Opinion: Diem’s second stablecoin is likely to be based on the Singapore dollar

Photo by Hu Chen on Unsplash

The Diem Association has now applied to FINMA Switzerland, and it is now just waiting for its approval,which could be as early as January 2021.

The first stablecoin Diem plans to issue will be a USD based stablecoin. In my opinion, after Diem’s USD stablecoin offering, Diem’s second digital stablecoin offering will most likely be based on the Singapore dollar.

As per Diem’s original stablecoin design, the basket of fiat currencies it is benchmarked against consists of five currencies. They are 50% US dollar, 18% Euro, 14% Japanese yen, 11% British pound and 7% Singapore dollar.

According to the conventional logic of thinking, after Diem Association issued the USD stablecoin, the next issue should be the EUR stablecoin. But in my opinion, the second digital stablecoin issued by Diem is likely to be based on the Singapore dollar, because it should be a better choice.

The EU has been wary and opposed to the Diem Association. This includes the latest clear statement from Germany’s finance minister. He opposed the private sector to issue digital currencies, arguing that the power to issue digital currencies should be in the hands of Euro-bank.

I believe that Diem’s strategy of issuing stablecoins so far has been similar to issue the next Diem stablecoin based on the Euro. Its recent name change is also to emphasize Diem’s neutrality. This is also a means to gain support from the EU. But now it looks like it will be a very big challenge to issue a Diem stablecoin based on the euro in the first place. The strategy of issuing a stablecoin based on the Singapore dollar is more feasible and can yield greater returns than issuing a stablecoin based on the euro.

The Singapore government is a very crypto-digital finance friendly government. Not only has its home country produced startups in the crypto-digital finance space, but it has also attracted companies from outside Singapore to start or operate in Singapore. For example, the Swiss crypto-digital bank and the Swiss digital asset exchange SDX have both set up operations in Singapore to take advantage of the local policy environment and expand the market in the region.

Similarly, for the Diem Association, if it were to issue a Singapore dollar-based Diem stablecoin here, it would be much more feasible than issuing a euro-based Diem stablecoin now. And in the Singapore market, there are already issuers that are issuing Singapore dollar-based stablecoins right now. So in terms of feasibility, Diem’s feasibility of issuing a Singapore dollar-based stablecoin is much greater now.

Singapore’s unique geographical location is also well suited for issuing stablecoins. Countries in Southeast Asia are increasingly trading with each other and therefore need a more efficient way to make cross-border payments. A universally accepted stablecoin would be very beneficial to the region’s economic and trade flows.

So I had previously thought that there would be a competitor to Libra in Southeast Asia, or that Southeast Asia would be the first region for Libra to enter. Now it seems that both possibilities still exist.

For Diem Association, being the first to enter this market gives a first-mover advantage and this first mover advantage is especially important due to the network effect of the currency. For Libra competitors in this region, the issuance of Diem’s Singapore dollar-based stablecoin raises the bar of competition in this space and its likelihood of success is reduced.

Article from Gu Yanxi, Founder of Liyan Consulting

Translated by Yang(Mengyan Finance)

To translate some latest policy and issues on blockchain and fintech happened in China