent g20 report on the matter. This report points to the inherent public policy and regulatory risks posed by these projects. Alder pointed to the most recent G7 statement regarding stable coins as well. Not surprisingly, the report echoes the concerns of the G20 nations. She spoke about the importance of these statements and the need to move forward with a global initiative.
Importantly, Alder explained that his organization will work closely with the Financial Stability Board on any follow-up reports in the works. In fact, Alder plans to work closely with multiple standard-setting bodies to ensure a globally coordinated response to these tokens. Importantly, one of the main goals of the report is to encourage international collaboration as a means to identify and mitigate potential issues as they emerge.
What to Expect
The IOSCO will continue its stablecoin assessment and consideration to better track the effects of these tokens. This research, combined with other researchers, and securities market regulators, should give the organization a better understanding of what to expect moving forward. For now, you can expect to see larger tech enterprises seek to utilize stablecoins to improve efficiency and save on costs associated with fiat currencies.
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