UST / KRT - Regulatory Risk Mitigation

Markets and Macro
#1

Hi

In my personal opinion, the biggest risk for the Terra Stable Coins (besides the challenging task to maintain the 1:1 peg) is a regulatory risk.

Of course I hate this boring discussion, however, given its importance, it is something that can make or break the entire project. And of course, we love all things permissionless, trustless, decentralized; however, when it comes to payments, I believe that, for adoption, there will be some compromises to be made with the regulator.

Here, I am only looking at the KYC/AML/CFT point of view. I am not looking at the potential need for a USD stable coin issuer to become a chartered bank in the US since the Stable Act is not passed as a law yet and it could be argued whether an algorithmic stable coin would be subject to this rule.

I don’t believe that a kill switch kill switch that would freeze potentially dangerous addresses is a solution:

  • it is a post-transaction remedy
  • if implemented in a decentralised way, voting takes time
  • if implemented using an oracle plugged to a forensic tool, I believe this would become very arbitrary

I don’t believe either that limiting wallets balances to something similar to the e-money thresholds (USD 1k, EUR 150) would do any good to the project adoption and growth

Possible solutions would gravitate toward integrating a form of automated KYC into the protocol

  • solution 1: KYC data is stored in an NFT (unique token) with permissions and linked to wallet(s). The purpose is to preserve network anonymity while having the data in order to perform AML/CFT checks and controls by a designated third party.
  • solution 2: Grant access to users who have on-ramped via AML-compliant counterparties

To be very honest, I am not a massive fan of any of this, however, for the good of the project and adoption of UST, I believe it is important to look at the compliance side of the business

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#2

@inversebrah

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#3

Just for information, I am professionally involved in crypto for the last 3 years and based in Singapore.
I am very happy to help Terra in the best capacity I can. I am a big fan of you guys are doing.

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#4

I think terra stablecoins does not subject to regulation. At least such as KYC. Other issued stablecoins (as Tether) are freely distributed around the world.

#5

You are totally right, in the current situation, stable coins are not regulated.

However, there is a burgeoning initiative in the US called the STABLE Act (dec20), which requires (among other things) stable coins issuers to apply for a banking license. In the crypto industry, we saw that coming a while ago and regulatory risk is one of the largest one for the stable coin business at the moment.

The regulator will most likely look at stable coins from a KYC/AML/CFT point of view. The implementation of regulation will certainly be technical and boring, especially in the US due to the different layers of regulatory bodies at state/federal level.

#6

Hi Kyu, what about in Singapore? What is the regulatory risk for SGT? Singapore stable coin.

#7

In Singapore, there is the Payment Services Act (2019), where e-money issuers and digital payment
token services issuers are regulated.

There is a possibility that fiat-collateralized stablecoins could be considered as ‘e-money’. Digital tokens such as an algorithm-controlled non-collateralized stablecoin, could potentially be regarded as ‘digital payment tokens’ under the PS Act. In this case, licensing and other regulatory requirements could apply
under the PS Act.

Also, depending on the exact nature of the stablecoin and the related activities proposed to be carried out, other regulatory considerations (such as moneylending and deposit-taking) could also arise.

#8

Since there is PS Act, is there any app that make use of Terra in Singapore? The Chai Payment engine can be replicated for Singapore market? Is there any method we can speed up the adoption of Terra in local context?

#9

I know that CHAI has someone in Singapore for ‘Growth, Strategy and Corporate Development’.

I believe CHAI can be rolled out in other jurisdictions than Korea. Also, South East Asia is an interesting place to develop payment / remittance / ‘self banking’ / micro loans solutions.

#10

Since technology is available for terra payment in Sg, and in a regulated environment, it would be easier for terra to make inroad into Singapore payment system. There so many payment app now in Singapore. Being the first crypto payment app, Terra has high potential.

#11

I have the same opinion as you. There are many payment choices here, however, there is a major difference between wallets (closed loop or open loop) which are plenty and actual payment systems that do not require prefunding. Card payments can definitely be disrupted (expensive, slow, oligopoly) by CHAI/Terra.

There would be need for CHAI to apply for a local license though and comply with local regulation.

However: I am not sure how big Singapore as a market is in total (GDP is 4 time smaller than Korea) and also the PayNow network is a pretty awesome payment system (fast, cheap, multiple inputs). I would tend to think that Indonesia (#7 country in terms of GDP)could be a better long term play (then Philippines, Vietnam, Thailand, etc) - however I am not sure what CHAI’s strategy is : )

#12

You are right, Singapore has become too crowded for payment app. But I do find there is a market for “pay later” market in Singapore, like atome, and also like the hugely popular “afterpay” in Australia.

Since the anchor protocol is up and running, I think if a market is too saturated with payment app, another anchor Terra can breakthrough is to go for such payment mechanism. With Chai as the payment engine and to use anchor protocol for funding sources, what Chai Singapore needs to do is to clear the regulatory requirement. I know I am oversimplying things, but I am just trying my best to popularize Terra stablecoin in a highly/ developed financial country like Singapore

#13

I am 100% with you : )

Are you also based in Singapore?

#14

Yes, I am based in Singapore. Not sure if there is any existing platform connecting payment with any saving pools in crypto space.

Thank you

Best regards.

#15

can you please msg me? @Kyu21 on telegram

#16

man i hope there are Malaysians here who will do something like that. Vote to create MYRTerra, replicate Chai payment engine and develop an App here for Malaysians to save money in Anchor. However, regulations here are not as open as Singapore. Probably just daydreaming.

Touch n’ Go Digital (eWallet) [Alipay’s behind this] here just partnered with a financial institution that introduced saving product called Go+ that is giving user a pitiful 1.5% APY interest rate. I will try to find a proper medium to inform them about Anchor Protocol.

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#17

I am creating a group of LunaticS in Singapore to push for Chai adoption for Singapore. Anyone interested can find me in my telegram @junxiongchong

#18

There are indications that some regulations might be coming here:

A short excerpt:

The draft advocates for an expanded definition of VASPs (the persons and businesses obligated to register and conduct AML surveillance) that could include non-custodial participants in cryptocurrency networks, such as multi-sig minority keyholders and various participants in smart contract and “layer two” mechanisms (potentially including decentralized exchange software developers or contract participants, and Lightning Network node operators)

My reading of this is that it can go well beyond stablecoins.

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