RIP Tether? IBM Looking to Create Their Own Stablecoin

Foreword

So, I saw some headlines today that definitely got my attention.

As usual, there are just certain pieces of current events news that I feel compelled to cover in a bit more depth than you’ll get from most of the articles in this space so that we can have a better understanding of this situation than ‘IBM Creating New Tether!’

So, let’s dig in

Introduction+Source Material

Let’s start with CNBC here:

https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html

A few things of note from the very top of the article’s summary points:

Here Are Some Preliminary Thoughts I Had Before Even Digging Into This

  1. This is the first time that we have seen IBM enter the public crypto space. Of course, they’ve been more than active in promoting their services for B2B (business-to-business) blockchain implementations. But, we’ve never really seen IBM foray into the world of cryptocurrencies this noticeably before.
  2. IBM is a reputable company, without doubt. Their technology was an integral part of the space shuttle launches during the Space Race when the Soviet Union and United States were competing with one another. They’re an above board, transparent American institution that won’t have trouble getting the United States’ blessing with such a project.
  3. To be frank about it, this could be something that is part of the U.S. agenda [conspiracy theory; think about how Tether can print tether whenever they want and then think about how that would be might convenient if the U.S. gov could do the same….]
  4. This is something being built on Stellar’s blockchain, which also has enormous implications as well. Its one of the first times that we see something major and potentially substantive using a cryptocurrency for its foundation. IBM could’ve easily decided to use their own blockchain technology (because they clearly market that), but they didn’t. They went with Stellar.
  5. This is astronomical news for Stellar coming off a week where Coinbase announced that they might, maybe kinda sort of add them on their exchange one day potentially as a trial run hypothetical ‘what if’ situation.
  6. This could signal the beginning of the end for Tether is this really gets any momentum behind it. The incentive to use a heavily-scrutinized tethered token that has been issued by a company incorporated in Panama [or some random island] that has failed to provide an audit while simultaneously being under investigation by the United States federal government vs. an IBM backed stable coin stands at zero.
  7. We can’t be sure of the implications that this may have for TrueUSD. Unlike Tether, they have not come under as much fire as Tether has. However, they also aren’t nearly as popular, and may simply fade out due to the fact that they do not have the economic or social resources to outmatch IBM — assuming that they do actually move forward and create this. This is still just a ‘maybe’ thing at this point.
  8. The obvious benefit here will be that this will more than likely provide a viable off/on-ramp for cryptocurrency. Sure, banks have a problem with cashing out Bitcoin, Ripple, Litecoin, and these other cryptos — but a stablecoin created and backed by IBM? That’s something that seems a lot more palatable to the financial institutions of the United States. And if that’s the case, then that’s a game changer.
  9. Who is ‘Stronghold USD’?

Okay, so let’s back up a minute before we even delve into this IBM decision.

Who is StrongholdUSD?

I had never heard of them before, so I did a simple Google search and this is what I came up with:

https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html

Businesswire is a Berkshire Hathaway company. Berkshire Hathaway is headed by Warren Buffett. The two preceding statements can be confirmed as fact, so I feel comfortable trusting this as a source.

The article, which was published July 17th states,

“Stronghold, a financial institution building an asset-agnostic global payment and trade ecosystem, today announced the first and only venture-backed USD Anchor on the Stellar Network, an open-source protocol for value exchange.”

Based on the information above then, its reasonable to assume that IBM and Stronghold were in communication with one another before this press release came out (obviously) and probably days/weeks ago during the formation of this stablecoin.

This makes me feel like IBM backing this stablecoin on the blockchain is something that is exceedingly likely to occur.

The article goes on to state,

“The ‘Stronghold USD’ token is asset-backed (at one-to-one U.S. dollars per coin) with reserves held by a state-chartered trust company. Stronghold, which recently raised seed funding from Freestyle Capital, will use Stellar’s blockchain protocol to issue and transact Stronghold USD while providing access to liquidity through its institutional exchange services and the custodial relationship with its partnered trust company.”

This is also pretty huge, because it confirms the fact that this is something that is already in existence. This coin also has a legitimate, transparent establishment and their purported goal is to immediately begin working with financial institutions to provide some real liquidity for this coin.

Based on what I’m seeing so far, this is probably the most bullish news for cryptocurrency ever.

In the next paragraph, the article confirms that,

“Strong also announced a new collaboration with IBM to explore uses for Stronghold USD within blockchain business networks on the IBM Blockchain Platform. The aim is to experiment with ways for financial institutions and other organizations to achieve faster, safer and more efficient transaction processing and money transfer throughout the world’s economy.”

Their purported aim is a major one and definitely no easy feat. However, given the fact that this is based on the U.S. dollar, the goal is not impossible because the United States has made several moves in the past decades to ensure that the dollar is something that is used internationally for commerce (not getting into the why, that’s another debate for another day).

Why the IBM Partnership is Huge

Of course, the most obvious reason for why this partnership/association with IBM on this effort is huge is because they are a major U.S. company (much bigger than Bitfinex or Tether), that’s actually legitimate, trusted, transparent with technological, economic, and business resources that are well in excess of what is probably needed to make this a success on a fundamental level.

However, this isn’t the core reason for why I feel that this partnership is huge.

The Main Reason I Think This is Huge is Because IBM is in Bed with U.S. Regulators

IBM is an American sweetheart, and they are very well-trusted and highly connected with the U.S. government.

See below:

https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html
https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html
https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html
https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html
https://www.cnbc.com/2018/07/17/ibm-backs-a-cryptocurrency-thats-pegged-to-the-us-dollar.html

In fact, IBM got their start way back in the 1890’s via winning a government contract.

Financial Institutions Will Be Exponentially More Willing to Jump Onboard With Crypto Through This Stable Coin

I’m sure you get the picture at this point: If IBM is involved and its in the United States, then you can pretty much guarantee that its already been rubber stamped.

And something that’s been rubber stamped by the U.S. government is something that financial institutions will more than likely have no problem dealing with.

In my opinion, I’m sure financial institutions wanted to get involved with crypto in some way, but they probably didn’t want to get their ‘hands dirty’, so to speak with all the nefarious activity that’s going on in this space.

Imagine what the headlines would read if Ethereum got ‘hacked’ or turned out to be a ‘fraud’ (I know that probably won’t happen, but humor me), and Bank of America was cashing out Ethereum for their customers.

Even if Bank of America has jack shit to do with that, they’d more than likely get sued anyway. On top of that, they’d probably lose a ton of money as well. In that way, crypto can still be legitimately considered a risk.

StableUSD Can Provide Liquidity in a Way Other Cryptos Cannot

In addition, the liquidity in crypto simply isn’t there. At Bitcoin’s value, any one financial institution could buy every single Bitcoin in mankind (theoretically) without even putting a dent in their monthly operating budget.

And more than likely, if they’re going to really deep dive into crypto, they want a huge chunk of the pie. We can’t necessary do anything about that when it comes to these coins. They are what they are, their supply is what it is, and it will have to evolve first.

However, with a USD-tethered coin, they can give the banks however many tethers that the banks can afford. And that ensures ultimate liquidity.

FDIC Backing

This part is absolutely humongous. If you have never heard of the FDIC, it stands for ‘Federal Deposit Insurance Commission’.

Basically, in the event that a bank becomes insolvent, the FDIC (a government agency) provides a guarantee to financial institutions that they will back each customer’s funds up to $250,000 (max insurance value).

So, Stronghold USD being FDIC-backed more or less means that the U.S. government is backing this token.

Yes, you read what I just wrote correctly. This token being backed by the FDIC means that the U.S. government has pledged to cover loss of assets if such an event does take place.

Implications for Stellar Network

This is astronomical for Stellar. This is pretty much an external validation of their entire protocol and idea. Out of all blockchain networks that IBM could have picked, they went with Stellar. It’s hard to argue in light of that fact that Stellar would not be a suitable blockchain for any other similar applications of blockchain technology.

And, as security tokens become a more serious idea in the world of cryptocurrencies, Stellar’s outlook is even brighter. This, of course, comes on the cusp of Coinbase’s ambiguous acknowledgment of them considering adding Stellar to their platform (I think that they’ll do it personally).

Conclusion

Only time will tell how significant that this develop will prove to be in the future.

In my personal opinion, I think that this could really be major for all those involved.

I also think that this could potentially spell death for the Tether token, even if it does somehow survive the slew of scrutiny, regulation, potential sanctions/law enforcement and remain solvent as well.

Disclaimer: I am not invested in any of the tokens/coins/blockchains/companies/projects/products discussed in this article, nor am I invested with any of their competitors either. I also was not paid to write this article. This article is not financial advice and the author (first person) is not a financial adviser.

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