The two co-founders of the Puerto Rico-based digital FV Bank say they have become the first in history to be awarded a U.S. patent for a stablecoin design based solely on government debt.
The patent application, filed last year on the back of a pre-existing patent by Nitin Agarwal and Miles Paschini, describes their instrument as a "tokenized crypto asset backed by sovereign debt."
Its working name is Yuga Coin, which in Sanskrit means the "joining of two things," or in this case, "generations," Agarwal told CoinDesk in an interview on Tuesday.
"We aim to create multiple stablecoins that are government-friendly, know-your-customer (KYC), anti-money laundering and Financial Action Task Force (FATF) compliant based on different currencies," Agarwal said.
Each coin will be redeemable 1:1 against a corresponding national currency where they will be backed by national treasury instruments (including bonds and Treasury notes) of the corresponding country.
Those stablecoins, intended to be created under the same Sanskrit banner and denominated in U.S. dollars or euros at first, would be traded in a controlled network adjusted to rate the risk of trading with particular counterparties.
The argument goes that these would be more stable than other cryptos pegged to a fiat currency because they won't rely on a single financial institution holding the collateral. "The stability of the tokenized crypto asset is more akin to the stability of the government debt," the patent reads.
"Avanti Bank (Caitlin Long) does speak about stablecoins backed by banks, which hold all funds in government securities and no fractional reserves," Agarwal said, referring to Avanti Bank & Trust, a bank Long founded that serves as a custodian for digital assets. "However, in order to make this multinational and multicurrency, the bottleneck of a bank has to be removed, which is the approach we are taking."
A push to become more compliant in the eyes of regulators is at the fore of many crypto entrepreneurs' minds in their pursuit of legitimacy. The FATF recently updated its guidance requiring virtual assets and their providers to comply with the same rules as traditional financial institutions.
Pandering to that notion, Yuga Coin also seeks to incorporate regulatory-approved identity verification standards and an incorporated risk score similar to that of a FICO credit score in traditional finance.
Agarwal said Yuga Coins would be verified by a regulated and trusted entity that is later recorded on-chain. Once a person has a verified identity in their wallet, the end user is then in control of who can view their identity verification.
"We conceptualized this about three years back when the stablecoins market cap was less than $10 billion," Agarwal said. "Today we see more people realizing this is the right way to run a stablecoin."
The intention is to facilitate international government to corporations transactions, inter-government transfers fostering trade, global business-to-business and retail transactions, and as a store of value among individuals.
Agarwal describes the design's potential as possessing "innumerable possibilities" capable of providing a trusted means of holding and transacting money enabling "multiple innovations."
"This is the only way to make stablecoins more government-friendly that foster innovation in banking, payments, finance, capital markets and asset registry by using blockchain," said Agarwal, noting that such stablecoins would be global, decentralized and immutable and would make transactions easy to audit.
"Crypto is a solution to all anti-money laundering problems in the world, and this project provides a way to achieve that," he said.
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