Kenneth Bok, head of growth and strategy at Zilliqa, an established blockchain project that provides infrastucture to StraitsX, a stablecoin initiative introduced by the Fintech payments provider Xfers, recently shared his views and insights with Crowdfund Insider.
Xfers is accredited by the Monetary Authority of Singapore (MAS). StraitsX’s stablecoin, XSGD is pegged 1:1 to the Singapore dollar (SGD), with the initiative providing greater liquidity, transparency, and cost-efficiencies for traders and investors.
Crowdfund Insider: Hailed as a means of mitigating the volatility of cryptocurrencies, stablecoins have emerged as a palatable alternative that straddle the realm of cryptocurrencies and fiat. What are some of the most promising use cases you’ve seen to date for stablecoins?
Kenneth Bok: “In my view, there’s certainly a lot backing up the case for stablecoins, especially in sectors that involve high-frequency, high-volume transactions that need to be facilitated efficiently and cheaply.
For one, in the case of cross-border remittances, stablecoins are valued for their ability to easily traverse across national borders with lower transaction costs and increased time-efficiencies that can significantly rival alternatives such as TransferWise or Moneygram.
Rather than burdening users with transaction fees that can often exceed the value of the funds being sent, the use of blockchain can eradicate such costs. Meanwhile, stablecoins ensure that the value of the funds are kept stable even as money is moved across borders.
In recent years, we’ve also seen stablecoins enter the realm of more sophisticated financial instruments as evidenced by Binance’s lending and options products. In the case of crypto lending, stablecoins provide the needed ‘stability’ which is essential when smart contracts are self-executing by design.
After all, crypto loans involve sending cryptocurrencies to a smart contact escrow that will release the collateral when the debt is repaid—without price stability, this could trigger the smart contract to liquidate a loan. However, I still believe that stablecoins are most promising when it comes to the payments space on a commercial level, such as in e-commerce transactions, though its impacts still remain to be seen.”
Crowdfund Insider: Stablecoins have not been without controversy amid risks of monopolies and over-centralization. What are some of the risks that people should be aware of when it comes to stablecoins and how can they be better addressed by projects in the future?
Kenneth Bok: “As with all other digital assets, stablecoins are not without their risks. Without a proper regulatory framework in place, counterparty risk is a commonly-cited concern.
A 1:1 peg is well and good if one can guarantee that the backing asset actually exists and can be duly paid out. Where this risk occurs lies in the lack of transparency with stablecoin issuers failing to provide clarity on where the corresponding currency is held, further amplifying the risk as holders cannot assess the counterparty risks of the holding bank.
Mitigating such risks going forward would require greater compliance and regulatory best practices to be put in place, and stablecoin projects will do well to ensure checks and balances are conducted on their partnering banks and stakeholders in order to provide a better form of protection for its end users.”
Crowdfund Insider: Traditional markets have experienced increased volatility following a mass global sell-off in stocks.
Cryptocurrencies equally took a battering in recent weeks, seemingly countering the argument that digital currencies are a safe-haven asset. What does this say for the future of stablecoins?
Kenneth Bok: “Recent weeks have demonstrated that the ongoing COVID-19 pandemic has put us in a position where we’re clearly experiencing a black swan event. Volatility across traditional financial markets is at an all-time high and it’s only natural to see the same reflected in the crypto market. Despite the unprecedented state of the current economy, markets will eventually stabilize.
It’s been said before that stablecoins provide that comfortable bridge between legacy finance and digital assets. When compared to cryptocurrencies, stablecoins certainly hold a promising future in commercial activities that go beyond peer-to-peer payments—payment systems, for one, will always be in business.
Similarly, for those carrying out cross-border transactions such as remittances, where the slightest changes to transaction fees or foreign exchange charges can become crippling, stablecoins can provide an easier, cheaper, and more efficient way to transfer funds abroad.”
Crowdfund Insider: Singapore is home to notable institutional pilots such as Project Ubin, conducted by the Monetary Authority of Singapore, which explores the potential of Central Bank Digital Currencies (CBDCs).
How do CBDCs relate to stablecoins and what do you believe this says for the future of stablecoins in the country?
Kenneth Bok: “At the heart of it, stablecoins can be regarded as a precursor to CBDCs—as a privately-issued form of digital currency that largely behaves in the same way as its fiat counterpart, it provides a comfortable alternative to cryptocurrencies.
However, there’s always risks to consider—for one, how ‘stable’ is the stablecoin? Are the underlying assets pegged to the stablecoin sufficiently safe and liquid? What happens if the project goes bankrupt? That being said, I’d say that stablecoins look like the pilot-test before governments step in.
One could even consider a public-private sector hybrid approach where instead of a stablecoin being backed by a pool of assets owned by its provider, the central bank would enable access to their reserves. This certainly quells any fears of risk on the part of even the most cautious consumers, providing regulatory and compliance assurances to engage with digital currencies in a safe environment.
Plus, the benefits of CBDCs cannot be understated—from increased operational efficiencies, new opportunities for regulatory monitoring and enforcement tools, cheaper cross-border transfers, as well as greater direct relationships between retail and the central bank, the opportunities to widen the scope of innovation on every level of a given country’s economy are endless.
However, it can easily go the other way—it’s also very possible that regulators may decide that CBDCs don’t need blockchain technology or distributed ledgers to operate. While we’ve seen promising pilots being carried out around the world, all we can really do is take a wait-and-see approach as governments continue to explore the technology and see its benefits for themselves.”
Zilliqa recently announced that it was working with Fintech payments provider Xfers to launch XSGD, a stablecoin pegged 1:1 to the Singapore dollar.
With the majority of stablecoins today being denominated in the US dollar, why SGD?
Kenneth Bok: “With the Monetary Authority of Singapore’s (MAS) recent expansion of its Payment Services Act, allowing cryptocurrency firms to apply for operating licenses and grow their business here, Singapore has always been lauded for its forward-thinking approach towards digital asset innovation.
While it’s true that the majority of stablecoins are pegged to the US dollar, given that the US dollar is the world’s reserve currency, denominating in the SGD makes for a strong case when you consider the region Zilliqa operates in. As more projects offer stablecoins denominated in their local currency, I’d say we can truly make a case for a digital dollar as a collective industry on a global level.
Launched as part of StraitsX, a stablecoin initiative in partnership with Xfers, a Fintech payments provider accredited by MAS, XSGD aims to offer real-world utility across a spectrum of applications ranging from payments, funds settlement and transfers, and e-commerce.
Particularly in the case of the burgeoning ASEAN e-commerce sector, stablecoins are seen as a favorable alternative due to lower transaction fees as compared to traditional payment methods.”