Author: James Glasscock
Electronic Dollar (eUSD) on the MobileCoin network is a fully functional example of this technology in action today.
eUSD is the first stablecoin created on the Reserve protocol.
Wyoming wants to create its own stablecoin.
Over the past five years, Wyoming has earned a reputation as the “Crypto Cowboy State” thanks to numerous crypto-friendly laws passed by its legislature covering digital assets, banking, decentralized autonomous organizations, and Lately – the prospect of state governance stablecoins, which could be issued as early as 2024.
To this end, Wyoming’s Request for Information (RFI) and Request for Proposal (RFP) processes are underway to explore the development of stablecoins with the following purposes:
issued by the public sector
Affordable price, can be exchanged for one dollar
Fully Reserved, Trusted by the State of Wyoming
Only invest in U.S. Treasury bonds
More transparent than privately issued stablecoins
Revenue sharing for Wyoming’s public goods, such as its school boards
For those at the beginning of the crypto learning curve: Stablecoins are cryptocurrencies whose prices are pegged to the value of fiat (i.e., government-issued) currencies or other assets. The introduction of stablecoins opens up the possibility for cryptocurrencies to become a safe haven for more volatile assets. Different types of stablecoins have emerged, including those backed by fiat currencies, cryptocurrencies, real-world assets and even algorithmic mechanisms.
Note: Throughout this article, we will refer to “on-chain” projects, which means things that happen on or interact with a public blockchain ledger. Blockchain can increase transparency, reduce the risk of error and fraud, and reduce transaction costs.
Wyoming, we have a problem
The current financial services paradigm, with centralized middlemen managing opaque financial institutions, is broken. The Madoff Ponzi scheme, the UBS LIBOR scandal, the Wells Fargo account opening scandal, the Credit Suisse money laundering scandal, the FTX and Celsius frauds, and the collapse of more than 200 U.S. banks in the past decade are all stark reminders. They all share something at the intersection of fraud or negligence, a lack of transparency and accountability, and significant financial losses—in part because their woeful trophies are due to fragile and inherently unstable system designs.
new Hope
What's the solution? Incorruptible transparency, diversity and the elimination of concentrated centers of power, leading to true ownership of public goods. But how to achieve this?
More and more entrepreneurs and institutions are turning their attention to public blockchains. Even though the underlying technology is 15 years old, it's still in its infancy, with reports that less than 1% of Earth's inhabitants use it on a monthly basis - or the equivalent of the Internet in 1993.
To date, many enthusiasm projects have mistakenly linked the use of blockchain to existing analog processes. While there are frequent press releases touting blockchain technology, behind the scenes, it's business as usual: centralized, opaque, slow, and expensive. Thankfully, this is changing.
what do you need?
The next generation of stable digital currencies should address some of the shortcomings in the current system.
Diversified asset support
Stablecoins are pegged to one U.S. dollar and backed 1:1 by a diversified basket of assets, providing a safer and more decentralized solution by spreading risk. Asset backing may include fiat stablecoins, Treasury bills, cryptocurrencies, commodities, real estate, and other negatively correlated tokenized assets.
Transparent and verifiable reserves
The asset-backed reserve of a stablecoin should be entirely on-chain, allowing permissionless verification by anyone who wants to understand the type, amount, and risk of the underlying collateral. For assets held off-chain, independent audits should be conducted reporting on the source, quantity, and quality of collateral.
Anti-bank run mechanism
In addition to having a “rainy day fund” to protect against black swan events, bank runs, and decoupling events, stablecoins should support permissionless minting and redemption of the underlying collateral on their chain. To curb first-come, first-served withdrawals during the decoupling period, stablecoins should be automatically frozen at the end of the event and implement a fair distribution exit process.
revenue sharing
Stablecoins – especially newer decentralized products – provide shared revenue on-chain, with users and other stakeholders working together to create a new financial system based on shared prosperity. This is in stark contrast to traditional banks and even pioneering stablecoins, which have historically kept revenue for themselves.
Decentralized community governance
Stablecoins with on-chain governance help identify potential negligence or fraud more quickly than traditional finance, thereby inspiring public accountability. In the 21st century, there are limited opportunities for opaque, confidential agreements that favor a few.
User data protection
Stablecoin users should be able to choose privacy for their transactions. This is thanks to "zero-knowledge proofs", which allow users to prove something without revealing the details. A similar real-world example is proving you're old enough to buy something without revealing your exact age. Thanks to a regulatory-compliant network, fund transfers between stablecoins and your bank account can be seamless, even with this enhanced privacy. Electronic Dollar (eUSD) on the MobileCoin network is a fully functional example of this technology in action today.
Programmability
Stablecoins should be programmed to do things automatically (e.g., all the projects mentioned above), without errors or exposure to corruptible middlemen. This kind of automation will be especially important during times of fog of war, such as financial crises. Programming can and should be updated only through community governance.
Stablecoins that meet these criteria have the inherent ability to remain stable, secure, and self-healing—even (and especially) when institutions and governments fail.
Why is this important?
The current financial system is built on centralized and outdated technology, sacrificing speed, flexibility and user control. While blockchain’s learning curve may seem daunting initially, the benefits can be huge.
Embracing decentralization and transparency opens up a future of financial inclusion where everyone has ownership of their own money. Imagine a world where “good guys” could easily opt out of a system that rewards “bad guys” too often, or where people could get paid to be globally connected without a driver’s license; or where entrepreneurs could get paid without a driver’s license. Easily obtain startup loans from their community by providing collateral.
To put it more bluntly, these are the benefits that await:
In this system, users truly own their own currency, rather than merely acquiring it at the whim of an opaque institution.
The system is reinforced by cutting-edge cryptographic security to significantly reduce fraud and theft.
A system that enables citizens to share in the prosperity they create, bypassing the rent-seeking middlemen who suck up value at every turn.
Addressing criteria for Wyoming to create 'wyoUSD'
Hundreds of companies and even some governments are working to tokenize everything—that is, figure out how to put real-world assets like commodities, stocks, bonds, loans, and real estate on the blockchain. Citigroup predicts that by 2030, new tokenized assets will reach trillions of dollars. However, as of today, the most popular assets used to build a diverse stablecoin-backed basket tend to be other fiat stablecoins, tokenized Treasury bonds, and various other cryptocurrencies. As more and more assets are tokenized, we can expect asset-backed stablecoins to become more diverse and more resilient.
For the sake of this article, let’s imagine Wyoming Dollar (wyoUSD), a decentralized stablecoin with the following characteristics:
1:1 diversified asset support
Exclusively backing stablecoins with U.S. Treasury bonds concentrates investment in a single asset class, which exposes the system to higher vulnerabilities, especially against the backdrop of the rapid increase in U.S. Treasury debt to over $33 trillion. Alternatively, diversifying stablecoin support with other assets would simultaneously diversify counterparty risk and foster inherent resilience. Because crucially, each supporting asset in the basket contributes its own additional security mechanism. In fact, assets like DAI are increasingly diversifying their support further with real-world assets.
wyoUSD can initially be fully backed by a basket of 33% DAI, 33% USDP, 33% eUSD.
DAI is the oldest and most widely used stablecoin, issued, managed, and redeemed entirely on-chain, and backed by a mix of real-world assets, cryptocurrencies, and fiat stablecoins. Learn more about DAI security at Bluechip.org.
USDP (Pax Dollar) is issued by Paxos, a platform regulated by NYDFS, and is therefore subject to strict guidelines and monitoring requirements. USDP’s reserves include short-term U.S. Treasury securities, highly liquid assets backed by U.S. Treasury securities, and cash in fully segregated and bankrupt remote accounts. Learn more about USDP security at Bluechip.org.
eUSD (Electronic Dollar) is a security-first stablecoin that brings together the diversification, high-liquidity backing of USDC (Circle) and USDT (Tether) and ample anti-bank run over-collateralization. eUSD is the first stablecoin created on the Reserve protocol. Learn more about eUSD’s stress test during the Silicon Valley bank run.
A basket of yielding DAI, USDP, and eUSD (derived from DeFi protocols such as Compound, Aave, and Convex) can generate up to 6% net yield for wyoUSD stakeholders.
Safe and transparent
By using the Reserve Protocol, wyoUSD can maintain asset-backed reserves entirely on-chain, allowing permissionless verification by anyone who wishes to understand the type, amount, and risk of their collateral. wyoUSD will feature over-collateralization, zero fees, permissionless minting and redemption, and mechanisms such as fair and proportional distribution that disincentivize first-come, first-served in the event of a black swan event. Since this transparency is on a public blockchain for anyone to verify, no additional reporting or auditors are required.
Share revenue to holders and public goods
Revenue sharing for wyoUSD can be programmed through community stakeholder governance. For example, the above 6% yield could be distributed as follows: 40% to wyoUSD holders, 40% to state governments, and 20% to overcollateralization. If Wyoming allocates 10% of its $36 billion state GDP to earn a 6% yield using and calculating the $3.6 billion wyoUSD supply, we can expect this to generate approximately $216 million per year, of which 86.4 $M will be allocated to holders, $86.4M to states, and $43.2M to overcollateralization.
Public sector issuance and governance
By leveraging the security and transparency of decentralized protocols like Reserve, the public facilitates issuance and governance in smart contracts, minus the middlemen. wyoUSD should be managed by the citizens and companies that contribute most positively to the economy. Governance responsibilities can be acquired or delegated through a number of different methods.
Wyoming as a pioneer
While hundreds of governments around the world are exploring central bank digital currencies through industrial-age governance paradigms, Wyoming has an opportunity to solidify its reputation as the “crypto cowboy state” by pioneering a state-affiliated decentralized stablecoin. Wyoming may even catch on outside of Wyoming, where Wyoming stakeholders will take the lead in reinventing a more equitable and transparent financial system.
Cost-effectiveness
Decentralized technology like Reserve Protocol eliminates the cost and error of middlemen, reducing the risk of fraud. wyoUSD can be designed to have near-zero costs in terms of collateral asset management maintenance, as well as transparent verifiable reserves, revenue sharing with stakeholders, and governance—all managed on-chain.
Conclusion
Since 2018, Wyoming has positioned itself as a leader in crypto, embracing innovation to pave the way for a more inclusive and efficient financial future. While the recent acceleration of stablecoin adoption is undoubtedly groundbreaking, there is a greater opportunity: to completely transcend the flaws of the current financial system and rapidly achieve breakthrough levels of transparency and prosperity. For Wyoming, this is an opportunity not only to make a tangible impact locally, but also to inspire the global financial landscape.
Stablecoins like wyoUSD can act as a “light switch” and immediately bring much-needed transparency and accountability to the financial system. Imagine a world where financial access is equitable, prosperity is shared, and accounting is verifiable and immutable.
This is an innovative future that Wyoming is uniquely suited to pioneer.
This is what wyoUSD can do. $XRP $MOB $RSR
For those wishing to gain a more in-depth understanding of the risks and mitigations in reserve protocols, there is a comprehensive guide available. To explore the possibilities of wyoUSD, decentralized stablecoins or the Reserve Protocol in more detail, feel free to join the community Discord or connect directly on X.
https://blog.reserve.org/turning-out-wyomings-stablecoin-frontier-9b7ae39db9eb
