Kiffmeister’s #Fintech Daily Digest (01/25/2021)*

RBI releases Booklet on Payment Systems in India

According to the Reserve Bank of India’s “Payment Systems in India — Journey in the Second Decade of the Millennium” it is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalize it. 

Chengdu is said to give away 50 million digital yuan in latest CBDC test

Chengdu is reportedly the next place to roll out another city-wide test of China’s central bank digital currency (CBDC). The local government will give away 30 million digital yuan and will give away another 20 million that can be spent on online shopping. The free digital yuan will be issued via a lottery, which is the same with what the Shenzhen and Suzhou have done in previous tests since last October. The lottery is expected to start on January 27 while lottery-winners will be able to spend the free digital yuan in local merchants from February 4 to February 26 throughout the Lunar New Year festival.  

Chinese Blockchain Service Network set to onboard ConsenSys’ Quorum

Ethereum studio ConsenSys will integrate Quorum into the China state-sanctioned Blockchain Service Network (BSN). The BSN is a service infrastructure that allows developers to build decentralized applications on top of blockchains that it supports, like Hyperledger Fabric, Ethereum, and Polkadot. It is backed by the State Information Center of China, a think tank under the country’s cabinet-level economic planning agency, the National Development and Reform Commission. Beijing-based Red Date Technology oversees the operations and development of the platform. 

USDT Transactions on Tron Surpassed Ethereum Tether Transactions Every Day in 2021

Tether (USDT) transactions on the Tron network have outpaced the number of USDT transfers on the Ethereum blockchain. Despite a lot more ERC20-based USDT in the wild, USDT transaction counts using the TRC20 standard have been much higher all year long, likely due to rising ETH network fees. Fees on the Tron network are near zero, whereas ETH transaction fees can exceed $5. However, the aggregated dollar volumes of ERC20 USDT is still 2x higher than those using TRC20. USDT is also issued on Ethereum, Tron, Bitcoin Cash, EOS, Liquid, Solana, and Algorand, among others. 

Collateralized Debt Obligations Make Their Way Into DeFi Lending

Opium Finance has released collateralized debt obligation products (CDOs) for Compound Finance’s automated lending markets. Opium is a decentralized finance (DeFi) protocol that allows for creating, settling, and trading decentralized derivatives. Compound Finance is an algorithmic, autonomous interest rate DeFi protocol that allows for the creation of money markets on the Ethereum blockchain. Investors can put up the Compound debt token cDai – and soon Uniswap tokens – to diversify exposure to DeFi lending markets. Opium’s product pays out structured returns to both a senior and junior risk tranche in exchange. The former tranche offers a 7% fixed return on DAI (a crypto-backed USD-pegged stablecoin) at maturity, while the latter pool offers a variable rate paid out after filling up the senior tranche’s return.   

A Record Pace for SPACs

Special Purpose Acquisition Companies (SPACs) are shell companies that raise capital in order to search for a private company that it will bring public in the future. Although SPACs have been growing over the past five years, last year they represented nearly 50% of all capital raised by operating companies, with more than $70 billion in proceeds raised. Because SPACs are typically smaller than operating companies, they accounted for more than half of all new listings in 2020. 

This paper analyzes the structure of SPACs and the costs built into their structure. It finds that costs built into the SPAC structure are subtle, opaque, and far higher than has been previously recognized. Although SPACs raise $10 per share from investors in their IPOs, by the time the median SPAC merges with a target, it holds just $6.67 in cash for each outstanding share. For a large majority of SPACs, post-merger share prices fall, and these price drops are highly correlated with the extent of dilution, or cash shortfall, in a SPAC. This implies that SPAC investors are bearing the cost of the dilution built into the SPAC structure, and in effect subsidizing the companies they bring public. 

* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.