Stablecoins and One Platform to Exchange ’em All

By: John Liu and Tyler London

The move towards cashless societies is in full swing as people rely increasingly on credit cards, debit cards, and mobile payment solutions. As understanding and acceptance of cryptocurrencies increase, the question naturally becomes — are cryptos the next big ingredient to accelerate the world to cashless societies? Through the innovation and stablecoins, it appears that the answer is “yes”. However, with the rapidly growing number of stablecoins being issued on different chains and siloed adoption in different markets, an “all-coins-in-one” solution made possible by Fusion will be more important than ever to keep the digital revolution on track.

The medium of value exchange, money, has evolved continuously through history to help parties exchange values more efficiently, changing from large stones wheels, to gold, to fiat currencies, and now to cryptographic bits known as cryptocurrencies. While cryptocurrencies introduced value exchange with digital efficiency in a trustless environment, the volatility of these coins made them unsuitable for mainstream financial transactions. Luckily, necessity is the mother of innovation and it wasn’t long before stablecoins were introduced: cryptocurrencies pegged to anything that provides perceived value stability — currencies, commodities, an algorithmic price equilibrium, and more.

Though there are many pegs and designs, the centralized, fiat-backed designs remain the most popular. While they do not solve the problem of inflation — targeted at 2–3% per annum by central banks — they are easiest to relate to in a (currently) fiat-driven world. Thanks to growing recognition from both private and public sectors of the attractiveness of a digital economy, stablecoins are moving quickly from a niche product used to hedge exposures for crypto traders to a practical medium for peer-to-peer and commerce transactions.

An Explosion of Coins

Private organizations have led the way on stablecoin innovation. The grandfather USDT started trading in February 2015, and in 2018 was joined by Paxos Dollar, Gemini Dollar, Stasis Euro, and many others. The momentum of issuance is only increasing in 2019: payments processor Wirex announced issuance of 26 different stablecoins on Stellar; JPMorgan led the institutional finance industry with JPM Coin; social media giant Facebook announced their Libra coin; and Binance, one of the largest crypto exchanges in the world, will be releasing their own stablecoins in the near future.

Governments are also warming to, and in some countries jumping into the deep-end, with stablecoins. Take for example Marshall Island’s launched SOV as the world’s first legal tender and crypto, or the Liechtenstein Blockchain Act which provides a holistic legal framework for cryptocurrencies. Sweden, recognized globally as the country closest to becoming cashless, is actively investigating issuing e-Krona and France has expressed “great interest” in the development of stablecoins. Meanwhile, central banks continue to investigate the possibilities of central bank digital currencies (CDBC).

However, this vast number of stablecoins is introducing a new hurdle to adoption: the paralyzing fear of choosing the wrong coin. Idiosyncratic risks, such as the investigation by NY prosecutors into Bitifnex and USDT which drove a $10 million “flight for safety” overnight into the regulated and fully audited Paxos Dollar, further complicate this problem. Consumers are struggling with the question: which stablecoin is right for them?

Fusion does not seek to provide an answer to that question. There are too many circumstances, macro and specific to the individual, to consider. What Fusion provides, is something more practical and important: an easy and quick way for consumers to access all stable coins, so that they can switch seamlessly into any coin that best meets their need at the time.

Fusion’s Interoperable Stable Coin Platform

Fusion, an interoperable protocol focused on building the financial fabric, is doing its part to help the stablecoin industry by making the “all-in-one/easy switching” concept a reality. To showcase the possibilities, Fusion brought a small number of stablecoins into the Fusion blockchain: USDT (USD Tether), PAX (Paxos Standard), GUSD (Gemini Dollar), USDC (USD Coin), DAI (DAI Stablecoin), EURS (Eur Stasis), 1SG (Mars Singapore), and RKZ (Rockz Swiss Stablecoin).

The Fusion wallet screen. The Verified marker shows that these assets are verified by Fusion to be the official assets locked in through the Asset Gateway.

Using Fusion’s asset gateways, these coins were locked into our network, without need for stablecoin issuers to issue specifically into our platform. This is a very important point. Fusion’s interoperable solution helps not just consumers, but issuers as well by saving them the effort of going through rigorous regulatory approval to issue on yet another platform. Fusion has built one gateway for ERC 20 tokens to serve as blueprint and in preparation for its Mainnet token swap. However , Bret Schlussman (CTO of Fusion) estimates that extending our interoperability for other chains such as Bitcoin or Stellar would only take a few weeks of work.

Now that these stablecoins are on one platform, what financial possibilities are accessible?

Swapping Exposures

The most obvious and powerful function of an all-in-one marketplace is to swap from one stablecoin to another. The need to do this swap could be driven by some idiosynchratic risk such as was seen with USDT, or users needing to access markets that accepts only certain types of stablecoins. For example, a holder of GUSD would need exchange their GUSD to PAX if they wanted to trade on Binance. With Fusion, the holder needs only to make a swap to sell GUSD and receive PAX, then once the swap is filled, transfer the PAX to Binance.

Fusion’s swap review screen in its feature-rich wallet.

One can also swap from one currency to another, emulating an OTC Forex trading platform. For example users can swap from PAX to EUR at costs (accounting for service fees and exchange rates) which are orders of magnitude cheaper than traditional money exchanging options.

Payments for travel abroad or international purchases, transferring assets from a risky currency to a more stable one — all can be supported with an interoperable and all-in-one platform such as Fusion.

Hedging FX Exposures

International organizations and merchants in the import/export industry often have to protect themselves against unexpected changes in currency exchange rates through financial instruments such as FX Forwards. For example, an exporter in India receives an order today for delivery in 3 months time worth $100,000. Assume the FX rate today is 69 INR for $1, which values the contract at 6,900,000 INR. Assume in 3 months time, when the payment is made to the exporter, the FX rate has changed to 65 INR for $1. The impact? A loss of 400,000 INR to the exporter as the contract value would only be worth 6,500,000 INR.

A common way to hedge out this currency risk is through FX forwards, which is an agreement made today to exchange currency at an agreed rate and time in the future. Such a financial instrument can be created with Fusion in 3 simple steps. For example, to create an FX forward at an exchange rate of 1.13 USD per EUR, a user would:

1. make a swap to
2. sell 10 EURS time-lock from 3 month to infinity and
3. receive 11.3 PAX time-lock from 3 month to infinity

The swap reflecting a 3-month FX forward with time-locked EURS and PAX, as seen by dates of “Sept 30, 2019 — Forever” under each token. In 3 months time, the EURS and PAX will automatically become “full” tokens.

Cross-Border Lending

In financial markets today, international companies issuing debt in widely adopted currencies such as USD or EUR greatly increase the market reach of the debt. The same holds true in the digital world. Both public entities and private organizations or individuals can issue debt instruments, collateralized or non-collateralized, in the currency of their choice. For example, a company in China can easily issue debt in both USD and EUR by simply swapping time-locked company debt tokens in exchange for DAI and EURS. The details of how debt is represented in Fusion through time-lock is shown in this video.

A 3-month loan is created in both DAI and EURS for debt token PDEB. In 3 months time, a payment swap will be made to recall matured PDEB debt tokens in exchange for the loan of 10 EURs and 10 DAI, with interset.

Interoperability Holds the Key

It is an exciting time for the cryptocurrency industry as it moves ever closer to acceptance by the general public. Thanks in no small part to stablecoins, the world is viewing the industry increasingly as the next evolution of currency. Whether the future of these tokens is centralized or decentralized, pegged against currencies or commodities, collateralized or algorithmic, public or private — there is currently no guaranteed victor, nor is there a need for a victor. What Fusion knows for certain, however, is that being able to quickly and cheaply swap coins in a stablecoin “all-coins-in-one” solution, with the ability to support the full breadth of financial transactions possible in the current system is a critical dependency to realize the full potential of the digital economy.