Gu Yanxi: Diem's second stable currency is likely to be based on the Singapore dollar
The Diem Association has now filed an application with the Swiss FINMA. Now just waiting for FINMA's approval. It could be approved as early as January 2021. The first stablecoin that Diem plans to issue will be a USD-based stablecoin. In my opinion, after the Diem USD stablecoin, Diem's second issued digital stablecoin is very likely to be based on the Singapore dollar.
According to Diem's original stablecoin design, it includes five currencies against a basket of fiat currencies. They are 50% USD, 18% EUR, 14% JPY, 11% GBP and 7% SGD. According to conventional thinking logic, after the Diem Association issues the US dollar stable currency, the next issue should be the Euro stable currency. But in my opinion, the second digital stablecoin issued by Diem is likely to be based on the Singapore dollar. It would have been a better choice for the Diem Association to be the first to issue a Singapore dollar-based stablecoin.
The European Union has always been wary and opposed to the Diem Association. This includes the latest clear statement from the German Finance Minister. He opposes the issuance of digital currency by private institutions, and believes that the right to issue digital currency should be in the hands of European banks. I believe that so far, Diem's strategy of issuing stable coins will also issue the next Diem stable coin based on the euro. I think its most recent name change was also to emphasize Diem's neutrality. This is also a means to gain support from the EU. But now it seems that it will be a very big challenge to issue Diem's stable currency based on the euro first. Comparing such a strategy with the strategy of first issuing a Singapore dollar-based stable currency, the strategy of issuing a stable currency based on the Singapore dollar is more feasible and can obtain greater benefits.
The Singaporean government is very friendly to the development of encrypted digital finance. Its homeland not only produces startups in the field of encrypted digital finance, but also attracts companies outside of Singapore to start businesses or operate in Singapore. For example, Switzerland's encrypted digital bank and Swiss digital asset exchange SDX have set up operations in Singapore to take advantage of the local policy environment and expand the market in this region. Similarly, for the Diem Association, if it issues a Singapore dollar-based Diem stablecoin here, it is much more feasible than issuing a Euro-based Diem stablecoin today. And in the Singapore market, there are already issuers that issue stablecoins based on the Singapore dollar. So in terms of feasibility, it is much more feasible for Diem to issue a Singapore dollar-based stablecoin now.
Singapore's unique geographical location is also very suitable for issuing stablecoins. There are more and more economic and trade exchanges between countries in Southeast Asia, so a more effective cross-border payment method is needed. A generally accepted stable currency will be very beneficial to the economic and trade exchanges in this region. So I previously thought that there might be a competitor to Libra in Southeast Asia, or that Southeast Asia is the first region Libra entered. At present, both possibilities still exist. For the Diem Association, the first to enter this market will gain a first-mover advantage. Especially because of the network effects of currencies, this first-mover advantage is even more important. For Libra competing products in this region, the issuance of Diem’s Singapore stablecoin will raise the threshold of competition in this field, and the possibility of its success will also be reduced.
