In an interaction with ET, Naheta said that the aim of issuing a dirham-backed stablecoin was to establish a foothold in the $130 billion market, which is currently dominated by US dollar-backed stablecoins.
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Attempting to leverage the more liberal approach of the UAE to cryptocurrencies and the Web3 ecosystem compared to other jurisdictions, DTR is looking to capture a single-digit market share of the stablecoin market for DRAM in the near-term.
Stablecoins are cryptocurrencies that are intrinsically tied to an underlying asset such as a fiat currency, financial instruments or exchange-traded commodities. The Tether (USDT) and the USD Coin (USDC) are among the most popular stablecoins, with a combined market cap of over $105 billion.
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“We’ve linked it to the dirham as opposed to any other currency because it’s (UAE) a very stable and growing economy, it’s attracting a lot of talent and has become among the biggest financial hubs of the world,” said Naheta. “We have created a very attractive alternative for anyone who has a dollar-based stablecoin to be in something that is linked to dollars, is complementary to the pervasive Swiss system, and at the same time is in a currency, which has a better macroeconomic outlook than the dollar. Our view is that we can be a good single-digit percentage of the overall market.”
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DTR will licence its stablecoin technology to Hong Kong-based DRAM Trust, which will hold the reserves backing the tokens. Every DRAM token will be backed by 3.6725 dirhams, which is equivalent to $1. Starting Monday, the token will be available on most global decentralised exchanges, Naheta said, with centralised exchanges likely to follow soon. He added that DRAM coins worth up to $10 million will be issued initially.“We will start in a measured manner…we’ve had initial conversations with a number of counterparties who are interested in subscribing to the token. We will start with single digit millions and take it from there. We have demand but we want to make sure all our processes and compliances are in place,” said Naheta, who quit SoftBank in early 2022.
DTR will also launch its own decentralised finance wallet in the first quarter of calendar year 2024, which will allow its users to hold stablecoins, in addition to making payments across the globe. Naheta said that DTR, which currently has a team of around 30, will be looking to expand its headcount as it proceeds to build more products and services.
Stablecoin regime
Even though stablecoins are typically backed by official currencies, certain jurisdictions, including India have taken a cautious view of the cryptocurrency, with the Reserve Bank of India (RBI) underscoring the risks stablecoins pose to the monetary policy independence of central banks.
The primary value proposition of tokens that are pegged against fiat currencies is that they largely trade at around $1 per token, which gives investors and traders some stability in highly volatile market situations.
US Securities and Exchange Commission (SEC) chairperson Gary Gensler, who had likened stablecoins to poker chips in 2021, renewed calls for regulations around the crypto asset class last year.
According to the DRAM white paper, stablecoins processed $11 trillion worth of volumes compared to $11.6 trillion transactions processed by card payments network Visa. Naheta underscored that stablecoins should be compared with central bank digital currencies (CBDCs), with the former providing a borderless mode of payments.
“Stablecoins should be compared to CBDCs. If you look at the general sentiment, whether it is in the US (or anywhere else), it is vehemently negative around CBDCs. It is because people inherently don’t want the invisible hand of the government in their wallets,” said Naheta. “The whole idea of a central bank-backed digital currency may work where some countries say that this is the only way; but in democracies, CBDC won’t work.”
“Imagine if you’re living in a high inflationary regime like Turkey, Egypt, Lebanon, the official exchange rate is X, and the unofficial rate in some cases is even 200-300% higher. What that means is that as an individual, you have to go to another person who has access to these dollar-based facilities outside of the country, who charges 15-20% for a service…stablecoins provide a credible and democratised way of enabling cross-border transactions,” he added.