With rapidly advancing technology, our money still remains quite analog — but it doesn’t have to be that way…

Traditional banking models are changing

The modern bank’s roots can be traced back to the Florentine Renaissance, originating with the Medici family in the 15th century. Banks serve the purpose of acting as an intermediary between borrowers and lenders, facilitating trust in a high-risk equation. As they exist primarily to provide security in storing wealth and to have money readily available, they also require customers/clients to trust in their services — a notion reinforced by the typical image of a thick, steel bank vault, and heavily armed security guards.

However, when you deposit money into a bank, their heavily guarded vaults are not likely to contain a bag with your name on it. Rather, this money is lent to the bank as a liability, and they can leverage it for investments — possibly continuing to be exchanged to another foreign, whereupon it enters into the global Society for Worldwide Interbank Financial Telecommunication (also known as SWIFT). Long story short, this global electronic exchange system allows international banks to keep tabs on the balances that banks and underlying accounts have with each other.

According to latest estimates, only 8% of the global supply of money is accounted for in cash. Though a vast amount of our money exists in computer databases and moves around electronically, this money remains quite analog.

You may often hear the phrase “cashless society”. This refers to the vision for the future that grubby banknotes and dirty coins will be phased out, and replaced with technology that facilitates payments. Be it contactless credit cards, smartphone payment apps, or Bluetooth/NFC enabled smart-rings; these technologies gradually decrease reliance on cash.

“In the last two decades, the total amount of U.S. currency in circulation has more than tripled, to about $1.4 trillion. About seventy billion dollars, or five percent, of that cash, sits in bank vaults, neatly accounted for. The rest is not so easy to track, despite the data revolution in economics.”

— Source: The New Yorker

With the dawn of smartphone technology, private citizens and commercial entities have a convenient opportunity to have enormous control over one’s money. In Denmark, “[Finance Minister Brian Mikkelsen]’s vision will see smartphones accounting for 50 percent of all payments by 2020, and a cashless Denmark in 10 to 20 years.” Already now, we can see that only cash only accounts for approx. 23% of transactions in Denmark (2016). Studies reflect similar trends in Sweden, where their Riksbank is considering a transition to an electronic Krona (eKrona).

The rise of programmability

Today, we are seeing revolutionary ecosystems and economic models based on crypto-currencies and digital assets beginning to be developed. Some of them are designed for machine to machine communications, some are intended to function as a store of value, and others for day-to-day transactions. One needs to look no further than CoinMarketCap to see the growing popularity of these diverse digital solutions.

With this new generation of digital monies, tokenization allows for programmable characteristics to be built into assets. Essentially, software allows for terms and conditions to be ingrained into money and actions — this software is commonly referred to as a smart contract.

It makes the transaction virtually impossible to hack, since the data transmitted between the transacting parties is meaningless to everyone else. It also happens instantly and enables the parties to reduce — and usually eliminate — their dependence on third parties, such as clearinghouses, which would traditionally charge a fee for verifying the authenticity of the transaction and those performing it. — Source: Fintech.Finance

Once you have what is essentially an API for programmable money, you can code transactions into a wide assortment of behaviors. If This Then That (IFTTT) is an interesting web-based service that focuses on creating chained conditional statements, called Applets. These are basically smart contracts that are programmed to carry out actions upon the fulfillment of certain conditions.

“With Blockchains and cryptocurrency, we can give machinery digital identities and digital wallets, and allow them to carry out their own transactions, based on programming. What if I could program my Roomba to pay a drone to pick it up, and fly it to the neighbours house, and then invoice the kitchen for 25 minutes of cleaning? I could program it to do that every Wednesday. That’s called Internet of Things.” — Jack Nikogosian, CEO at ARYZE

By combining the properties of fiat currency with cryptographic elements and blockchain, we at ARYZE strive to make “dumb money” smart. We are living in a world where technology is rapidly improving — why shouldn’t our money do the same?

ARYZE is creating a range of stablecoins — Digital Cash— cryptocurrencies pegged to fixed assets, like the US Dollar, DKK or EUR. By making a programmable and virtual representation of fiat currencies, and activating and moving ownership of them on blockchains, we believe that this is the first step towards an improved vision for money.

ARYZE — Danish fintech is reimagining the approach to Stablecoins

Without a question, the global payments infrastructure needs a facelift. With transaction and remittance fees, chargebacks, card fraud, and several day waiting times, it’s evident that a solution may lie with cryptocurrency and Blockchain networks. As technology advances, why does our money and payments infrastructure remain outdated? With cryptocurrencies, we realise that transaction fees may not be around for much longer as emerging Blockchain networks work to increase security and efficiency.

Naturally, there is an enormous and lucrative market to be addressed here. Many players are getting involved in the development of cryptocurrencies, in order to follow the technological trend of Blockchain, with the benefits of decentralisation, transparency, and efficiency. Certain big banks are also developing their own cryptocurrencies. Although Citibank’s Citicoin, for example, is still backed on traditional infrastructure.

With volatility being a prevalent theme across the majority of top traded coins, some experts confer that cryptocurrencies are unfit for mainstream adoption. Bitcoin, for example, is still too volatile, abstract, hard to spend, and inefficient. However, with developments in protocols such as lightning network, we may see increasing adoption as the inefficiency of the Bitcoin network is countered with near instant payments. That’s a story for a different day, though.

A “stablecoin” is a cryptocurrency that is pegged to another stable asset, like gold or the U.S. dollar. It’s a currency that is global, but is not tied to a central bank and has low volatility. This allows for practical usage of using cryptocurrency like paying for things every single day.

— Forbes

As stablecoins gather momentum in the crypto world, there might not be a need for global banking cryptocurrencies, like XRP (Ripple’s xRapid platform), to transport values around the world, as moving money with one stablecoin to another is a near zero-cost transaction, and can be done without the direct involvement of a bank.

For some users, the excess volatility associated with “stand alone” coins is an undesirable feature, which doesn’t suit traditional businesses wishing to use the efficiency of cryptos to manage global payments, for example.

If volatility is the primary concern regarding cryptocurrencies, stablecoins may provide an answer.

An optimal cryptocurrency should have the following: price stability, scalability, privacy, and decentralization. — Forbes

More specifically, the optimal cryptocurrency for mainstream adoption should have the aforementioned characteristics. As we are talking about mainstream users, stable cryptocurrencies should also not really look like a cryptocurrency — a stablecoin should be simple to understand and easy to integrate with partners.

Here we will take a look at the most popular ones, and give some insight into how ARYZE will differ.

Select Players

Tether

Commonly in the spotlight, Tether is pegged to the US Dollar ($1 USD = 1 USDT), and is backed 1:1 with holdings in reserve. Tether is attractive for many cryptocurrency traders, as they can trade at a more or less fixed reference point, without ever having to exchange to fiat currencies. They are perhaps also the most integrated and established stablecoin.

However, Tether has also been under fire recently, as some doubt has been cast as to whether there is indeed an equivalent underlying USD reserve in their bank. One criticism is their reluctance to prove solvency, as well as their tendency to “print” millions of USDT, seemingly at random.

Basis

Basis is developing a stablecoin that also is pegged to the US Dollar, but utilises a unique supply and demand control method of stabilising the value. Via their decentralised blockchain protocol, they can expand or contract supply by trading bond tokens to coin holders. When they wish to contract supply, their protocol sells bonds to Basis holders in exchange for their actual tokens (kind of like a last resort lender), and vice versa when they wish to expand supply. These bond tokens are worth one Basis, yet are only ever paid back to Basis token holders when Basis trades above the dollar peg.

Basis bonds function as the lender of last resort, yet they are also subject to odd terms such as fluid repayment and potential expiry without repayment. As such, if the market loses faith in Basis, or the queue of bonds becomes so long that new lenders believe they may not be paid, these bonds could more easily fall out of favor. — Monica Desai (How to make a “stablecoin” stable?)

ARYZE Stable Currencies

ARYZE plans to develop stablecoins that will act as the bridge between fiat currencies and cryptocurrencies. Think of it as a virtual representation of national currencies, that moves the ownership of a currency, rather than the actual currency, without having to demand transaction fees. By linking national currencies to a cryptographically secure token, ARYZE can facilitate transactions between individuals and businesses at a fraction of the current cost. Furthermore, as we enter this stablecoin ecosystem, the benefits of Smart Contracts make this virtual money programmable.

“It’s about creating an amazing product for users and businesses. For users, we create a unique, modular and customisable paying experience. For businesses, we create large saving opportunities by utilising this new technology on a digital platform, with a variety of analytical tools. This is all made possible by our programmable, stable currencies.” — Jack Nikogosian, ARYZE CEO

ARYZE’s stable, national currencies are cryptographically secure, stablecoins linked to the value of the underlying currencies. Each stablecoin in circulation is backed by a combination of a corresponding national fiat currencies and government bonds/bills issued by central banks, and will always be fully redeemable for the underlying value.

In order to minimise counter-party credit risk, ARYZE stablecoin liquidity will be managed by placing 75% (or more) liquidity in short-term government bonds and bills. As central banks cannot go bankrupt in their own currencies, ARYZE can protect the cash supply and have our customers’ money insured by a range of government assets.

“Simple peer-to-peer lending with explicit government risk behind IOU structures is vastly more secure than most corporations using bank deposit as collateral.” — Morten Nielsen, ARYZE CFO

Furthermore, digital assets will be protected in multi-signature wallets, where the private keys are held by trusted third-parties. A key element in the business model is also to secure auditing services; the solvency of the stablecoin will be maintained on a trusted third-party website.

Conclusion

The concept of stablecoins is continuously developing and companies are rushing to prove that their coin is the best. With so many coins on the market, some would argue that yet another coin defeats the purpose of having a digital currency that people can use as a medium of exchange and a store of value. Yet having a platform that can interchange between these values in real time for every day use would prove incredible practicality.

In my opinion, we will see many iterations of stablecoins in the future, although the strongest concept will emerge as the victor. Not only can stablecoins decrease our reliance on traditional payments infrastructure, with slow mechanisms and high costs, but provide enormous savings for remittance payments and migrant workers sending money home to a family who desperately needs it.