Vineeth Bhuvanagiri, the Fintech Managing Director of EMURGO, the commercial arm and founding entity of Cardano, has stated that the upcoming USDA stablecoin will enhance the DeFi sector of the blockchain platform. In a recent discussion, Bhuvanagiri delved into the advantages of stablecoins and the regulation of centralized exchanges. He also touched upon the current state and future direction of the industry. Furthermore, Bhuvanagiri provided several simple steps for exchange users to safeguard their funds.
USDA, Cardano’s first USD-backed stablecoin, is scheduled to launch in early 2023. Per a blog post, it is expected to bring value to Cardano’s Web3 ecosystem of decentralized applications, and it will be the first from EMURGO’s ‘Anzens’ suite of fintech products.
Unlike Ethereum, there isn’t a stablecoin within Cardano, Bhuvanagiri told Cryptonews.com. The issue here is that Cardano has a growing decentralized finance (DeFi) ecosystem, and the community needs to be able to “offload their risk.”
Therefore, said Bhuvanagiri,
“Introducing the stablecoin to Cardano would be a really good thriving factor for the Cardano DeFi ecosystem. And also, there’s a way in which the native assets on Cardano are structured that make it really good for a global payments or remittance analogue.”
According to Bhuvanagiri, the key factors that set USDA apart from other stablecoins are its placement on the Cardano blockchain and its significantly lower fees compared to other blockchain networks such as Ethereum. He stated:
“Beyond that, it would also be like some metadata that we have the ability to embed within those tokens.”
According to the company’s current plan, Cardano will commence its efforts with the tokenization of US dollars, with the intention to later expand to tokenizing “any type of real-world asset.” The technology developed for USDA is designed to work in conjunction with trusted financial institutions to digitize and tokenize assets, which can then be freely traded within the DeFi ecosystem. If a user wishes to redeem their tokens, they can return them to EMURGO, which will release the underlying asset and provide physical delivery if necessary.
Besides tokenizing fiat currencies, the team plans to do the same with precious metals, as well as “new and upcoming assets that have not been fully regulated yet,” Bhuvanagiri said. Another fast-growing market to keep an eye on is carbon credits – having the traceability that’s inherent in a blockchain could provide additional benefits and provide a way for people to exchange and trade carbon credits as opposed to going through centralized exchanges.
Mistakes have been made
The stablecoin market has seen its fair share of controversies and issues over the years, and Bhuvanagiri argues that many issuers have “made mistakes.” Over the last few months within crypto, we’ve seen many cases of bad bookkeeping and bad accounting of assets, he added.
“If you’re holding a token that’s supposed to represent something that’s in the physical world, you have to make sure that that physical world asset is always tied to the token,” Bhuvanagiri said.
For EMURGO to avoid these mistakes, they started working with a regulated banking partner in the United States that “would actually be holding the dollars,” he claimed. Furthermore, there will be monthly attestations by the financial institution and by auditors to show that the reserves for the stablecoin are 100% fully backed.
Therefore, an investor in a stablecoin needs to know that, as long as they’re holding the coins, they can at any time redeem all of them one-for-one for dollars – and that those dollars actually exist.
Where are we now?
Bhuvanagiri emphasized the significance of regulation in the cryptocurrency world but warned against excessive regulation. When questioned on the current state of stablecoin regulation, he stated that there is a “relatively good balance,” but acknowledged that the answer is “a little bit nuanced.”
“Where we’re currently at depends upon which jurisdiction you’re in. In the United States, […] at this point in time it’s a little bit on the left side, because as long as you have a certain level of licensing, or you partner with someone that [does], you’re able to issue a stablecoin.”
There will be a change, however. When the Lummis-Gillibrand Responsible Financial Innovation Act is introduced, the number of those that are going to be able to become stablecoin issuers will be restricted.
Bhuvanagiri stated that in addition to stablecoins, regulation will also be necessary for cryptocurrency exchanges. However, regulation is not required when users hold and have full control over their coins, according to Bhuvanagiri. He believes that regulation or licensing is needed to protect customers and their funds when they must entrust their private keys to others.
What we are seeing now, especially after the collapse of the FTX exchange, is many participants moving into DeFi, turning away from centralized exchanges. That said, it is unlikely that these exchanges will lose their place because, while DeFi allows switching between cryptoassets, there’s still difficulty when it comes to interacting with the real world, said Bhuvanagiri and added:
“So that bridge between the real world and the crypto world is where that need for centralization exists. […] But there is a substantial push right now in regards to going more down the DeFi track, which I think is actually favorable for the crypto space as it leads to greater innovation.”
When it comes to regulating DeFi, the Managing Director stated that if a platform can be stopped or regulated, then it’s not a real DeFi platform – it has an element of centralization. In this case, this element needs to be evaluated as a potential attack vector that could lead to loss of customer funds.
Where are we going?
Stablecoins have a bright future, according to the expert. He stated that,
“I think stablecoins are going to continue to grow because it’s one of the most prominent use cases within the crypto ecosystem.”
For example, while remittances are, for the most part, still being enacted through traditional banking mechanisms, stablecoins are a very easy way to upend the current remittance business.
Additionally, stablecoin issuers are working on generating more substantial yields, given the fact that inflation is high and interest rates have fallen on US Treasuries. This would be an incentive mechanism to get more people into the stablecoin market because they would be getting a far higher yield than they would by just depositing into their savings account at a financial institution.
“So the stablecoin issuers [are] looking for ways to distribute that interest back to the end participants,” Bhuvanagiri said.
Meanwhile, as central bank digital currencies (CBDCs) rise, they are going to become complementary to stablecoins for the most part, Bhuvanagiri opined. Although, these government-issued digital currencies are unlikely ever to have the full suite of features that exist within stablecoins.
He explained that,
“I believe that the governments are never going to issue a currency that they don’t have the ability to take back from the market.”
As for EMURGO, the focus for this year is to simplify the process of making small purchases using cryptocurrency. According to Bhuvanagiri, the company intends to integrate its regulated platform, connecting the crypto and non-crypto worlds, with Yoroi, its wallet platform which boasts about a million users, by the end of the year.
The goal is to enable the users who choose this option to “quickly and easily move their crypto from their anonymous account to their regulated account and then be able to borrow money against that in order to pay off a prepaid credit card that automatically exists within the wallet itself.”
So, for example, people will be able to buy a coffee with their ADA by moving the coins into their regulated account, then using the card to pay for it, after which they can move their funds back to an anonymous wallet.
How to protect your funds?
Following a year that saw a major market downturn and collapses of multiple companies, not the least of which is the FTX exchange, Bhuvanagiri opined that people are going to be wary for a while. Even if regulation gets enacted for consumer protection at this point in time, there’s still going to be some lull and hesitancy, while people get comfortable with the space again.
One of the big things here is making sure user assets are safe – and those who choose to use centralized exchanges can take certain steps to help keep their funds secured. Bhuvanagiri advises being extremely careful when choosing an exchange to store one’s assets. The problem here is that an individual would need to do extensive due diligence in regards to an exchange’s legal structure, how they’re regulated, and where they’re holding assets. For many users, this may be a daunting task.
Therefore, some basic steps that a new user can take are to look into the platform’s past and ask:
- Has it ever been hacked before?
- Have they ever lost client funds?
- If yes, what are the steps they’ve taken to reimburse their clients?
This will provide at least some safety level to measure if the exchange is trustful or not, but going through this entire process isn’t an easy task, Bhuvanagiri noted.
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