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Hong Kong, 14 January 2019 - With the emergence of the digital economy, stablecoins have the potential to be widely adopted on the back of a trust framework that strengthens regulatory compliance and mainstream acceptance, according to a joint study by PwC and blockchain research firm Loopring - Emergence of Stable Value Coins and A Trust Framework For Fiat-Backed Versions.
Skepticism over cryptocurrencies continues to grow as a result of multiple high-profile hacking incidents, while pronounced price volatility is still seen as the greatest impediment to the mass adoption of crypto in the global financial system. Meanwhile, fiat-backed stablecoins that offer reassurance against volatility have gradually gained traction, but uncertainty arising from differences in legal treatment by jurisdictions worldwide remains a concern among traditional financial institutions.
Jay Zhou, CMO of Loopring, says, “To promote sustainable development of this emerging ecosystem, a stable unit of value is often needed within applications, especially as it relates to financial contract specification and exchange. Stablecoins seek to solve this, but can expose other risks in so doing. With a view towards enhancing governance, risk management and controls of these cryptoassets, our study proposes a trust framework for evaluating fiat-backed stablecoins, covering custody, audit, insurance, and technical considerations”.
The fiatcoin trust framework recognises seven crucial components: Entity’s Corporate/Legal Structure; Regulator and Applicable Laws; Custodian and Banking Relationships; Independent Auditor; Smart Contract and Technical Design; Independent Security Audit/Code Publicity; and Insurance of Risks.
With that framing, fiatcoins set to become blockchain-powered products that may usher in the first wave of true mass adoption, opening up opportunities for monetisation through user aggregation, ancillary product (exchange, wallet) synergies, and potentially productive use of custodied assets.
Looking ahead, William Gee, PwC China and Hong Kong Risk Assurance Innovation & Disruption Leader, says stablecoins may be the first blockchain product with mass appeal and utility. “We believe we will see continued adoption and competition in 2019, while companies with strong user bases and goodwill may stand to benefit by issuing their own stablecoin to facilitate on-platform transactions. More than anything, we expect continued experimentation, with the ultimate benefit of familiarising users with blockchain and a tokenised economy”.
PwC Hong Kong and Loopring formed a joint research initiative in November 2018, with the aim of understanding the key factors and practices essential for building confidence and trust in the future crypto ecosystem. Areas of focus include standards and practices relating to securities tokens and stablecoins, as well as the enabling blockchain technology.
Note to editors:
Loopring is a blockchain research organization focusing in decentralized trading protocols. The open sourced Loopring Protocol they offer provides a fundamental building block for crypto exchanges and can be integrated into other blockchain applications that may need to manage multiple tokens.
Loopring uses a combination of off-chain order messaging and on-chain settlement to ensure users maintain custody of their tokens. Because the protocol is blockchain agnostic, it can be used across multiple blockchain infrastructures. Loopring is also working on their protocol-specific Ethereum side-chain for faster and cheaper settlement to power massive adoption of decentralized exchanges.
Senior Marketing Consultant, PwC Hong Kong
Tel: + 2289 8785