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Stellios

Stablecoins and Banks

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3 hours ago, Stellios said:

He was of the impression that banks will build their own shared private DLT supported by a universal DA/Stablecoin to facilitate money movements. Ultimately they will present this tech to Swift and charge them with the maintenance of said ledger thus keeping the status quo intact 

Certain of the world's largest banks in the lowest friction corridors may well be on their way to doing this.  I think where many countries are out ahead on this, and willing to be more progressive with new tech is where the cross-border friction points are higher, and where their banks don't have the resources to accomplish this.

Then there is the issue of politics and governments.  Not all want to be onboard for the inflationary USD (or Euro) settlement coin.  So, having access to liquidity in a neutral digital asset is far more appealing, and quite frankly something they can start implementing NOW (not 1, 2 or more years from now as a hypothetical). 

The Ripple model may not be for every bank that's for certain, but there are a lot of countries and a lot of fractured banking systems out there (including those countries with underbanked populations) who would derive immediate benefit. 

Finally, there wlll be no "universal stablecoin" as some have predicted.  That's really a meme more than anything.  Too many competing interests on the global stage prefer "their" interests over other countries interests.  Not to mention countries who are enemies or at odds may not arrive at such a simple and pleasant outcome as we would suggest when drawing up the technological solutions on paper.

Certain groups of countries will no doubt band together. All the more reason to have rails and digital assets between these politically aligned pods to transfer value. I think this thought exercise is a good one, and hope many on here keep it rolling.  Does anyone know how this is going to end really?

Edited by xrphilosophy

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5 hours ago, KarmaCoverage said:

I've looked at these Stablecoin systems and believe they are setting up the crypto/btc/eth markets for a crash like the flash crash. Once all these systems are interconnected and start to crash triggering auto executed margin calls and liquidating collateral, triggering more margin calls and more liquidation... My god

:unsure:

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Great topic, and some really insightful responses.

My view... central banks will generally move to issue a CBDC in their market and secure participation from domestic banks, small and large. This will take time. XRP is positioned well then as the bridge asset of choice globally.

Incumbent players may issue their own coin/token initially, where a central bank is slow moving, in an effort to retain control and relevance, but I see this as a selfish solution that benefits the few, and likely won't survive beyond 3-5 years due to market competition and (typically) government desire to encourage fair markets and improved outcomes for citizens.

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19 hours ago, Konan45 said:

I do know it would take significant capital to acquire Ripple, more than any bank would be willing to pay currently.  And as far as I can tell ripple has no intent of selling. 

Banks create money, so there is no amount of "capital" they can't afford. The only constraint is whether or not the income generated by Ripple is greater than the cost of funding, and if interest rates remain low, then it's likely the spread is sufficient. 

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18 hours ago, Stellios said:

Thanks for the input guys. I'm glad it's opened up a healthy discussion.The work we are doing with R3 around trade finance is in quite an advanced stage.

If agreeing and implementing a universal DA is too big of a task. What's to stop a consortium of big banks of buying Ripple? Taking the infrastructure off the grid and rebadging XRP as the settlement token? 

Why would banks use a digital asset they don't control to settle transactions? I'm not sure of your logic here. The validators of the Ripple network prevent the consortium of banks from doing what they want with the code, which imposes some very strict constraints on said consortium regarding managing DA that can be lost, or of an insufficient supply (such as during a credit crisis). 

It would seem to me that the banks would be better off replacing the validator network with their own consortium as validators, and if that's the case why not just fork Ripple and save yourself the extra work? 

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19 hours ago, KaaKaRmA said:

Brad is wrong. We should be using a liability--and we will, even if we start the system with a DA like xrp. There are 2 reasons, first the fixed digital asset has properties which make transmitting it extremely risky, and once that asset became the standard the potential loss from a failed transaction would be so high that all parties will issue liabilities based on the asset, just the Fed Reserve banking system accomplished with their gold holdings prior to 1971. The second reason is that an unstable system requires an elastic supply of the DA, which implies either the DA becomes a liability of some independent third party or the validator network itself is a governance mechanism which expands and contracts the supply as required by the system. In this second case the difference between an expandable digital asset and an expandable non-convertible liability is essentially zero.    

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18 hours ago, VanGogh said:

Your thoughts make me consider further, if the banks were to venture out from making money with their/our money, would they be regulated out of that idea? There is already a lot of regulation that prevents banks from being too risky with their/our money. 

Banks create money, they are money creators not money intermediaries. 

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18 hours ago, Trickery said:

The problem I see with private stablecoins is they are no better than a messaging system because they have no external value.

This makes no sense. A private stable coin is equal to the currency, or basket of currencies, backing it. Your use of the term "external value" implies that there is nothing backing the stable coin, in which case its not a stable coin its a DA... And what does this have to do with a messaging system?

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18 hours ago, Zerp_Legend said:

Euro exim Bank specialises in trade finance and they plan to use xrapid 

Euro exim bank is operating in the UK without a license, is that the last thing we heard about them from the UK FCA, or was there additional info that came up?

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38 minutes ago, Wandering_Dog said:

Brad is wrong. We should be using a liability--and we will, even if we start the system with a DA like xrp. There are 2 reasons, first the fixed digital asset has properties which make transmitting it extremely risky, and once that asset became the standard the potential loss from a failed transaction would be so high that all parties will issue liabilities based on the asset, just the Fed Reserve banking system accomplished with their gold holdings prior to 1971. The second reason is that an unstable system requires an elastic supply of the DA, which implies either the DA becomes a liability of some independent third party or the validator network itself is a governance mechanism which expands and contracts the supply as required by the system. In this second case the difference between an expandable digital asset and an expandable non-convertible liability is essentially zero.    

It would be interested to see an update on how Brads views and philosophy on this topic has evolved since his initial writings almost 3 years ago. Even a year in this space can have massive shifts and evolutions on thoughts, processes, and technological changes. 

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1 hour ago, Wandering_Dog said:

This makes no sense. A private stable coin is equal to the currency, or basket of currencies, backing it. Your use of the term "external value" implies that there is nothing backing the stable coin, in which case its not a stable coin its a DA... And what does this have to do with a messaging system?

My use of the term "external value" implies that it is not traded outside the private network without counterparty risk. Because a stablecoin is backed by a currency or basket of currencies as you say, you would achieve the same result by sending an IOU within the network because the network participants rely on trust that the backing currency exists.

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1 hour ago, Wandering_Dog said:

 

It would seem to me that the banks would be better off replacing the validator network with their own consortium as validators, and if that's the case why not just fork Ripple and save yourself the extra work? 

Perhaps a stupid questions:

what would be the implications of that? 

My worry is that the banks would want to take a ledger away from public eyes. Would it be possible to buy ripple and its infrastructure and use it as their basis for a DLT with XRP as the DA? 

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1 hour ago, Stellios said:

My worry is that the banks would want to take a ledger away from public eyes.

Would it be possible to buy ripple and its infrastructure and use it as their basis for a DLT with XRP as the DA? 

If you are asking questions like this you may want to just call Ripple directly. https://ripple.com/ripplenet/join-the-network/

1. When a bank buys xCurrent and joins RippleNet, they keep their existing private ledger in place and spin up their own private Rippled ledger, a private "xCurrent ledger". The connection between the legacy ledger and their private xCurrent ledger is made by using a "Segregated Account" which is basically an account on the legacy ledger that is debited when value is credited to the xCurrent ledger. (you may debit a client account > credit Segregated Account ... then debit SA & credit xCurrent ledger)

* I may be slightly off on some detail, as I have never seen the actual xCurrent software nor read the rule book for RippleNet, so I'm reading between the lines and guessing. I am guessing it works this way because ILP uses Payment Channels and I dont think that is a feature included with the legacy ledger tech solution.

 2. You can download it all for free https://github.com/interledgerjs + https://github.com/ripple/rippled + some bank/"gateway" software https://github.com/stevenzeiler/gatewayd

Edited by KarmaCoverage

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1 hour ago, Stellios said:

Perhaps a stupid questions:

what would be the implications of that? 

My worry is that the banks would want to take a ledger away from public eyes. Would it be possible to buy ripple and its infrastructure and use it as their basis for a DLT with XRP as the DA? 

It doesn't make sense to me, as you have said it here, because the banks would be buying something they don't want--namely, the validators, but likely also the distribution of the asset XRP. 

If you wanted to begin a system to settle payments replacing or upgrading SWIFT yourself, then having some random assortment of validators is a drawback not a benefit, because the banks would have to first verify who all of these validators are and continually monitor them, then govern them in some meaningful way to ensure the code progressed in the groups interest. But none of those validators have any legal connection to the banks nor are they even in the same legal jurisdictions. For example, why would Citi want to bother with Wietsewind's validator on their network for settlement? 

The implication is that the banks won't be buying Ripple. They can get the exact same product better suited to their needs for free by simply copying it outright then selecting their own validators, they can even use ILP as well afaik and simply favor their own settlement asset or liability for transactions within their own network while using other settlement forms outside the network.     

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1 hour ago, Trickery said:

My use of the term "external value" implies that it is not traded outside the private network without counterparty risk. Because a stablecoin is backed by a currency or basket of currencies as you say, you would achieve the same result by sending an IOU within the network because the network participants rely on trust that the backing currency exists.

The external value (this is a misuse of the term external value, we should be saying the value outside of some given system) will be almost exactly equal to the value in the system, just like Eurodollars, for example. 

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