Author: MYKEY researcher Jiang Haibo

quick preview

quick preview

1. Overview of Stablecoin Data

We first review the changes in the basic information of each stablecoin in the past week (September 5, 2020 to September 11, 2020, the same below).

Source: MYKEY, CoinMarketCap, Coin Metrics

Source: MYKEY, CoinMarketCap, Coin Metrics

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

In the past week, Tether issued two additional tokens on Tron, totaling 500 million USDT. The circulation of USDC, PAX, BUSD, TUSD, HUSD, and GUSD increased by 263 million, 630,000, 103 million, 120 million, 3.6 million, and 700,000 respectively. The circulation of DAI decreased by 1.48 million.

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, DeBank

Source: MYKEY, Coin Metrics

Active addresses

Source: MYKEY, Coin Metrics

Last week, the number of daily active addresses of major stablecoins decreased by an average of 3.33% from the previous week.

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

Compared with the previous week, the daily number of transactions of major stablecoins increased by an average of 0.17%.

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

Source: MYKEY, Coin Metrics

first level title

2. The rise of central bank digital currency

Central bank digital currencies (CBDCs) have received unprecedented attention, but motivations, policies, and technical designs vary across countries. On August 24, the Bank for International Settlements (BIS) released a working paper entitled "The Rise of Central Bank Digital Currencies: Drivers, Approaches and Technologies". The article introduces the current CBDC research of central banks in various countries, calls on central banks of various countries to learn from each other, and gives three representative cases of CBDC.

80% of the central banks surveyed are engaged in research, experimentation or development of CBDC

Over the centuries, a range of new payment technologies have met societal needs. Coins, bills, checks, credit cards are all innovations of their time. Now, there is growing talk about a new payment technology — a central bank digital currency. CBDC represents the digital liabilities of the central bank. Wholesale CBDC may become a new settlement tool between financial institutions, while retail CBDC will be a central bank liability that everyone can use. Although the concept of CBDC has been proposed decades ago, in the past year, the attitude of central banks on whether to issue CBDC has changed significantly.

During the Covid-19 epidemic, the public feared that the virus would spread through cash. Payment schemes from governments to individuals are accelerating the shift to digital payments. Over time, the decline in the use of cash in some countries has raised concerns, and central banks in many countries have begun to consider issuing CBDCs. As of late 2019, a total of central banks representing one-fifth of the world’s population said they could issue CBDCs soon. Likewise, the percentage of central banks considering issuing a retail CBDC within 1-6 years doubled in 2019 to 20%. Eighty percent of the central banks surveyed are engaged in research, experimentation or development of CBDCs.

image description

secondary title

DC/EP may be the most advanced CBDC project currently

For years, central banks around the world have been studying the concept and design of CBDCs. Such as the "Dinerolectrónico" of the Central Bank of Ecuador, the "Dukaton" of the Dutch Bank, and the "Ubin" of the Singapore Monetary Authority.

At present, the most advanced CBDC may be the Digital Currency Electronic Payment (DC/EP) of the People's Bank of China. DC/EP represents the PBOC’s liabilities in cash and is available to the public as well as foreign tourists visiting China through an account-based interface.

image description

secondary title

Commonalities in CBDCs

Increased interest in CBDCs has been driven by the growing digitization of global commerce, the rise of private digital currencies, and concerns that cash could spread the COVID-19 virus. However, the economic and institutional motivations for issuing a CBDC vary across countries. This part of the content hopes to cross the national dimension, explain the research and development of CBDC from the perspective of economic and institutional drivers, and find common ground to explain why some countries/regions increase the research and development of CBDC. This will also help us understand how they design CBDC projects.

secondary title

Technical Design of CBDC

The "CBDC Pyramid" is a taxonomy of CBDC designs. This approach starts with the consumer needs addressed by a retail CBDC, identifies the technology, and then arrives at the final design.

The first thing to choose is the technical architecture. According to the roles played by the central bank and private intermediaries in CBDC, the technical architecture of CBDC is divided into four types: direct CBDC, hybrid CBDC, intermediary CBDC, indirect or synthetic CBDC.

The second layer is infrastructure. It can be based on traditional centralized database or distributed ledger technology (DLT). The difference in technology also leads to differences in the efficiency of CBDC and the degree of protection against single point failures. But of all the central banks working on a CBDC, none are willing to risk using a permissionless distributed ledger technology like Bitcoin.

The third layer is access to CBDC. Account-based CBDC combined with identity verification can provide the basis for payment activities. But for the unbanked or privacy-conscious, it can be difficult to gain access. Lowering barriers to entry could lead to new illegal activities.

The fourth layer is the cross-border payment of CBDC, which involves the interconnection of retail and wholesale of CBDC.

In terms of architecture, four central banks in the survey sample are considering adopting a direct model, seven central banks are considering a hybrid or intermediary model, and many central banks have not yet determined the architecture, but no central bank has indicated that it will adopt an indirect or synthetic CBDC.

In terms of infrastructure, seven central banks are considering running CBDC on DLT, three are considering using traditional technology, and one is considering a combination of both.

In terms of access, account-based access is the most common.

secondary title

Three Examples in the CBDC Design Approach

text

• People's Bank of China: DC/EP Project (Pilot Phase)

Among all the current CBDC projects, the People’s Bank of China’s DC/EP is at the highest stage of development, and China’s efforts on CBDC can be traced back to 2014. In late 2019, the Chinese people announced a pilot study of a retail CBDC — Digital Currency and Electronic Payment Instrument (DC/EP) project. On April 20, 2020, the spokesperson of the People's Bank of China confirmed that it is currently piloting in several cities including Shenzhen, Suzhou, Chengdu, Xiong'an and Beijing.

China's CBDC is being developed amid a highly digitized economy and widespread use of digital payment services. In addition to facilitating online transactions, a CBDC would also bring diversity to the current payment monopoly of Alipay and WeChat, which control a 94% share of mobile payments. China's DC/EP will serve as a supplement to M0, and it is not intended to completely replace physical cash.

The architecture of DC/EP belongs to "hybrid CBDC". The CBDC represents a direct claim on the PBOC, but access and real-time payment services are operated by intermediaries (authorized operators), and the central bank regularly receives and stores retail holdings and copies of transactions.

The People's Bank of China provides the core infrastructure, while intermediaries such as commercial banks, other payment service providers, and telecommunications will provide services to the public. This approach prevents the concentration of risk at the central bank, and also prevents duplication and waste of resources.

The PBOC does not require intermediaries to use specific infrastructure or a specific technical route, and financial intermediaries will be responsible for know-your-customer (KYC) verification obligations and retail services.

In terms of access, the People's Bank of China decided to use value-based, semi-account-based and account-based hybrid payment tools. Identity will be based on "loosely coupled account links", users can use DC/EP anonymously in daily transactions, but allow the central bank to track necessary data, implement prudential supervision, and combat money laundering and other criminal offences.

• Riksbank: The e-krona project

Sweden is a highly digitalized economy. Sweden is experiencing the largest and fastest decline in cash use, and even more and more stores no longer accept cash. Therefore, Sweden is more likely to issue a CBDC.

The Riksbank, like other central banks, has studied a variety of CBDC technologies and methods. A proof-of-concept for the e-krona project is currently underway, and the CBDC is also intended to complement cash.

The current proof-of-concept architecture for the Riksbank is a hybrid CBDC, a design that would require the Riksbank to provide a contingency solution should intermediaries fail, in case end users lose access to the e-krona.

The architecture and technical implementation of e-Krona is based on DLT.

In terms of access, the CBDC piloted by the Riksbank is account-based, but low-value prepaid cards are also considered. The Riksbank may also develop a CBDC payment card that can be used directly for micropayments without accessing a wallet.

• Bank of Canada: CBDC contingency plan

The Bank of Canada conducts effective research and policy communication on the topic of digital currencies. Despite the early start, the Bank of Canada has yet to claim a retail CBDC pilot or proof of concept. Canada’s CBDC has outlined a comprehensive plan, laying out the potential architecture and accumulating relevant technology and knowledge through new projects, which also cooperate with other central banks.

But the Bank of Canada says there is currently no compelling reason to issue a CBDC, and Canadians will continue to be well-served by the existing payment ecosystem, provided it is modern and still fit for purpose. The world is changing fast, and the Bank of Canada will consider scenarios for issuing a CBDC so it can continue to provide Canadians with a trusted payment method.

The Bank of Canada considers scenarios where the use of physical cash is reduced or eliminated entirely, and where private cryptocurrencies or stablecoins make significant inroads as a means of payment.

Architecturally, Canada's CBDC will not adopt the indirect/synthetic model, considering the use of direct CBDC, hybrid CBDC or intermediary CBDC.

On infrastructure, Canadian banks have experience with many DLT-based proofs-of-concept. DLT can serve as an infrastructure solution, but it is not necessary.

in conclusion

in conclusion

Central bank digital currencies are a new payment technology that could soon be launched in many countries around the world. Studies have shown that CBDCs develop faster in countries with high mobile phone usage and innovation capabilities. Countries will vary according to their own economic circumstances and priorities, but there are some key commonalities. All of the CBDC designs surveyed are complementary to cash, none of them employ an indirect model, and no central bank is willing to adopt the same permissionless distributed ledger technology as Bitcoin.

In order to better communicate with people in the industry, we have decided to add two sections for readers' questions and guest opinions. If readers have questions about stablecoins, please contact us, and we will select meaningful questions to answer in the next issue. At the same time, industry guests are welcome to come here to share your views on stablecoins. Contact: jianghb@mykey.org

This issue of the MYKEY stablecoin report has shared so much, please pay attention to the follow-up reports. In the follow-up reports, we will provide you with more interpretations of the development status of stablecoins and analysis of their development trends, so as to help you continuously update your understanding of the development of stablecoins.