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AAA Reserve: a Stablecoin 3x More Stable Than USD

  • 28 March 2018
  • Expert Insights

Our new Disruption by Blockchain series aims to highlight companies that are leveraging the incredible potential of blockchain technology to disrupt and revolutionize their industry. Through one on one interviews, we'll speak directly with industry leaders to cut beyond the hype and get directly to the heart of practical use cases and examples of how it will change the world, one industry at a time.

The following is an interview we recently had with Shyaam Namas, Sales, Strategy & Partnerships for Arc Reserve Currency (AAA Reserve).

1. What’s the history of Arc Reserve Currency? How and where did you begin?

SN: Arc Reserve Currency now known as AAA Reserve was the result of 2 people trying to solve the difficult problem of ‘mass adoption’ of cryptocurrencies. The early proponents of Bitcoin, while they started off as a ‘currency’ to help enable p2p payments without intermediaries, it very soon took the form of an asset (due to its finite nature), giving rise to volatility and speculation.

The value of a decentralised and trust-less eco-system appeared to get overshadowed by the perception of cryptocurrency as a haven for making quick money and with no intrinsic value, soon dominating the headlines.

Thus, was born AAA Reserve. AAA Reserve (AAA) is a digital currency with the primary purpose of acting as a meaningful alternative to national currencies for everyday use. It is a stablecoin.  AAA serves as an effective store of value and unit of measure: stable in real terms, appreciating in nominal terms.

Our Vision for stable coins is simple – to assist in helping the wider crypto community users to seamlessly move between crypto to crypto, fiat to crypto, centralised to decentralised and vice versa without any constraints and limitations. And to be able to utilise a cryptocurrency in their everyday lives.  

2. Who are the founders and key team members?

Stephen Findlay

Apart from being the co-founder of AAA Reserve, he is also the CEO of BondMason, a financial technology platform that enables distribution and administration of capital into loans and other fixed-income investments.

He has over 16 years financial services and investment management experience with firms including Fidelity, Deloitte, and Andersen. He is a qualified chartered accountant (FCA – ICAEW) and became an approved person of the UK’s Financial Conduct Authority in 2009.

Dr. Garrick Hileman

Garrick is an Economic Historian at the University of Cambridge and London School of Economics with over fifteen years of experience in the private sector with Bank of America, IDG, and Allianz.

Garrick has served on the boards of directors of both publicly traded and private companies and is known for his research on cryptocurrencies and distributed ledger technology.

Shyaam Namas

Shyaam leads Sales, Strategy and Partnerships for AAA Reserve. Shyaam is a thought leader from the banking sector with a solid background in product strategy, business transformation, and innovation. He has hands-on experience in delivering ‘go-to-market’ strategies helping businesses bridge the gap between vision and product/market fit.

He previously headed up a digital solutions team at RBS where he was responsible for building new and innovative solutions, identify potential partners and optimise ‘route to market'. Shyaam is also an ex-military officer.

Mark Grenyer

Head of Funds, JTC Jersey. Mark has over 15 years of experience in fund operations and oversees the JTC Jersey fund proposition in building efficient procedures and controls in the administration of all Jersey fund types, ranging from retail funds through to very private funds.

Prior to joining JTC, Mark was a Director and Head of Funds for a boutique fiduciary services business, where he was responsible for developing and managing the fund administration service line. Before entering the financial services industry, he also served in the Royal Navy as Marine Engineering Artificer Apprentice.

Mark also acts as a director to a number of funds within his client portfolio covering a wide range of asset classes including real estate, private equity, and esoteric funds.

Christopher Griffin

Partner, Carey Olsen. Christopher has broad experience of both general international corporate and funds work with particular expertise in private equity and hedge funds, having spent ten years in the City at Ashurst, RAB Capital plc and most recently at SJ Berwin.

At Carey Olsen, Christopher advises on all aspects of fund and corporate transactions, including the legal and regulatory aspects of fund launches, and joint ventures. He also has considerable experience in dealing with the Jersey Financial Services Commission in navigating investment vehicles through the Jersey regulatory approval process.

The three main team members are supported by a team of technical experts and operations executives to help deliver Arc Reserve Currency.

3. What problem are you solving?

SN: Currency and money have three key features:

1.  To facilitate transactions – transferability (e.g. enable purchases of goods or services)
2. To act as a store of value. 
3. To serve as an effective unit of measure (e.g. the price of a burger)

National (fiat) currencies and digital currencies generally satisfy transferability. However, they have limitations when considered as a store of value or unit of measure. National currencies are undermined by socio-economic factors and centralisation, and are poor stores of value over the long run. Governments tend to adopt inflation management approaches to setting base rates, leading to poor returns with relatively high volatility. From January 1999 until December 2016, the average foreign currency return has been about zero (-0.26%), but the volatility has been 6.50%.

Digital currencies such as Bitcoin and Ethereum are, as currencies, victims of their own speculation: their prices have risen significantly as the supply of their coins or tokens is through simple and deterministic coin (or token) growth. Added to which, they have experienced a high degree of volatility, relative to national currencies of developed countries (e.g. G10). The corollary of rapid price appreciation and volatility is that they are increasingly weak as a stable store of value or unit of measure.

There have been a few digital currencies which have sought to address certain limitations of existing currencies and create a ‘stablecoin’.

Stable coins have a multitude of use cases:

Exchanges: Helping the trading community to switch between crypto and fiat (via AAA) or from crypto to crypto (reduce exposure to BTC/ETH)

Wallet Providers: Use AAA as a more stable store of value in wallets instead of BTC and ETH.

Payment Operators: Use AAA as a medium of payment, transfer of money cross-border without losing value

Retailers that accept crypto: Volatility is a big source of ‘value erosion’ for retailers and consumers – AAA can help induce stability allowing both parties to transact in crypto w/o losing value. This is especially relevant for low margin businesses seeking to reduce their transaction costs.

High Inflation countries: Use AAA as a store of value in high inflation countries – particularly in financial services – savings, loans, and insurance.

ICO Community: Help ICOs reduce their downside risk/risk of exposure to BTC and ETH volatility during pre-sale and sale stage. Startups, already in an uncertain environment typically deal with risk not just at the business model/product level but also at the currency level due to currency volatility.

These are just a handful of examples of the opportunities – however, there will be many more beyond these; and we are keen to hear from collaborators to discuss their projects and use-cases for a stablecoin.

4. What is your solution to this problem?

SN: The AAA Reserve is an asset-backed stable coin. Its main purpose is to fulfill the key attributes of a currency i.e. store of value, medium of payment and unit of measure.

AAA is backed by a basket of currencies (top 6 traded), with holdings in cash and fixed income investments, with the price of each AAA coin is equal to the price of the net asset value (NAV) per coin. Currently, AAA = $1; and this is displayed publicly at all times at www.arccy.org/arc-nav

There are controls and exchange rate protocols to ensure changes in supply and demand don’t materially impact the price movements of AAA:

Increased demand: the proceeds from the issuance of AAA (and all subsequent issuances) will be placed into a ring-fenced special purpose vehicle (“Issuer”). The Issuer will invest the proceeds (through third-parties) into fixed income and loan investments, with an allocation held in cash. New coins can only be purchased at a price of NAV per coin

Decrease demand: the issuer of AAA Coins – Arc Fiduciary Ltd – has a legal contract with AAA Coin holders which sets out that AFL will repurchase coins from them based on the current NAV price, supporting the value of the AAA Coins.

5. Why is your industry ripe for disruption?

SN: The concept of stable priced cryptocurrency has been debated and discussed for a few years now. There are many versions of a stable coin (programmatic, asset-backed etc) but there are none that have proven stability and which satisfy all the 3 key principles of store of value, unit of measure and medium of exchange, whilst staying true to the core philosophies of DLT.

Given the volatility and speculative nature of BTC / ETH and other altcoins, use of crypto to solve real-world problems has been limited, in fact, handful. If ‘mass adoption’ of crypto is a prerequisite to actually see the benefits of a decentralised ecosystem, then equally a ‘stable coin’ is a prerequisite or rather the vehicle currency to power such adoption.

Yet currency is a $70trn ‘opportunity’.

Tether – the most widely used stablecoin – is the second most traded cryptocurrency (~14% of all transactions across exchanges) coin next only to BTC @~40%. That shouldn’t come as a surprise as users are constantly swapping between crypto to Tether (and vice versa), a stable coin. While it establishes the importance of a stable coin with current users, there are some concerns over the construct and scalability of Tether, a 1:1 peg against the USD. For example, will the USD government shut it down if it gets too big?

AAA coin has the potential to serve as a well-governed and transparent stablecoin. But we would add, that we see space for an oligopoly of successful stablecoins, not just our own.

6. What’s the future of your industry?

SN: We are just scratching the surface when it comes to operating in an environment that enables transparency, efficiency, and immutability. While blockchain has enabled much of this decentralisation, there are limitations to what the current gen of blockchains/ cryptocurrencies/protocols can do.

Prediction #1: In the near-term, we expect to see wider adoption of more stablecoins on exchanges and trading platforms.

Prediction #2: We expect to see increased real-world use cases using stablecoins, such as retail, money transfer, savings, and loans etc.

Prediction #3: Ultimately, we expect to see stablecoins embedded into other solutions – such as the settlement collateral for smart contracts in the insurance industry.

The opportunities are almost endless…

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