Decrypting Stablecoins "Regular Army" PAX - TaaS is the Next Exit of Stablecoins

Abstract : It seems that all stablecoins have become untrustworthy. Where is the future of stablecoins?


Sep 01

In 2017, blockchain technology became the hottest topic in the Internet industry. Blockchain as a Service (BaaS), which provides blockchain technology solutions for enterprises, was also placed in the center of battlefield of big internet enterprises such as IBM, Tencent, and Ali. However, the good times doesn’t last long. With the arrival of the industry bear market, the concept has gradually become deserted.

On the other hand, with the gradual mainstreaming of the digital coin investment market, a new format has emerged - trust as a service (TaaS).

In the traditional Internet industry, TaaS refers to a way and framework for improving trust management in a cloud environment. For users, the stability of cloud services, data security, availability and other dimensions together determine the credibility of cloud computing. Even if there is a small probability of failure, the failure of cloud services may devastate the user's business. Different from the TaaS in the traditional Internet, the TaaS in the blockchain is more similar to SaaS: the user hands over various assets (often physical assets) to the TaaS service provider, and relies on these assets to issue stablecoins. The service provider provides services such as auditing, KYC, AML (anti-money laundering), and compliance review. In other words, the TaaS service is for companies like Tether, with the goal of preventing a stablecoin crash.

Why does the stablecoin become "unstable"?

In June 2018, Tether was found to be suspicious of manipulating bitcoin prices, and the market was then controversial about its alleged over-issuance and real reserve funds. Since then, the question of the reserve fund has been around Tether and eventually developed into a hearing for Tether. At the hearing, the core of the debate has been around whether Bitfinex and Tether executives have conducted a series of conflicting corporate transactions, from which Bitfnex can get up to $900 million in Tether to support USDT's cash reserves, and Bitfinex has used at least $700 million in Tether reserves. Tether’s funding movements were not disclosed to users.

In other words, Tether claims that the dollar anchored by its issued USDT may not exist at all, and Tether is reluctant to show evidence that the money actually exists. This directly led to the drop of investor's trust in the USDT.

In this context, it seems that all stablecoins have become untrustworthy. Where is the future of stablecoins?

In response to this question, David Wells, senior product manager at Paxos, was interviewed by Chaindd. David Wells is responsible for the development of stablecoin PAX and itBit exchange trading, OTC, and hosting businesses at Paxos.

Paxos is the first financial technology company to be directly regulated and operated under the supervision of the New York State Department of Financial Services, and is the first chartered limited trust company in the blockchain industry to have the right to receive credit under the Banking Act. In September last year, Paxos launched the regulated dollar stablecoin Paxos Standard (PAX) under the trust company license, and quickly stood out in the lively stablecoin war.

New stablecoin issuance model - custody + compliant

In addition to issuing its own stablecoin, in July this year, Paxos and Huobi upgraded the previously launched stablecoin HUSD, and upgraded HUSD from a representative stablecoin solution to an independent anchored USD HUSD Token. Paxos will provide a TaaS solution for HUSD.

David said to Chaindd that Paxos, as the HUSD dollar custodian, will provide an audit service for HUSD to ensure that each HUSD Token can be converted into US dollars. In addition to depositing US dollar into reserve accounts, Paxos will also manage these accounts and provide KYC and AML services.

David said that TaxoS from Paxos is a new stablecoin distribution model designed to help stabilized coin issuers to issue safer, more reliable stablecoins. In the process, Paxos supports a broader range of asset types, such as oil or other assets that are digitized in a safe and regulated manner.

It is worth noting that the TaaS service provided by Paxos relies mainly on its regulated identity. David said to Chaindd that Paxos has positioned itself as a trusted company rather than a stablecoin issuer. Their advantage is to develop more comprehensive cooperation with regulators, making the digital money market develop in a long-term favorable direction.

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