We are really excited to initiate our series of bi-weekly interviews with Kory Hoang, Co-Founder and CEO of Stably Blockchain Labs, a company based in Vancouver which issues StableUSD, a fiat-backed stablecoin designed to work across multiple blockchain protocols that will initially include Ethereum and Stellar.
This interview is ~25 minutes, feel free to listen to the raw version here or go ahead and read the edit below. Please enjoy and let us know if you have any feedback!
SR: I have to start with this question: What got you into crypto, and what inspired you to create a stablecoin?
KH: I’m an algorithmic trader and have been trading stocks and derivatives for over 3 years, last year I applied my trading algorithm to crypto and made a decent return from the bull market. But I needed to find a stablecoin to use as a trader, and there weren’t any besides Tether, and that’s what originally gave me the idea for Stably. That’s how it all started, together with my co-founder, who is also an algorithmic trader, we started writing the white paper and it went on from there.
SR: What was the thought process that led your team to choose a fiat-collateralised model, over say…a crypto-collateralised model, or a no-collateral model like seigniorage shares?
KH:We are not particularly zealous about our model, it’s more about practicality. We like decentralised stablecoins, and I’m a fan of the MakerDAO project, I think it’s one of the best decentralised stablecoins out there and wish them success. But from a practical standpoint, it’s very difficult to integrate decentralised stablecoins into existing supply chains and business operations, there is a lot of risk involved. On top of worrying about the exchange rate, with a decentralised stablecoin you have to worry about black swan risks, crypto volatility and the chance that the decentralised stablecoin might fail. The stability of decentralised stablecoins is not organic like a centralised stablecoin and, in our view, not suitable for consumer applications, which is one of the things we want to focus on.
SR: Who is interested in holding DAI or other decentralised stablecoin, in your opinion?
KH: I think DAI is a good stablecoin with a market cap of around ~$40M, and a natural fit for dApps because it’s completely decentralised. dApps can use DAI as the fuel for their operation, there are also people that have ERC-20 tokens that don’t necessarily want to sell but need liquidity from that token, so they could lock it in as collateral, and issued DAIs get liquidity from it.
SR: One of the main things that differentiate Stably from other centralised stablecoins, such as Tether, are your four transparency channels…can you talk a bit about that?
KH: Tether has two transparency channels: audits and a transparency dashboard for the number of USD vs. USDT outstanding. But they’ve never officially released an audit, just legal statements to say that they do have the money. And who know what numbers they are putting up on the transparency dashboard.
At Stably we will do quarterly audits performed by one of the Big-Four accounting firms, not only our reserve balance, but also transaction records and everything else that the public would like to see.
The second transparency channel is the hashing of off-chain transaction. When people wire us fiat currency to issue or redeem stablecoins, we will hash those transactions and submit them to a smart contract, informing in real time of the transactions taking place. You could argue that we can submit false transaction records because we are still the ones submitting it, but the fact that we are formally audited removes the incentives for us to do this.
The third transparency channel is for on-chain transactions. When people buy our stablecoins with Ether, that transaction is timestamped and publicly verifiable on-chain to see how much Ether we’ve received or sent back.
The fourth transparency channel is similar to a your personal bank app notification, but set-up for our reserve bank accounts. Basically, a trusted third-party or mailing list can receive a daily view or alerts into our reserve balances and verify that we have the money.
SR: Will your banking partners be public?
KH: Yes, they will be announced once we finalise the details of our banking partnerships. We are confident this will be finalised in the coming two months and we will start conducting Money Service Business activities in Canada. In addition to banks, we will also announce other partnerships. For example, Bitrex has a program in Seattle to help you buy Tether if you wire-transfer USD, they’re allowed to do this because they have a MSB license. We could partner up with Bitrex to sell our stableUSD and have people wire USD to them. Other exchanges and banks could also be our partners in order to spread the reach and market share of our token.
SR: Are you spreading your reserves across many bank partners to prevent government censorship?
KH: I would not worry abut a government crackdown on our stablecoin because we comply with the law — I’m not a lawyer and this is not investment advice just my personal opinion. But if you look at FinCEN regulation, they released guidance on virtual currency around 2013, and Stably and other centralised stablecoins typically classify as convertible virtual currency. It’s already regulated and you need a license to carry this kind of operation. With this regulatory framework in place, as long as we apply AML/KYC at the best of our ability, then there is no reason that the US Government would shut us — or other centralised stablecoins — down.
SR: Stably will not charge fees to its users, how will you generate revenue?
KH: We are going to have an indefinite promotional period, charging zero fees for people to buy and redeem stablecoins from us. We do not expect this to change soon because we are able to make most of our income from our reserve float income.
Float income is basically interest income that you earn from reserves. MSB law allows you to invest in money market securities, such as short-term t-bills or high-rate corporate bonds that pay small interest rate, typically around 2–2.5% per year. For example, PayPal invests their in-transit money in money market securities.
SR: Bitcoin began as an anarchist or libertarian movement against central-bank issued fiat, do you see a future without it?
KH: Well, what is money? It’s trust at its most fundamental value, trust it is at the core of the monetary system. This is the reason why the USD has so much power now, because there is trust in the US government, even though it’s no longer backed by gold. But everybody knows its backed by their military, technological prowess and judiciary system. So this implicit trust will keep the USD power and demand for many, many years to come.
So what are we trying to achieve in cryptocurrency? We are trying to create a decentralised medium of value exchange. For now most crypto is very volatile and not suitable for that, although they could be used for speculative reasons. But for the most fundamental money use cases (store of value, unit of account and medium of exchange), cryptocurrency on its own cannot achieve it yet. If we take a quick step back, and look at where we already have stability: look at the USD. So why invent something new in order to accomplish what the USD already has for many years? Digitising the USD into a stablecoin is essentially the next step: put a USD in your reserve, create a token with a claim on it, and almost instantly transfer it anywhere else in the world and integrate it into dApp. If you could hold a dollar bill that is almost infinitely indivisible and could teleport it anywhere else in the world, that is exactly a stablecoin.
We are not thinking of ourselves as creating something revolutionary that will upend everything, that’s what Basis and MakerDAO are trying to create. Decentralised stablecoins that achieve stability from not relying on the underlying asset that is pegged to — that is revolutionary, and best of luck and power to them. But for us, that could be accomplished by basically creating a bridge between the USD and blockchain economy, which would achieve a lot of use cases and market share right away.
SR: As you know from Stable.Report, there are around 30 stablecoin projects at the moment, how do you see this moving forward? Will there be thousands of stablecoins, mergers, project failures?
KH: There is a lot of promise when new technologies emerge and a lot of people trying to fit in, that’s when money comes in and that’s why we are seeing Circle, TrustToken, Basis and a bunch of others projects going to space right now, and more players will continue to jump in.
Out of these 30 stablecoin projects, the majority are decentralised stablecoins, and I think moving forward that trend will continue, everybody want’s to figure out how to make a decentralised stablecoin — that’s the holy grail. If someone can figure out a way to make it work in a scalable way and convince existing businesses to integrate that to their supply chain operations…holy shit. That’s why everyone wants to go for that space, so I think as more and more projects come out, we will get hundreds of stablecoins, most of them decentralised, with a lot of failures and some fraud. But as this creative destruction happens, things will consolidate overtime, and maybe 10–20 years from now the stablecoin sector will probably be a highly commoditised space with less than 20 relevant stablecoins, and most of the market is dominated by 5. Who knows, there might be one ultimate stablecoin one day that comes out, that is kind of like an ETF or a basket that is compromised of all the other stablecoins, that could be something that somebody will build one day.
I think there will be a lot of innovation coming out and the key thing is we have to be cautious but also open-minded, I believe in my centralised model for a variety fo reasons, but also don’t want to shoot down the decentralised model. I have criticism and questions over its effectiveness, but I’d like to see it go to market and see it play it out, if it really works thats good news for me too, because then our team can create decentralised stablecoins -after we’ve captured a large market share of the centralised stablecoin space.
SR: How and when can we buy StableUSD? And given fiduciary compliance, will it be available for users in developing nations, such as Venezuela?
KH: I don’t want this to be a solicitation for people to buy/sell stableUSD tokens, so all I would say right now is that we will release more details soon, and if you are a good person (not a drug dealer or terrorist) then there’s no reasons why you should not be our customer, but AML/KYC regulation and sanctions may bar us from operating in places like Venezuela.