The Return of Crypto DeQuorum – JPMCoin the XRP Killer

After a busy day, I sat down to have a late lunch at 3 PM on Thursday, and I saw a Whatsapp message pop up – and I stood up from my chair saying “Ohhh Ehhmmm Geee”. That was my reaction when I heard about the news of the JPM Coin. Of all the banks, JP Morgan led by Jamie Dimon had to be the first mover to launch their asset backed crypto. It is less than 2 years since Jamie Dimon called Bitcoin a big fraud.

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Will this bring back some decorum into the crypto world? Will this kill Ripple’s XRP? My head is abuzz with all these questions, so bear with me as I manage/struggle to lay them out.

The crypto world can do with some positive news and sanity as there is a sense of the crypto winter coming to an end. As much as I loved to hear the news, and was glad for the crypto industry as a whole, I felt for some of the early adopters of the technology. There is a good chance that we will see a BarcCoin, CitiCoin, GSCoin, and so on, with similar working models. There is more than a chance that we will see some existing players disappear. Let us quickly visit the salient features of the JPM Coin model.

  • It will use the Quorum Blockchain developed by JPM. It provides for
    high speed and high throughput processing of private transactions within a permissioned group of known participants
  • It will be a stable coin, whose value will be always $1 USD – so market volatility linked with Cryptos is mitigated.
  • It will be used for wholesale payments that JP Morgan processes, estimated at ~$6 Trillion per day.
  • The network can be a private or even a centralised network permissioned by JPM.

With real time cross border B2B payments as the core use case, JPM Coin may create some challenges for Swift. Last year, Swift announced that its GPI technology that has had good feedback from its banking customers.
GPI technology that let banks see where their payments were at all times, and that came with rules around response and confirmation times.

However, the challenge for the newcomers (then) that kept Swift going was the mutual KYC requirement from the regulators, which was harder using a DLT payment mode. And GPI let banks see where their money was at all times. Assume a London based bank is sending money to a bank in Mumbai, there may be a couple of correspondent banks in between. The London bank can see where the money is, and stay on top of any delays, issues etc., They can also stay on top of the Service Level Agreements (SLAs) that the intermediaries offer.

With a crypto based approach, the transfer will be instantaneous without any need for correspondent banks as long as regulatory and relationship hurdles are overcome.

Ripple and XRP have had their challenges in gaining adoption from key banking players. One of the key reasons why cryptocurrencies couldn’t be used for cross border B2B payments is because of the market volatility of the cryptos. With a stablecoin like JPM Coin, that fundamental issue has been addressed.

Also, with the banking and corporate relationships that JPM commands, most of their counterparties would be better off being part of the network. The JPM’s interbank network has about 157 global banks, and adoption should be pretty quick once the piloting is successful. Although the underlying Quorum blockchain is based on Ethereum, it offers both private and public transactions capabilities. So banks and corporates on the network will have privacy if they choose/need it.

However, the real pain hits them (corporates) when a bunch of tier 1 banks launch their own stable coins. This space has just started to get interesting, and we should see an avalanche of similar offerings from global banks.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

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Margin lending with no Counterparty risk– the Dharma open source protocol

In November 2017[1], I spoke to Nadav Hollander in California, the founder of Dharma.io, who had just “graduated” from Y-combinator. At the time, he described his vision to create on the blockchain a tokenized marketplace for loans. In February 2018, the Dharma open source protocol went into alpha testing.

Developers could easily use the Dharma libraries to:

  • Allow would-be borrowers and lender to generate open loan requests for debt agreements of any kind
  • Allow lenders to fill loan requests, formalizing a lending agreement with a borrower
  • Allow users to manage their lending portfolio by making repayments, collecting collateral, trading their debt tokens, etc.
  • Earn fees by underwriting debt agreements generated by Dharma protocol
  • Earn fees by relaying debt agreements between borrowers and lenders

Source Hello, Dharma.js

Dharma didn’t ICO because Hollander believed that token models were very immature right now. Hollander says “I’d rather build a community of constituent users and, only if and when it makes sense, issue a protocol token.” For now, Dharma open source protocol has no native token, but each loan that is created is a token itself

Fast forward to today, February 2019, one year later and Dharma raised $7 million from big investors including Coinbase Ventures who naturally are interested in crypto lending markets, especially for traders. Dharma has already launched the Dharma Lever product (in alpha mode) that deploys smart contract’s to offer margin loans for crypto traders from high volume investors.

No counterparty risk (smart contract risk, since assets are held there).

Instantly, at very low cost.

Lower borrowing rates than centralized exchanges.

Compatible with all wallets.

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Dharma is in the same league as Maker – be your own bank or Defi[2] – that allow us to borrow against our Hodlings. Dharma involves no DAI and accommodates several cryptocurrencies beyond ETH. They are even looking to add WBTC soon which went live on Ethereum just last week.

WBTC – Wrapped Bitcoin is an ethereum-based token that is backed one-to-one by a regular bitcoin BTC.

It is already listed on several DEXs[3] including Radar Relay, Kyber Network, and AirSwap.

Dharma is changing the crypto lending space with their Lever offering that eliminates counterparty risk and replaces it with smart contract risk.

domino

The Dharma Lever is one way to mitigate systemic crisis due to the domino effect of counterparty failures.

[1] I introduced Dharma in my Feb 2018 post Bonds & loans on the Blockchain along with Tzero and Nivaura.

[2] Defi = Decentralized Finance, see more here.

[3] Read more about DEXs in `Are Decentralized Exchanges part oft he bottom up decentralized monetary policy?`

 

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

 

Debt crisis and a weak currency – would India follow Venezuela in launching a digital currency?

In Q2 this year, the Reserve Bank of India banned cryptocurrencies. The ban announcement was met with mixed reaction, but largely disappointment from the crypto community. While the RBI and the Indian government are taking a lot of efforts to execute Blockchain based projects across the nation, that ban was disappointing.
Bitcoin-India-rupee-760x400
 In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. 
Earlier this week, @efipylarinou and I launched the second episode of our podcast on Blockchain and Financial inclusion on Rhetoriq. Lisa Nestor from Stellar Development Foundation discussed the challenges that Blockchain industry had in the Indian Market.
Stellar was known to be working with ICICI bank and other regional financial services players, with a view to bringing financial services to the rural population. The ban has now slowed them down, however, Lisa was confident that the research work they are doing with some of the Indian institutions should bear fruit in the long run.
Over the last 12 months or so, the Reserve Bank of India (RBI) has taken a Jekyll and Hyde approach to Blockchain and Cryptos. The stance that the Indian policy makers have taken regarding this space is confusing and conflicting. In the sense, RBI are a big no-no to cryptos where as the Indian government and other public bodies have embraced the technology in a big way.
Many technology giants (IBM, Microsoft), local government bodies and the crypto community within India have come together to create the Internet Blockchain Committee whose remit is to build a Blockchain ecosystem in India by working with the government, industry players and startups.
The RBI themselves are working on a digital currency, which they confirmed a few weeks ago. The digital currency is believed to be backed by the Indian Rupee, and the plan is to save about 7 Billion Indian Rupees annually.
The creation of a Rupee backed digital currency is not really going to make it stronger than the Rupee. However, with the creation and management of paper currency in India costing 7 Billion Rupees, combined with the advent of the new payments infrastructure well supported by the roll out of Aadhaar that brings economic identity, we now have enough motivation and a conducive environment for an RBI backed digital currency.
While all this work is being done, the ban on crypto exchanges still stand. This is being fought out in the supreme court of India, where the RBIs decision to ban cryptos is being challenged. However, I believe, just the binary stance against cryptos would push India a few steps behind jurisdictions who have taken a more collaborative approach to Cryptos.
One of the top crypto exchanges in India Zebpay have recently setup shop in Malta, and will be providing their services across 20 countries that doesn’t include India. With news from the subcontinent coming at a brisk pace, and with the INR hitting an all time low against USD, will RBI turn to digital currency?
In a recent survey conducted for bitcoin news, 80% of respondents preferred bitcoin as a safer haven than the Indian Rupee. The INR has been consistently losing about 10% per year over the last few years against the USD, and of course we know how volatile cryptos has been over the last 12 months or so. So while the results of the survey looks pretty skewed, it gives a view of the mindset of a generation that wants to now move on to digital currencies.
However, I wouldn’t be surprised if, after Venezuela, India becomes one of the first to go down the route of central bank backed digital currency. And that would still be just one step forward. Real progress would be when RBI lifts the ban against cryptos, and allows for innovation to find its feet with a collaborative approach.
Its time for the largest democracy in the world to truly embrace democracy – and move away from such absolutism.

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

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Venezuela’s Petro: Does Blockchain deserve this?

May be you are tired seeing the Petro saga unfold and spam your social media feeds. May be you are thinking, there you go, the joke of the decade. May be you are angry that the PR nightmare that has affected Cryptos is getting worse with this.

I must confess, I had all these thoughts going through my head when I saw that video of the Venezuelan President, Nicolas Maduro talk about Petro. The question that popped on my head is, how can human greed create so much mess? Does Blockchain deserve this?

Philosophical points aside, I must share my brain dump of the thoughts I have around this episode. Let us start with where Venezuela are economically – and perhaps that will set the context.petro

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Venezuela’s currency Bolivar has been hit by hyper-inflation which is at about 16800%. What does this mean? An economist and an entrepreneur originally from Venezuela told me this week that he has had experiences of buying a property, and going to bed only to find the property value had depreciated by 30% the following day.

That is the reality on the ground when hyper-inflation hits. Its worse than the worst Bitcoin price action.

Venezuela has been hit with sanctions which meant they don’t have free access to world markets and in essence capital. They have historically relied on their oil reserves to bail them out.

Venezuela is one of the most crypto savvy nations in the world. Their per capita crypto usage is one of the highest across the world. Put all these points together, there can be a logical happily-ever-after finish with a state-backed-stable coin. And that is exactly what they have tried to do.

While that is the logical way forward to get back some economic sanity, it can only be fruitful if the transition from Bolivar to Petro was well executed. Well executed in this case would include words like integrity, transparency, governance, monetary policy etc.,

The Petro has its own Blockchain, and derives its value from oil, gold, diamonds and iron. 50% of the value is derived from oil, and the supply of the Petro has a cap. But the state owned oil firm PDVSA has debts which is almost 8 times the market cap of Petro. So, I would doubt the integrity behind the decision of using Oil as an asset to back the crypto.

While there were close to 200,000 global purchases of the crypto as per the government, there hasn’t been any audit of these purchases. That makes the decision sound like a scam. There have been several other complaints about the petro. But for me, if a state backed stable coin cannot demonstrate sound policy and principles behind it, it is prone to a major failure.

However, if this is a genuine attempt by the government to turn its economy around , and if it managed to succeed, it would become a case study for many emerging markets countries to follow. And it would be a stark warning to the global markets that an alternative capital market is born.

I really hope the anger from the crypto community is more with the HOW of this petro episode, rather than the WHAT and the WHY. If the fears of the sceptics are found to be baseless, this could be the best thing that could have happened to the world of Blockchain and Cryptos.


Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email