Hong Kong is reportedly actively testing China’s digital yuan and has entered the second phase of technical testing to incorporate a predominant local payment system. The Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) have completed the initial technical tests for cross-border payments using the digital yuan in Hong Kong. Currently, they are conducting the second phase of the technical trial, involving more Hong Kong banks and testing the digital yuan wallet’s top-up function through the Faster Payment System. [Read more at The Block]
JP Koning published an article that debunks Circle’s claim that the reserves backing its USDC stablecoin were “as diversified as possible” prior to the collapse of Silicon Valley Bank, in which $3.3 billion (8% of reserves) was held in the form of uninsured deposits. Circle blames banking for its woes, which is “extremely difficult” for crypto firms, but Paxos doesn’t seem to be having the same problem with its USDP stablecoin. $185.5 million were spread over thousands of banks using deposit placement networks like IntraFi, and were thus insured by the government. For the remainder, Paxos obtained $72 million worth private insurance. Only $10.9 million in deposits were effectively unprotected, a small 1.3% sliver of USDP’s total assets. JP askes, rather than keeping 8% of its assets lodged at a second tier bank without insurance, why didn’t Circle follow Paxos’s risk reduction strategy? [Read more at Moneyness]
Fortune magazine published a behind-the-scenes account of Circle’s Silicon Valley Bank (SVB) trials and tribultations. Circle’s management “devised a plan A, B, and C. The first failed when Circle’s attempted wire to get out its deposits didn’t go through. [They] remained optimistic that the government would guarantee its deposits—plan B. In case that didn’t work out, the executives spent the weekend negotiating deals with companies who would buy Circle’s SVB holdings for $0.85 on the dollar, which, along with Circle’s own balance sheet, would be enough to restore USDC’s reserves.” [Read more at Fortune]
The International Organization of Security Commissions (IOSCO) published a report on the regulation of decentralized finance (DeFi). It makes nine recommendations that include analyzing the DeFi protocol, identifying responsible persons and mapping functionality to existing regulated activities. The proposed recommendations are principles-based and outcomes-focused, and aimed at DeFi products, services, arrangements, and activities by applying IOSCO’s widely accepted global standards for securities markets regulation. [Read more at IOSCO]
The BIS published a paper on the role of oracles to import real-world data into blockchain-based decentralized finance (DeFi) environments for use in smart contracts. Smart contracts in DeFi rely on accurate reporting of real-world events to function correctly. The oracle problem poses a challenge of incorporating reliable real-world information into DeFi applications while maintaining the core principles of decentralization: trustlessness and no single point of failure. It underscores a notable limitation of DeFi, which requires sacrificing trust in intentions (whether individuals or institutions are fair and ethical) that cannot be fully captured by consensus protocols. This restricts the scope of DeFi to communities that are willing to rely solely on trust in competence. [Read more at the BIS]
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
Kiffmeister’s central bank digital currency monthly monitor
Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at firstname.lastname@example.org.
The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (email@example.com).
Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]
WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]