This Week in Tokenization is 942words, around a 7-minute read.
US Senators to Unveil Bipartisan Stablecoin Legislation
Central Banks Join Forces with BIS in "Project Agora"
Goldfinch Suffers Third Default with Lend East
Ripple to launch U.S. Dollar Stablecoin
PayPal Integrates $PYUSD Stablecoin for In-App Remittance Function
ESMA Claims No Progress on DLT Pilot Regime
If you would like to receive daily, high-signal news on tokenization, subscribe to the RWA Newswire.
We would love to hear what content you want more of -- submit suggestions here.
STABLECOINS
US Senators to Unveil Bipartisan Stablecoin Legislation
During the Bitcoin Policy Summit at the National Press Club in Washington, Senator Kristen Gillibrand (D) of New York revealed that she expects new stablecoin legislation to be introduced to the Senate later this week.
Gillibrand announced that this legislation is a collaborative effort alongside Senator Cynthia Lummis (R), as well as bodies such as the Fed, Treasury, and New York State Department of Financial Services (NYDFS).
What will be in the bill, according to Gillibrand:
"We're requiring that all issuers make sure that reserves are backed one-to-one."
Two compliance paths for issuers: (1) an approval process exclusively for federal and state bank charter depository institutions to become stablecoin issuers (2) a separate path for nonbank institutions, which would give the federal government supervisory authority over the issuer while preserving the state as the primary functional regulator.
In a separate speaking event, U.S. Rep Patrick McHenry said "I think we can get our stablecoin policy set through and signed into law," sometime before he retires at the end of the year.
STABLECOINS
Central Banks Join Forces with BIS in
"Project Agora"
Last week, the central banks of France, Japan, Korea, Mexico, Switzerland, England as well as the Federal Reserve Bank of New York, announced that they would be collaborating with the Bank of International Settlements (BIS) to explore asset tokenization.
So-called "Project Agora" aims to "overcome several structural inefficiencies in how payments happen today, especially across borders, which add a layer of challenges: different legal, regulatory and technical requirements, operating hours and time zones."
Specifically, Project Agora will investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money in a public-private programmable core financial platform. According to the BIS, this platform "could enhance the functioning of the monetary system and provide new solutions using smart contracts and programmability, while maintaining its two-tier structure."
PRIVATE CREDIT
Goldfinch Suffers Third Default with Lend East
Last week, on Goldfinch's public forums, it was announced that borrower, Lend East, would only be able to repay ~$4.25M (58%) of the remaining $5.9M when the loan matured on April 3rd.
Lend East, a digital lending platform in Southeast Asia & India, borrowed a total $10.15M from Lend East #1 Emerging Asia Fintech Pool, which started on March 21, 2022.
Prior to this announcement, Lend East identified two key issues with its pool:
The first issue related to Oriente (15% of Lend East's pool), which defaulted on its loan from Lend East. This was communicated to the Goldfinch community on January 3rd, 2023.
The second issue related to an unauthorized intercompany loan to another Lend East entity (7% of Lend East's pool).
Instead of assessing the borrowers themselves, Goldfinch relies on a decentralized group of backers to assess the borrowers for first-loss capital.
Those who invested in the Lend East loan have accused the backers of doing a poor job on the loan’s credit assessment: "Initial Goldfinch credit assessment has been poorly executed (or assessor poorly selected) as we end up with multiple defaults on multiple loans" -- remarked a Goldfinch community member in a messaging channel (Discord).
STABLECOINS
Ripple to launch U.S. Dollar Stablecoin
Last week, Ripple announced plans to launch a USD pegged stablecoin to be released later this year.
The stablecoin will be deployed onto Ripple's institution-focused XRP Ledger along with the Ethereum blockchain to start out, and it will be based on Ethereum's ERC-20 token standard.
CTO David Schwartz of Ripple said "there’s clear demand for stablecoins that deliver trust, stability and utility."
Schwartz said Ripple's stablecoin will be "100% backed by U.S. dollar deposits, short-term U.S. government Treasuries and other cash equivalents" and will have "public audits on a monthly- basis by a top tier accounting firm."
STABLECOINS
PayPal Integrates $PYUSD Stablecoin for In-App Remittance Function
PayPal will allow all United States users outside the state of Hawaii tofund money transfersto family and friends abroad using U.S. dollars converted from its native stablecoin PayPal USD ($PYUSD).
According to the April 4 announcement, the service, powered by PayPal’s Xoom, is able to fund money transfers via PYUSD to more than 160 countries with no Xoom transaction fees.
Over March, circulation of $PYUSD dipped to $188.6M, marking a decrease of -28% from the month prior.
REGULATION
ESMA Claims No Progress on DLT Pilot Regime
The European Union’s DLT Pilot Regime came into force last March. However, according to a recent letter from the European Securities and Markets Authority (ESMA), there has been little to no progress thus far.
A year later into the Pilot Regime, no infrastructures have been authorized to participate.
However, there are four pending applications – two in Germany, one in the Czech Republic, and one in the Netherlands. In addition, there are eight other potential upcoming applications.
In the letter, ESMA highlights five challenges with the DLT Pilot Regime:
Cash on chain. The DLT Pilot Regime allows settlement with tokenized deposits or MiCA e-money tokens. However, there’s a timing mismatch as MiCA authorization of e-money tokens only starts in June.
Struggles to be competitive with initiatives in other jurisdictions. The DLT Pilot regime upholds "low thresholds for the DLT financial instruments that are admitted," limiting it to only "experimental" instruments and transactions.
Interoperability between DLT market infrastructures and traditional market infrastructures, as well as among DLT market infrastructures themselves.
Consistent investor protection measuresacross a wide array of investor types (which includes retail in certain use cases).
Navigating and establishing infrastructure related to self-custodial functions.