At the end of September 2020, X8 AG submitted its stable coin, X8C, for regulatory assessment in order to make the next step toward launching its business operations. Swiss supervisory law recognized stable tokens as distinct financial products requiring their own guidelines in 2019.
DIFFERENT GUIDELINES FOR DIFFERENT STABLE TOKENS
Swiss regulation recognizes different mechanisms underlying stable tokens and provides guidelines respectively. The backing mechanism of stable coins is one of the key elements, because it is in a good part according to this feature that stable tokens are sorted into categories and the type of the required license determined. Precise categorization also depends on the risk profile of an instrument, plus which entity bears the economic risks from it.
Stable tokens are classified as follows: linked to currencies, linked to commodities, linked to real estate and linked to securities. The mentioned factors influence the decisions about whether the backing mechanism can be treated as a deposit under banking law or a collective investment scheme for example. The license required is ruled respectively.
X8C LEADS THE WAY FORWARD FOR X8 AG
X8C has been analysed in accordance with the prescribed standards to establish the most prudent and convenient route for X8 AG to progress further toward the start its stable token business. It has been established that the most streamlined and least complex way is to submit the X8C token only for the time being.
There are several reasons not to pursue the implementation of other stable tokens for the time being. The main one pertains to the key role the stability mechanism plays in the assessment of stable tokens in general. X8C’s stability mechanism has been defined in accordance with established rules, something that perhaps remains a less precisely defined area for other X8 stable token designs due to the dynamic nature of the mechanism for stability when applied on single currency portfolios.
The current application of X8C involves a mechanism of eight currencies, which in the submission for the X8C excludes gold. The long-term vision of X8C including gold remains firm and the project remains willing to pursue the inclusion of the gold component for the basket backed stable coin in the future.
WHAT TO EXPECT FOR X8C IN THE SHORT-TERM?
There are two possible stages of X8C accommodation in the short to medium term. The first stage involves a limitation applied within the sandbox regime. This mode of functioning allows projects to issue stable tokens in total value of up to one million Swiss Francs.
After the sandbox stage, the next possibility is a step toward the fintech license which in Switzerland means that such businesses are limited to working with sums of up to one hundred million Swiss Francs in deposits. The X8 project is aiming to pursue this path for X8C subject to all necessary conditions and requirements in a step-by-step manner and by fulfilment of all elements necessary for each of the mentioned steps.
The timeline is generally not predefined and may vary depending on processing and time required to fulfil the entire set of conditions.
TABLE CHART: X8CURRENCY vs COMPETITION
In reference to the latest overview of the current market environment we have prepared the following table chart, which exemplifies the position of the X8 AG and its flagship X8currency value preservation product in comparison with the Libra Coin by Diem Association.
Further detailed analysis of the mentioned comparison can be found here.
TABLE CHART COMPARISON
|Project start||18th June 2019||13th January 2018|
|Focus||Portfolio management||Risk management|
|Basis||Move programming language||ARM Artificial Intelligence|
|Backing||Short term Bonds (80%), Cash (20%)||Cash (100%)|
|Nr of Elements||5 (Regulator dependent)||8 plus Gold|
|Blockchain platform||Native blockchain||Ethereum|
|Project’s aim||Payment system||Payment instrument|
|Money raised||250 million USD||3,4 million EUR*|
|Targeted License||FMIA, Bank, Fintech||Fintech|
|Utility token||No||Yes (X8X)|
|Individual currency coins||Yes||Yes|
|Individual ccy coins – Peg||1:1||ARM Artificial Intelligence|
|G7 guidelines relevance||Yes||Yes|
|Underlying regulator||Swiss financial regulator||Swiss financial regulator|
*The X8 project raised an equivalent of 3,4 million EUR in Ethereum and Bitcoin, however the actual value converted into FIAT currency was lower.
**Detailed AML concept of Libra Coin does not explain specific points pertinent to Swiss AMLA.
The market of stable coins is still developing rapidly. Currently there is a lack of available regulated multi-currency stable coin solutions. However, in the value preservation sub-segment of the stable coin industry X8 AG and Diem Association are currently most notable in attempting to further the development of their business operations.