• Sun. Aug 14th, 2022

StraitsX on XSGD stablecoin and the future of digital currency in S’pore

Stablecoins are meant to provide a safe haven in the crypto space. They allow users to store value on a crypto exchange or defi wallet without being exposed to price volatility.

Take USDC, for example. It is a stablecoin that at all times is worth the same as the US dollar. By selling their crypto assets for USDC instead of fiat currency, investors avoid the hassle of withdrawing cash from their bank. It also means less transaction fees and more convenience when deciding to reinvest.

In 2020, Singaporean fintech company StraitsX launched XSGD, a stablecoin pegged to the Singapore dollar (SGD). XSGD has a market capitalization of nearly US$200 million and has a daily trading volume of over US$1 million.

For local users, XSGD is an ideal stablecoin because it can also be converted directly to SGD. This saves on conversion fees, which come with using coins pegged to other fiat currencies.

Is XSGD a safe store of value?

In order for a stablecoin to retain its value, it must be ensured that there is an equivalent amount of fiat currency “backing” the coins being issued. This has been a cause for concern for popular stablecoins such as USD Tether (USDT).

Until 2019, Tether claimed that each USDT coin was always backed by 1 USD held in their traditional reserves. This would mean that any holder could exchange USDT for USD at any time.

Shortly after, however, it was revealed that wasn’t entirely true. Tether’s reserves included a mix of cash and other less liquid equivalents such as loans receivable.

The XSGD stablecoin is fully backed by fiat currency / Image credits: StraitsX

“Unlike the USDT tether, XSGD is an e-money compliant token, issued under an e-money issuance license with the Monetary Authority of Singapore (MAS),” says Aymeric Salley, co- creator of StraitsX.

In accordance with the Payment Services Act, the company is required to back up all its issued tokens with an equivalent amount in fiat currency. Fiat currency must also be protected by a bank that takes full responsibility for its protection.

“Each XSGD token is fully backed one-to-one by the Singapore dollar,” he adds.

Why would everyday consumers use XSGD?

As more consumers explore decentralized finance, the growth of digital currency is inevitable.

At StraitsX, we believe the future of money is both diverse and exciting, as we believe money will be run on a huge variety of infrastructures and networks in the future.

– Aymeric Salley, co-founder and head of StraitsX

XSGD will allow cardholders to enjoy a number of benefits.

“For example, XSGD can be sent almost instantly across borders, or exchanged for other stablecoins at competitive rates,” says Salley. “XSGD is also counted to six decimal places, enabling micropayments while addressing a challenge faced by fiat-based digital payment systems,” he says.

The stablecoin can also be used in various ecosystems, including Zilliqa and Ethereum blockchains. “This will allow SGD to be present in the future of finance.”

How might government regulations impact XSGD?

“StraitsX closely monitors the regulatory environment surrounding crypto in Singapore. We have an active regulatory dialogue with the MAS,” says Salley.

So far, the company has stayed ahead of the curve when it comes to regulation. While other crypto companies such as Crypto.com and Gemini recently announced steps to comply with the travel rule, StraitsX planned it from the start.

“The Financial Action Task Force (FATF) Travel Rules Recommendation requires that originators and recipients of all digital funds transfers must exchange identifying information. This is intended to improve the audit trail when virtual assets are transferred between entities such as exchanges and wallets,” says Salley.

“StraitsX implemented a travel rule compliance program from the outset, while working closely with Notabene to ensure full-scale travel rule compliance.”

The future of digital currency in Singapore

“We are fortunate to have a forward-looking regulator, MAS, which began exploring central bank digital currency (CBDC) projects as early as 2016,” says Salley.

Notably, the MAS organized the Global CBDC Challenge, inviting financial institutions and fintech companies to showcase and develop a retail CBDC solution. StraitsX was one of the top 15 finalists out of 300 entrants.

In the proposed solution, MAS will leverage existing StraitsX integration across different payment networks to issue CBDC while the client’s underlying fund will be held at the central bank. In this model, StraitsX would participate in the distribution of CBDCs, while maintaining the required regulatory compliance safeguards.

– Aymeric Salley, co-founder and head of StraitsX

Salley says he foresees a future where stablecoins will be widely used.

“Stablecoins retain the benefits of cryptocurrencies – allowing payments to be cheaper, traceable, in real time – and do not come with the volatility of their prices. With stablecoins, businesses can accept payments in the world in real time and governments can manage stimulus or tax programs more efficiently.

That being said, there are still hurdles to overcome. “For mainstream adoption to occur, payment infrastructures will need to mature to support cryptocurrencies, and regulations will need to evolve to ensure consumer protection, financial stability, and financial crime prevention.”


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Featured Image Credit: StraitsX


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