BIS Drops Project mBridge, U.S. Treasury Says CBDCs Should Replace Stablecoins, Tether’s Q3 Profits, BIS Uses ZK Proofs (#193 - 3 Nov 2024)

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1. BIS To Shut Down Project mBridge?

A report in Bloomberg revealed that top officials from the Bank For International Settlements (BIS) have discussed shutting down mBridge, the bank’s signature CBDC project.

If this is true, this could be one of the most short-sighted decisions we have seen in a while.

mBridge is probably one of the best projects to come out of the BIS.

In very short, it allows banks to transact with each other without correspondent banks.

This was initially pioneered by the Hong Kong and Thai central banks before being significantly expanded in recent years, and the project recently reached MVP stage, which would allow it to scale.?

mBridge is great as it removes the monopoly of the large correspondent banks in each jurisdiction.?

However, the BIS is considering shutting this down because Vladimir Putin allegedly realized that the BRICS member countries could use this to bypass the U.S. correspondent banks and thus proposed the idea of a BRICS Bridge at last week’s BRICS Summit.?

Shutting down mBridge will not stop the innovation in this space. The genie is already out of the box.

It’s similar to how Kodak stopped working on its digital camera innovation so as not to kill its traditional camera business line.?

Worst for the “West,” it can allow China, Russia and others to build the BRICS Bridge and innovate whilst the BIS and Western central banks remain stuck in the past.?

Definitely a development to follow.?

2. U.S. Treasury Says CBDCs Should Replace Stablecoins?

A new U.S. Treasury Department report argues that a central bank-backed digital currency should replace stablecoins.

Lots to unpack here.?

First, the actual report is worth a read as it clearly says that the Treasury believes that crypto markets will continue growing. This is very different from the "tulip bubble" and “it’s just a fad” narratives we used to hear couple of years ago. This is ironically a positive tone of voice for the industry.?

Second, the Treasury recommends a private blockchain to tokenize treasuries and other instruments. That is simply short-sighted and naive. Whilst many TradFi firms tried the permissioned model, banks and even central banks have now realized that decentralization will play a role in the future of finance.?

Third, the Treasury mentions the risk of a run on stablecoins and a de-peg as a risk. Yes there have been such instances with algorithmic coins like Luna's UST but such projects are negligeable with fiat backed stable coins being the norm.

We should probably remind the Treasury that the main de-peg that happened recently with a fiat-backed stablecoin was the regulated USDC, and the failure of a regulated bank caused the de-peg…nothing wrong with the blockchain that runs the USDC infrastructure.?

And finally, the Treasury believes that a CBDC should replace stablecoins in the U.S. That is great in theory but unlikely in practice due to all the privacy rights in the U.S.??

The actual treasury report is here for those interested. I recommend the final 30 pages in the appendix.?

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3. Tether Generates $2.5 Billion In Q3 Profits

Stablecoin issuer Tether posted another quarter of record-breaking profits, posting $2.5 billion in third quarter 2024 profits.

And $7.7 billion in year-to-date profits.?

This is generated mainly from the yield on the treasury assets it holds, backing the $120b+ of USDT.?

Tether is probably not only the most profitable in crypto but also one of the most profitable financial services firms globally, considering that it has less than 150 employees.?

4. BIS Using ZK Proofs to Enhance Cross-Border Transaction Compliance?

The Bank For International Settlements (BIS) Project Mandala demonstrated that regulatory compliance can be built into cross-border transaction rules.?

Project Mandala is a proof-of-concept led by the BIS in collaboration with central banks and financial institutions that aims to simplify policy and regulatory compliance by automating procedures, enabling real-time transaction monitoring, and enhancing transparency around country-specific regulations via zero-knowledge (ZK) proof mechanisms.

This is a very good initiative that solves a real problem and one that is worth keeping an eye on.?

5. FTX Drops Lawsuit Against Bybit

FTX settled its case against Bybit in a deal that will see FTX recover approximately $228 million.?

This sum is expected to aid FTX in repaying its creditors in the coming months. Earlier this month, a U.S. bankruptcy court approved FTX's reorganization plan to repay creditors.

This is another positive development for the FTX creditors.?

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