Australian buy now, pay later giant Afterpay has told a Senate fintech committee that it believes a stablecoin based on the Australian dollar will appear soon.
“There is currently no AUD-backed stablecoin with significant uptake. However, this is unlikely to remain true for long. An AUD-backed stablecoin would provide Australian cryptocurrency users and investors with an alternate store of value compared to the popular USD-denominated coins, with the associated benefits of blockchain technology,” Afterpay told the Senate Select Committee on Australia as a Technology and Financial Centre in a submission.
“It may also work to remove some barriers to entry into the cryptocurrency market for Australians consumers and businesses, as rationalising their cryptocurrency holdings in AUD over USD could provide additional comfort in exploring the space.”
Afterpay said due to consumer demand, it is likely a company will create a stablecoin that gains “sizeable adoption”.
“At present, there is little to stand in the way of a private company (within or outside Australia) minting, marketing, and popularising an AUD-backed stablecoin,” it added.
“Similarly, an AUD-backed stablecoin could be created in a jurisdiction with minimal or no licensing or regulatory requirements, leaving it up to consumers to perform due diligence on the corporate entity that created the stablecoins.”
The company also pointed out the problems of stablecoins, referring to the higher level of centralisation when compared to distributed cryptocurrencies which allows the stablecoin owner to blacklist accounts, mint new tokens at will, provide no transparency into whether it is holding cash reserves to underpin the token, and profit off payment data of users.
“The ability to blacklist users of a payment mechanism creates significant access, inclusion and equality issues, while lack of transparency surrounding reserves seriously threatens the robustness of any payments system that relies on stablecoins,” it said.
The company called on the government to consider what sort of regulation would be needed for stablecoins, including “consumer-focused data protections” and the ability for consumers to appeal being banned.
“Although it is important for Australian consumers to be protected from bad actors and risky and even fraudulent products, regulation of this sector cannot be simply viewed through the lens of investment product regulations. A token that can be purchased on an exchange today, could tomorrow be a ticket that allows a token holder to access a useful decentralised application built using blockchain technology,” Afterpay said.
“When considering regulation, regard needs to be given to the intended future state of blockchain technology, and not simply its short-term use as an alternative investment, else there is a risk of stifling innovation, or seeing these technologies created in foreign jurisdictions.”
Afterpay added that work on basic items, such as definitions, was still needed.
“Current token definitions do not account for the following: Hybrid tokens; stablecoins (whether fiat-backed, commodity-backed, crypto-backed or algorithmic); Central Bank Digital Currencies; the rising prevalence of private tokens such as Facebook’s Diem; and Non Fungible Tokens,” it said.
“Additionally, a usable definition of a utility token is required as current attempts have little regard for the difference in tokens that allow access to a service on a decentralised application compared to a token that permits a user to vote on the future operating procedure of that decentralised application.”
At the start of August, Afterpay was acquired by Jack Dorsey enterprise Square for AU$39 billion.
Later that month, Dorsey took to the site of his other business, Twitter, to sprout some highly hypothetical global benefits of cryptocurrencies.
“Bitcoin will unite a deeply divided country. (and eventually: world),” the Twitter CEO claimed.
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