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A new era in the financial industry or how to create a stable coin?

Published: 20 Jan 2020

This article is about a new type of cryptocurrency - a stable coin. What is it? What risks are associated with the new technology? Why is it becoming more and more popular? Is it necessary to get a license to issue a stable coin?

Facebook, Telegram, Binance, J.P. Morgan Chase, SIX Swiss Exchange and even Chine – they all are thinking about issuing own stable coins. Many analysts say that a new financial revolution is coming.

What is stable coin? Why these big corporations are attracted with it?

A stable coin is a new class of cryptocurrencies that attempts to offer price stability and are backed by a reserve asset. It can be centralized and decentralized. A centralized token is a token in which a token is issued by a person or group of people. A decentralized token does not have a specific issuer, usually the issue is carried out on smart contracts on the Blockchain.

Why using a stable coin is profitable? Why do more and more companies want to issue their own coin?

The reason is that opening a bank account is a problem for many companies. Because of this, they do not have the ability to make payments with customers and suppliers. In addition, opening a bank account for a company will cost an average of $ 2500, so companies are looking for alternatives. And the alternative is a stable coin. The advantages over a bank account are as follows:

- Not so high requirements for AML / KYC

- Easier to create an account

- Commissions are less.

- Uncertain tax regime in many countries.

However, money transfer is not the only goal of a stable coin. For example, a stable coin is often used for trading on exchanges, as a replacement for ordinary fiat money. Thus, it is not necessary to work with either banking or payment institutions, which is impossible due to the uncertain status of the cryptocurrency in most cases.

Therefore, a stable coin is used to expand the number of people who can use financial services. Companies that are engaged in the issuance of stable coins usually have profits from transfer commissions but not only. If we are talking about the corporations that were mentioned before the reason for them is to make their services more popular.

What are the risks associated with issuing a stable coin? How to release this in the legal field?

It is worth noting that there is no standard and unified solution for a stable coin project. In each case, you need to choose your own model of the structure of the company. What should you pay attention to?

Firstly, you should define who will be your main customers. Secondly, Decide on a budget. The bigger, the better. Thirdly, determine the level of centralization of your project. These are the three main points that determine the structure of your company. It is important to note that US law has a transnational effect. At the moment, the position of the regulator is ambiguous, because there is a risk of recognizing your tokens as securities. This is highly undesirable. Therefore, here you need to take into account the US Security Act and Howey test.

In Europe, a stable coin is recognized as electronic money. It means that in order to issue a stable coin, you will need to obtain an Electronic Money Institution (EMI) license.

Alternatives to Europe and the USA are Singapore, Hong Kong and offshore jurisdictions. It is worth noting that both Singapore and Hong Kong are leading jurisdictions in this area and are very loyal to the cryptocurrency industry. For example, the well-known stable coin Tether received an MSO in Hong Kong using a partner organization in the British Virgin Islands. From this we can conclude that the optimal structure of the company is a combination of companies in offshore and respectable jurisdictions.

However, as mentioned earlier, the standard structure of companies does not exist. Each project is individual. For example, the TrueUsd project did not receive any license, and uses only escrow bank accounts.

Summing up, it is worth saying that issuers of a stable coin face a number of legal difficulties. This is due to the fact that there is no single legal regulation, the status of a stable coin in most cases is not defined. In addition, the trend is that there will be regulation, and it will be based on AML and KYC policies. This will not be a way to launder money, fraud will be minimized. Therefore, the advice is to launch the project as quickly as possible, because in the future it may be complicated.

For more information, you can contact us by mail: info@sb-sb.com

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Yuliya Barabash

Firm: SBSB Legal Service
Country: Ukraine

Practice Area: Commercial

  • Kozhemyatska Street, 20
    Kiev


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