Stablecoins now one of the biggest growth markets in the crypto landscape

CIARAN RYAN: Stablecoins have become a powerful feature of the crypto landscape. Consider that two of the 10 largest cryptos by market cap are stablecoins pegged to the US dollar. Tether [USDT] is the granddaddy of them all and is backed 1:1 by the US dollar – though there is some controversy over whether it is fully and reliably backed by hard assets. It’s the fourth-largest crypto after Bitcoin, Ethereum and Binance Coin. Tether has a market cap of $73 billion. Another US-dollar-pegged stablecoin called USDC is the eighth-largest crypto with a market cap of $38 billion.

It’s clear that one of the biggest growth markets in the crypto space is stablecoins.

The recent addition to the South African crypto landscape is ZARP, spelt Z-A- R-P, which is a stablecoin pegged to the rand.

To explain why we need a rand stablecoin and, more importantly, what we can do with it, we are joined by the co-founder of ZARP, Simon Dingle. Simon, thanks for joining us. Good to have you on. Can you explain what a stablecoin is and why these are suddenly having such an important impact on the crypto universe?

SIMON DINGLE: Thanks Ciaran. As you alluded to in your excellent introduction, stablecoins are cryptocurrencies that are pegged to the price of an actual world currency. That’s fairly easy to understand. You can think of it as something akin to a Bitcoin but, whereas the price of Bitcoin is volatile in dollar or rand value, the stablecoin’s aim is to keep its value pegged to the currency. So if we’re talking about our stablecoin ZARP, then one ZARP should always be worth one rand, or USDT – which you mentioned – should always be worth $1. So it’s relatively simple in concept.

CIARAN RYAN: People who are still battling to understand the utility or the use of Bitcoin might find it even harder to understand why we need a rand stablecoin like ZARP. Can you explain the logic behind this?

SIMON DINGLE: Sure. I think one of the first-use cases that comes to mind is as a hedge against the volatility that I mentioned with cryptocurrencies like Bitcoin. People may be investing in Ethereum or Bitcoin or other assets that are wildly volatile and, when they want to take profit, for example, they can do so in a stablecoin which is still a cryptocurrency. They can store it the way they store their other cryptocurrencies, but they can kind of bank the value in dollar or rand terms and step out of that exposure they have to the volatility of other cryptocurrencies.

But there’s kind of a broader set of use cases that come with making our fiat currencies compatible with blockchain technologies. There’s no way for me to connect my bank account, for example, to a decentralised exchange protocol, or some of the other cool dApps [decentralised applications] that have emerged in the crypto or Web3 world, whereas now we can represent real-world currency value in those domains. There’s a whole slew of use cases that come with that.

CIARAN RYAN: Okay. So ZARP does have some unique features about it – notably that it’s audited and it’s verified as fully backed by hard assets. In other words, if you buy one ZARP you know it’s worth the equivalent of R1. Why is it important? I’m talking specifically here about the fact that it’s audited and it’s verifiable.

SIMON DINGLE: Well, it comes down to trust, Ciaran, because the obvious question one should ask is how do we know that your cryptocurrency is worth R1 or, rather, how is it worth R1? Why is it worth R1? Our answer is simple.

It’s because we have cash reserves where every one ZARP token in existence is backed by one actual rand in an account with us.

You don’t have to take our word for it that the count and our token balances are independently verified by auditors – you’ve got third-party independent attestation. All of that contributes towards the trust we want to build in our ecosystem, where people can be confident that they are dealing with a trusted entity which is audited, which is working with regulators as far as possible.

Of course, regulation in this domain is emergent in South Africa, so we still have a long way to go there. But it’s all about building up that trust and giving people confidence that we can really say that one ZARP is worth R1.

CIARAN RYAN: I think a lot of people might battle with this whole concept of a stablecoin – people who are battling over ‘why do I need a Bitcoin?’ You can’t really buy a coffee with it, you can’t pay for your groceries with it; nor, in fact, can you do that with a stablecoin. So I think people might be battling to understand why they might want to own it. Can you explain that to them?

SIMON DINGLE: I think we’re building it for the people who have already answered that question, Ciaran. So I’m certainly not here to try and sell ZARP to new users necessarily. But people who are involved in the worlds of decentralised finance, for example, who are using Web3 dApps already – let’s call them ‘the faithful’ – have told us that this is something that the world needs. We know this first-hand because the genesis of this project was myself and my business partners looking for a rand stablecoin that we could use in our own project, so we had a need for this. All of that was in the decentralised finance world, where we imagine new fintech applications and new innovations in the financial world coming from blockchain technology. The one thing that was missing was a way for us to make the rand compatible, if you will, with this new world.

We couldn’t find a project that we thought met our criteria for a stablecoin, and that’s why we started one ourselves. I think for a lot of people blockchain is still a scary space. As you said, it’s quite difficult for them to get their heads around investing in Bitcoin to begin with. Then there’s a plethora of other coins and projects and NFTs [non-fungible tokens] and dowels and some wild concepts that one has to first familiarise oneself with before the use cases for a stablecoin become apparent.

But there are some simple ones too. One activity that’s quite common in South Africa in the crypto landscape, which is controversial to some – but that’s a discussion for another time – is arbitrage, where people are using rand value to acquire Bitcoin offshore, for example, at a slightly better price than it goes for in South Africa, and bringing the Bitcoin back into the country and selling it here for a small profit.

For arbitrageurs, being able to transport rand value on the blockchain and between exchanges has several benefits. One of them is that they can operate outside banking hours. Banks are notoriously closed before any other business in the afternoon; they are closed over weekends. That’s fine but it means that you can’t bank outside of those hours, especially not if you’re wanting to remit from one bank to another whereas, with a stablecoin, you can be making these trades 24/7 and over the weekend. So one obvious use case is just being able to transport rand or dollar value seamlessly on the blockchain, the way that you would other crypto assets – and being able to do so whenever you want.

CIARAN RYAN: Changing gear here a little bit, I think people might recognise your voice. You have a background in radio and diehard listeners of Cape Talk and Radio 702 will probably recognise you and your name. Tell us about that background.

SIMON DINGLE: I had a relatively short stint at Primedia, with shows on 702 and Cape Talk, but that was a decade or so ago. I also spent a lot of time on 5FM doing the tech coverage in the afternoons every week. So yes, I’ve spent some time on radio going back to my days at Tuks FM when I was a varsity student.

CIARAN RYAN: Okay. Where can ZARP be purchased? That’s the first question. And are there plans to offer it on other platforms in the coming months?

SIMON DINGLE: Right now we’re working through partners, and that’s been a strategic decision. So at the moment the only place that the public can acquire ZARP is from the OVEX exchange, O-V-E-X. That’s the first exchange to list ZARP. We’re working with other exchanges or potential exchange partners and we hope to have ZARP listed on them all as soon as possible. But right now the best place to get it for South Africans is OVEX. OVEX.io is the website.

CIARAN RYAN: Right, and you are talking to other exchanges about listing there.

SIMON DINGLE: Absolutely. Yes. We are hoping to be listed on all of the major exchanges. Of course, that’s up to them. We see our role as building a trusted platform, providing a token that people can really believe is worth R1, doing so as transparently as possible and being a good player in the ecosystem, working along with regulators, banks and other institutions, as we all figure out this new landscape together.

CIARAN RYAN: Is there a possibility that people could start trading stablecoins, forex pairs like rand-US dollar or rand-British pound as an alternative to the more traditional forex trading pairs? The forex market is not a centralised market – it takes place between thousands of different banks and brokers – but it’s reckoned to be worth about $6 trillion a day. So it’s probably, I think almost certainly, the largest market that there is in the world. Could stablecoins eat into that market?

SIMON DINGLE: Absolutely. I think to a small extent that has already started to happen, Ciaran. We see a future in which all trading is tokenised and represented on the blockchain and in DeFi [decentralised finance].

That extends to equities, mutual funds, commodities – you name it. If it’s got value that is traded, I believe it will be tokenised one way because trading in tokenised decentralised exchanges is faster, cheaper, more efficient. It’s available 24/7, 365.

Tokenised trading, once you’ve been exposed to it, is just better in every way. So forex trading, I believe, will be tokenised and move on chain fundamentally too.

This has already started to happen. So there’s the Iron Bank protocol and the Fixed Forex feature of it, which is quite exciting. A DeFi project in part is being led by Andre Cronje, who probably doesn’t need much of an introduction to your listeners, but is really one of the prominent figures in DeFi globally.

We’re very proud that ZARP is part of the mix on the Fixed Forex platform already. It’s also listed on the Curve protocol, which is really the backbone of the stablecoin ecosystem and more broadly DeFi at large. So I absolutely think that you’re correct. Forex trading is going to move on chain more and more and we hope to be obviously one of the players representing the rand value in that domain.

CIARAN RYAN: You mentioned OVEX a little bit earlier, and I do see that they have a lot of these stablecoin forex pairs listed there. So it’s already starting to happen here in South Africa.

SIMON DINGLE: Absolutely. OVEX are very innovative and have been quite prescient at predicting where things are going. So I think that’s quite a smart move from them.

CIARAN RYAN: At what point do you think people will be able to purchase coffee and groceries with ZARP?

SIMON DINGLE: That’s a whole different kettle of fish. I think there’s still a lot of work to do from a regulatory framework perspective to enable crypto payments in mass retail in South Africa. Technologically it’s possible today, of course, but I think we need that regulatory framework that’ll give confidence to financial institutions and to big retail players to go ahead with implementing this kind of technology at their points of sale.

There are obvious benefits to it, of course, beyond being more efficient. Depending on which blockchain you are deploying this on, it can also be a lot cheaper, but it fundamentally shifts things from a merchant perspective in that, right now, if you go and pay with your credit card, for example at a big retailer, the retailer has to carry the fees for processing that transaction – which of course are paid to the credit card networks or the big card networks for processing the transaction.

Were you to make that purchase or make that payment using a cryptocurrency, of course the payment would then shift to the customer. So the customer would be paying whatever transaction fees to miners on the blockchain, for example, to facilitate that transaction. So that shift is interesting philosophically and intellectually for a few reasons.

Firstly, if you’re a large retailer, saving the 1% or 2% that you’re paying towards card networks is not insubstantial as an immediate benefit to the bottom line. But of course, as a customer having to think about transaction fees – on top of the price of your coffee or whatever it is you’re buying – does bring an extra thought process that doesn’t currently exist in our transactions as the regime currently works. So there are lots of interesting questions to ask there and opportunities to explore, But I think it all begins with the regulatory framework that paves the way for this to happen.

CIARAN RYAN: And then of course the fees are not insubstantial, as you mentioned. If you’re paying with a Visa card, they can be anything from 3% to 5%, and settlement is only going to happen probably within three days after you make the purchase. When you’re doing it with a crypto market, a settlement is pretty much immediate. That’s the interesting thing that I think a lot of people just don’t know, because they’ve never been told about how money works.

We think that when we swipe a credit card at a till point, the payment happens immediately because we get an SMS from our bank immediately. But of course, all that SMS represents is a promise of payment that’ll come later. The funds have been reserved, but no money has actually moved in the background. As you said, that settlement can take up to weeks to actually clear at a later date. Now, there are obvious benefits to that. If it was a fraudulent transaction, that gives you a window to speak to the bank and for them to step in and actually block the transaction – a terrible outcome for the merchant again. So it’s all a matter of perspective because now they’ve essentially lost out.

But in the crypto world – and this is why I always kind of grin when people say things like ‘Bitcoin is slow’ – settlement happens when it happens on the blockchain, and that can be seconds up to minutes in Bitcoin and even faster on some other chains that are optimised for it. So, when you’re paying with Bitcoin, the actual value is moving in seconds potentially, more likely minutes, but in any event much faster than it would if you were paying with actual fiat currency using your credit card, for example. Of course the lightning network built on top of Bitcoin is an example of how this can happen almost in an instant. But there it’s debatable as to whether or not settlement has actually happened because of course you’re dealing in a protocol layer, and there’s value locked on the Bitcoin blockchain that will move at a later date. I don’t want get too technical about that. But yes, I think that is one of the fundamental shifts that’s offered by payments with cryptocurrency.

CIARAN RYAN: It’s fairly early days, because ZARP has been in existence only a short while. But, from what you’re observing, who are the people that are buying it?

SIMON DINGLE: Well, nobody just yet, Ciaran, because we’ve just launched. Right now the only people using ZARP are members of our teams and our partners, but that’s slowly starting to grow. I’ll be touching base with the OVEX guys again soon to see what demand has been like on their site. We announced this project only in the last couple of weeks, so it’s early days. We are just launching.

I think we see this as a grand experiment. We’ve got lots of work to do, making sure that we’re doing the right thing for our potential users, but of course to make sure that we are keeping lockstep with regulation as it emerges, that our banking partners are happy, and so forth. Right now I don’t know who our users are going to be. I have some idea, I have high hopes, but time will tell.

CIARAN RYAN: Okay, just explain briefly the mechanics of this. If this is going to be fully backed by rands, somebody buys ZARP – let’s say he buys 10 000 ZARP – how do you ensure that that straight away is backed, or is there some algorithm working in the background? How does it work?

SIMON DINGLE: Well, right now it’s a fairly simple process. We have our treasury account, where all the rands are kept that back the value of the ZARP tokens. So when rand is deposited into that account by one of our partners – again, this isn’t something we’ll do direct to the public – once we have verified that that balance has cleared into the treasury account, tokens are minted accordingly and sent to the address of that partner. Our smart contract works on a verification basis, which basically means we’ve got a white list of addresses that are allowed to receive minted fresh ZARP. No other address can receive it. Likewise for tokens being burned.

In that case the whole process is reversed. A partner would send us ZARP tokens, we would literally destroy those tokens on the blockchain, and then the actual rand would be sent to them from our treasury account. That would conclude the transaction. But right now those transactions are happening in bulk between ourselves and our partners, whereas members of the public would be interfacing with OVEX, for example, if they wanted to acquire the tokens.

CIARAN RYAN: All right. For people who are unfamiliar with this, the ‘burning of tokens’ sounds a little strange. Essentially, I guess, what you’re saying is that somebody has purchased ZARP and then wants to sell them. You have to get rid of that ZARP – you’ve got to burn them.

SIMON DINGLE: Yeah. They’re actually destroyed. I think this is a very important part of our setup; one of the things that differentiates us from some other stablecoin projects is anybody can go onto a block explorer. On the Ethereum blockchain, for example, you could use Etherscan, which is etherscan.io. You can search for our smart contract and you can see exactly to 18 decimals how many tokens exist on the blockchain at any moment in time, and you can go and independently verify that there are no more or less than those tokens in existence. You can even click on the ‘holder’ section of that website and see a list of all of the wallets and how much ZARP they’re holding. That makes it fully transparent. There is nowhere for us to hide tokens. There can’t be more tokens in existence than are listed on that blockchain smart contract.

Then the question is, really, do we have the corresponding rands in a bank account? That’s where our third-party auditors come in to verify that information – we were looking at working with additional partners to build in even more additional steps of verification required so that it’s all entirely airtight, so that anybody out there can go with confidence and verify this information for themselves.

CIARAN RYAN: Very exciting stuff. What other projects you’re working on?

SIMON DINGLE: We keep ourselves busy, Ciaran. We’ve got a digital asset-management platform called Venox, which is currently available only to invited private clients; people can find out more about that at venox.io. We also have a portfolio-management app called Lettuce, which is available at lettuce.money – like the stuff you put in your salad. We’ve got a few other interesting projects that we’re looking at, but those are our primary focuses at the moment – if you can call three things ‘primary’.

CIARAN RYAN: Great stuff. Simon Dingle. We’re going to leave it there. Thanks very much for coming on and explaining the intricacies of ZARP and stablecoins generally.

SIMON DINGLE: Thank you very much, Ciaran. Always great to speak to you.