Let Crypto-Asset Expert Stephen McKeon explain
BREAKERMAG
February 25, 2019
By Robert Stowe England
Stephen McKeon is a leading expert in crypto-assets, including tokenized securities. He is academic director for the University of Oregon’s Cameron Center for Finance in Eugene and a partner at the Collaborative Fund, a venture capital and private equity firm in San Francisco. This interview, about the uses and abuses of stablecoins, has been lighted edited and condensed.
Since early fall 2018, the number stablecoins has proliferated. What is driving that?
There are a variety of stablecoins. On one far-end are fully algorithmic stablecoins like Basis. They shut down late last year.Then there are stablecoins that are collateral backed with crypto-assets. So, Maker and [their stablecoin] Dai would be an example of that protocol. And then you have fiat-backed stablecoins, which as you say are really proliferating. [Such coins are backed by fiat currencies such as the dollar and generally a single coin represents a single unit of the currency.] We’ve got the Gemini dollar. We’ve got the True USD [for U.S. dollar]. We’ve got USDC from Circle and Coinbase, plus PAX and others.
They proliferated really because of Tether. It has been the market leader, in terms of fiat-backed stablecoins, with a couple of billion dollars of assets issued. They were the first to launch [in early 2015], which is why they grew so large. But they didn’t do a great job of instilling trust among the community. And so, there were questions whether the fiat really existed in a bank account [to back each coin]. The audits weren’t as frequent and thorough as some market participants might have liked. And yet a tremendous amount of assets were passing through their platform. They were [part of] a trading pair on many of the
exchanges.
The community saw an opportunity to create similar products with more accountability. The first one [to compete with Tether] was True USD by TrustToken, which is based out of San Francisco. And they were immediately picked up by a variety of exchanges as a Tether alternative.
How is TrueUSD different from Tether?
The legal entity they use is a trust. There’s a long legal history and precedent around trusts, that they have to act as fiduciaries. They tried to replicate something that was similar to Tether except with more transparency. Then some of the financial institutions in the space saw an opportunity because it’s not that difficult to start one of these things, right?
If the dollars are in a bank account, particularly a U.S. bank account, the concern has always been they are subject to seizure or subject to a freeze.
You need to get a bank that’s willing to hold the assets and you start issuing tokens. These are primarily Ethereum-based products—smart contracts or tokens on top of Ethereum. Then you need to set up a process for redemption. But, of course a company like Gemini or Circle or Coinbase are already set up as fiat on- and off-ramps. They’re well positioned to create those types of products.
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