August 24, 2020
Tezos, Stablecoins and the Future of Trust in Digital Assets
Posted by Noah Buxton
Being at the forefront of blockchain and building trust in digital assets we have the pleasure of working with the most innovative and successful companies in our industry. This experience is humbling, but it also means we have a seat near the front of the boat to see the changing currents, building swells, as well as the horizon ahead.
From this vantage point, one thing is abundantly clear: Blockchain is not about blockchain. Blockchain is about digital assets. When you think about blockchain technology as a new way to secure data on ledgers, you can image existing industries that will continue on without the need for this “confusing,” “overly complicated” or “inefficient” technology. However, when you consider that public blockchain networks enable digital assets with seemingly unlimited potential, both for tokenizing the assets of today, as well as building the new financial products of tomorrow, you see there will be no industry left unaffected by the rise of digital assets.
This rise is only possible with the right “infrastructure.” One of the key infrastructure components is the stablecoin, a cryptocurrency pegged to a traditionally less volatile fiat currency, such as the US Dollar. Stablecoins first proved their utility and reliability as market pairs for cryptocurrency traders, and grew to support cross border payments and remittance; today, stablecoin volumes are in excess of $20B daily and support emerging DeFi experiments and use cases, centralized finance (CeFi) loan and interest-earning mechanisms, as well as dividend and retail payment use cases.
Wow…how far we have come in a few short years.
In these recent years, we have not only seen the rise of stablecoins, we have also seen projects and communities launch new public blockchain protocols aimed at solving the blockchain trilemma of speed, security and scalability. Tezos is one of the leading public chain projects we have been keeping a close eye on. The promise for Tezos to support enterprise dApps, DeFi, CeFi, and even private securities issuance (STOs) seems bright.
Tezos is an upgradeable and open source platform, used to deploy smart contracts and full-scale decentralized applications. While Tezos is not wholly unique in this regard, a few characteristics distinguish Tezos from other projects like Ethereum. Tezos offered on-chain governance and a Proof-of-Stake consensus upon launch. Additionally, the Tezos blockchain offers throughput of ~40 transactions per second. As DeFi “yield farming” has caused transaction fees on the Ethereum blockchain to spike in mid-2020, an opportunity looms for a mature blockchain protocol to gain market share for both asset issuance and launching decentralized applications.
The mature state of the Tezos ecosystem has accelerated Tezos to become the prime contender to challenge Ethereum as leader of decentralized asset issuance and launching decentralized applications at scale. However, until very recently, Tezos did not have a native stablecoin.
When Armanino’s Blockchain and Digital Assets Team learned that a stablecoin was coming to Tezos, we were keenly interested to see how we could support the exciting progress. Given our track record and experience serving stablecoin issuers and providing stablecoin assurance reporting, we thought it was a natural fit to support collateral attestation reports for the USDtz stablecoin.
The USDtz (“USD Tezos” or “USD Tez”) token went live on the Tezos public blockchain mainnet, May 7th 2020, and is one of the first tokens to use an official version of the Tezos community token standard FA (“TZIP-12,” analogous to the ERC token standards on Ethereum).
The USDtz stablecoin is expected to establish liquidity for Tezos trading, Tezos DeFi dApp development, and much more. By enabling on-chain atomic swaps between USDtz and XTZ or other Tezos tokens, USDtz expects to provide the lowest-fee transactions with a record of formal verification organically on the Tezos blockchain.
USD Tez creates stability to the USD dollar by collateralizing with, and making USDtz tokens redeemable in, existing USD collateralized stablecoins (currently USDC issued on the Ethereum blockchain). Because all of the USDtz collateral is already tokenized, any USDtz user has the ability to see the number of collateral tokens held as collateral against the issued USDtz stablecoins. This token model alone provides the capability for decentralized auditing by users and community members.
However, periodic, independent third-party validation of the USDtz token model and collateral reserves provides an important level of credibility, transparency and trust to the USDtz user, as well as the larger Tezos ecosystem.
“It’s important for USDtz users and the Tezos community to see regular attestation reports signed, sealed, delivered,” says USDtz founder Kevin Mehrabi. “For our users, we want nothing less than reports issued by a reputable Certified Public Accounting firm,” he adds, “The chemistry we’ve discovered with Armanino has been excellent. They appreciate the gravity of the work to be done, they have a track record in stablecoin assurance for large issuers, and they anticipate the scalability of Tezos and DeFi use cases on Tezos.”
Armanino views stablecoins as fundamental building blocks to any digital asset ecosystem. With the promise of USDtz on Tezos, Armanino looks forward to the opportunity to provide trust and transparency to token holders.
Providing trust and transparency to the digital assets industry is the core tenant of Armanino’s Digital Asset Practice. Providing periodic attestation reports for USDtz, a key element of the Tezos ecosystem, is a clear-cut example of how we fulfill our purpose of providing trust and transparency to users of digital assets.
Armanino is the Global Leader in Digital Asset Assurance Solutions. Since 2014 Armanino has provided services for clients including top global exchanges, leading crypto investment funds, TrueUSD, Hedera Hashgraph, and now USDtz.
Noah has more than 10 years of audit, legal, IT and regulatory compliance experience. Noah leads the firm’s Privacy practice and helps clients achieve and maintain compliance with international privacy regulations while keeping pace with a changing domestic privacy landscape. In addition, Noah is a leader in Armanino’s established and fast-growing Blockchain practice, having served virtual currency exchanges, broker-dealers, crypto projects for over three years. Noah has expertise in security compliance and third-party assurance attestations, including System and Organization Controls (SOC 1,2,3), cybersecurity (NIST, SANS), and HITRUST assessments for startup, mid-market, and large publicly traded companies.
Noah is a member of the Information Systems Audit and Control Association (ISACA), the American Institute of Certified Public Accountants (AICPA), the AICPA Blockchain Working Group, the California Bar Association and International Association of Privacy Professionals (IAPP). Noah holds certifications for the Linux Foundation’s Hyperledger permissioned blockchain and is a Certified HITRUST CSF Practitioner.