The Diem Association has now applied to FINMA, Switzerland. Now it is just waiting for FINMA’s approval. It may be approved as early as January 2021. The first stablecoin that Diem plans to issue will be a USD-based stablecoin. In my opinion, after the issuance of the Diem USD stablecoin, Diem’s second digital stablecoin is likely to be based on Singapore dollars.
According to Diem’s original stable currency design, it has five currencies against a basket of fiat currencies. They are 50% US dollars, 18% Euros, 14% Japanese yen, 11% British pounds and 7% Singapore dollars. According to the conventional logic of thinking, after the Diem Association issues USD stablecoins, the next issue should be Euro stablecoins. But in my opinion, the second digital stablecoin issued by Diem is likely to be based on Singapore dollars. For Diem Association, it should be a better choice to be the first to issue a stable currency based on Singapore dollars.
The EU has always held a vigilant and opposed attitude towards the Diem Association. This includes the latest and clear statement of the German Finance Minister. He opposes the issuance of digital currency by private institutions, and believes that the right to issue digital currency should be controlled by European banks. I believe that so far, Diem’s strategy of issuing stablecoins is also to issue the next Diem stablecoin based on the euro. I think its recent name change is also to emphasize the neutrality of Diem. This is also a means to gain support from the EU. But now it seems that issuing Diem’s stablecoin based on the euro first will be a very big challenge. Comparing this strategy with the strategy of first issuing stablecoins based on Singapore dollars, the strategy of issuing stablecoins based on Singapore dollars has greater feasibility and greater benefits.
The Singapore government is a government very friendly to the development of encrypted digital finance. Its homeland not only produces startup companies in the field of encrypted digital finance, but also attracts companies outside Singapore to start businesses or operate in Singapore. For example, Switzerland’s encrypted digital bank and Swiss digital asset exchange SDX have set up operating institutions in Singapore to take advantage of the local policy environment and expand the market in this region. Similarly, for the Diem Association, if it issues a Singapore dollar-based Diem stablecoin here, its feasibility is much greater than the current issue of a Euro-based Diem stablecoin. And in the Singapore market, there are already issuers that issue stablecoins based on Singapore dollars. So in terms of feasibility, Diem is now much more feasible to issue stablecoins based on Singapore dollars.
Singapore’s unique geographical location is also very suitable for issuing stable coins. The economic and trade exchanges between countries in Southeast Asia are increasing, so a more effective cross-border payment method is needed. A generally accepted stable currency will be very beneficial to the economic and trade exchanges in this region. So I thought before that there might be a competing product in Southeast Asia that competes with Libra (see my article “Libra in Southeast Asia”), or Southeast Asia is the first region that Libra entered. It now appears that both of these possibilities still exist. For Diem Association, if you enter this market first, you will gain first-mover advantage. Especially due to currency network effects, this first mover advantage is even more important. For Libra competing products in this region, the issuance of Diem’s Singapore stablecoin will raise the barriers to competition in this field and reduce the likelihood of its success.
