ARC Reserve Currency – Stability in a Volatile CryptoverseARC Reserve Currency Quick Facts• ARC is an asset-backed, intrinsic-value digital stable coin
• Created by Dr Garrick Hileman (University of Cambridge Judge Business School, co-author of ‘Global Cryptocurrency Benchmarking Study 2017) and Stephen Findlay (co-founder and CEO of BondMason, Financial Services veteran with 16 years’ experience including time Andersen, Deloitte, and time spent as VP at Fidelity.
• ARC aims to provide stability by using Currency Diversification, Support from an underlying asset class and Pricing controls
• ARC will be one of the first FULLY REGULATED ICOs launched and will benefit from high levels of transparency and governance.
Why have we created ARC Reserve Currency?There continues to be unprecedented volatility in cryptocurrency markets. As a result, investors can experience significant gains in their portfolios on a daily basis – but naturally can also experience significant losses. This signifies that most cryptocurrencies are a poor store of value – investors cannot be certain that their investment will remain stable in real terms due to the high fluctuation in their value.
Similarly, the volatility in the cryptocurrencies used to measure the success of other projects (BTC, ETH) results in a distorted picture of the success of other blockchain projects. What happens when project X increases in value by 10% but BTC increases by 20% over the same period? Project X’s value is inaccurate and distorted. Therefore, current cryptocurrencies have limitations when considered as a unit of measure.
This is where ARC comes in. By utilising various mechanisms to ensure stability – investors can be safe in the knowledge that their investment can remain stable in real terms over time and future projects can be accurately represented, leading to increased efficiency in the crypto sphere.
Social ImplicationsWe are passionate about ARC and believe it has the potential to have wider social implications than those described above. Currently, around 2 billion people are living in countries that have inflation higher than 5% and/ or have political instability. Individuals living in these countries are seeing the money they have put aside to plan for their and their children’s future eaten away by inflation or taken away by untrusted counterparties.
ARC will set a Target Return (described further in ‘How will ARC ensure stability?’) that incorporates the average rate of inflation of G10 countries over the past 10 years plus a premium. This means that ARC will aim to perform at (and slightly above) inflation. This will enable people to insulate themselves from the effects of inflation of their national currencies.
Without a reliable currency and somewhere safe to store your savings, it is very difficult for people to provide for their families. Very often, individuals are suffering the consequences of the actions of others. ARC wants to enable people to have access to a stable, safe, transparent currency that can help them plan for their future and provide for their family.
The TeamDr Garrick Hileman –
Dr Hileman is a research fellow at the University of Cambridge, Judge Business School, leading global expert on cryptocurrency, and the principal investigator on the ‘2017 Cambridge Global Cryptocurrency Benchmarking Study’. He has over 15 years’ experience in the private sector with time spent at Bank of America, IDG and Allianz. He has served on the board of directors of both public and private companies. He was recently ranked as one of the 100 most influential economists in UK & Ireland.
2017 Global Cryptocurrency Benchmarking Study
Report PDF download
https://ssrn.com/abstract=2965436 Report PowerPoint Slides:
https://www.slideshare.net/ghileman/2017-global-cryptocurrency-benchmarking-study Twitter -
https://twitter.com/garrickhilemanGarrick’s Personal Website -
http://www.garrickhileman.com/p/about.html
Stephen Findlay –
Stephen is the co-founder and CEO of BondMason, a financial technology platform that enables distribution and administration of capital into loans and other fixed income investments. He has 16 years financial services and investment management experience with firms including Deloitte, Andersen and was a former VP at Fidelity. He is a qualified chartered accountant (FCA – ICAEW) and became an approved person of the UK’s Financial Conduct Authority in 2009.
Twitter –
https://twitter.com/stevewfindlay LinkedIn -
https://www.linkedin.com/in/stephenwfindlay/
Overview of ARCHow does it work?Anyone can request to buy new ARC coins. ARC Fiduciary Ltd – a ring-fenced not-for-profit entity – receives the subscription funds and issues ARC coin to the purchaser.
ARC is issued when three tests are met:
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Proof-of-stake: the purchaser of coin sends sufficient funds.
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Proof-of-identity: the purchaser passes regulatory tests, such as KYC and AML.
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Proof-of-reserves: the purchaser is paying the correct price per coin. This will be the Net Asset Value (NAV) per coin; the value of all assets held by ARC Fiduciary Ltd divided by the total number of coins in issue.
New issuances can be unlimited, instantaneous, and non-dilutive for existing coin holders, which is a critical feature of ARC, and vital for any stable coin.
How will ARC ensure stability?ARC will utilise several key mechanisms that will enable the its price to fall within a narrow band. These are summarised below:
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Currency Diversification – ARC will be priced relative to a selection of currencies. This will be based on the trade-weighting of major national currencies. National Currencies with a trade weighting of more than 5.0% as published in the tri-annual report conducted by the Bank of International Settlements will be included in the ARC currency allocation. The largest single currency exposure will be in USD (which naturally leads to a degree of correlation of ARC: USD). However, as ARC will benefit from diversification, the effect of this correlation is diluted.
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Support from an underlying asset class – for the success of ARC in the future, it is vital that there is value creation in nominal terms, to ensure stability in real terms. ARC will have a Target Return which will be the rate at which the value of an ARC coin is expected to increase per year. This will be set at the higher of:
o Average rate of inflation in G10 countries over the last 10 years plus a premium which is higher of:
3 times the average standard deviation of the average inflation over the previous 10 years: and
1.0% per annum
o The average central bank rate in the US, Europe, Japan and UK, over a rolling 5-year period plus a premium of 1.0% per annum.
o Please see -
https://www.arccy.org/sites/default/files/arc-public-docs/lending-and-fixed-income-as-an-asset-class.pdf for more information on fixed income and lending as an asset class
•
Exchange Rate Controls – It is imperative that ARC’s pricing can fall within a narrow and predictable range relative to the Net Asset Value (NAV). ARC benefits from transparent and predictable controls to maintain this pricing range. So how can we ensure this?
o Protection against over-speculation – The supply of ARC is infinite. This is vital for a stable coin. The reason for this is that if a stable coin has a fixed supply, when demand > supply the natural result is an increase in price. Infinite supply overcomes this ensures supply can always meet demand. Anyone can visit
www.arccy.org and request to purchase new issue of ARC at NAV at any time.
o Protection against undervaluation -The issuer will purchase ARC coin if the price falls below the NAV per coin and an acceptable range (reflective of the bid: offer spread on exchanges). The Issuer will have a minimum amount held in cash and liquid investments – which will be used to buy back ARC coins if and when the price falls below the acceptable range. Any coins purchased by the issuer will be immediately burned, as this is the opposite of issuing a new coin. These two mechanisms will result in a natural buoyancy of ARC coin over time – essential for its stability.
The Governance of ARCThere are 3 key factors which result in the strong governance of ARC and these are as follows:
Regulation – ARC Reserve Currency will be one of the first fully regulated ICO’s and will be regulated by the Jersey Financial Services Commission (JFSC). We are proud to have worked closely with the JFSC and we will ensure continued communication and work to foster a strong relationship with the regulators. We believe regulation can have positive effects on the crypto sphere and regulation can be a catalyst for the adoption of crypto currencies and blockchain technology worldwide.
Transparency –The underlying value, position and performance supporting the currency will be shared widely and freely – available for everyone to see. Transparency is key for blockchain technology and this is something we wish to uphold. Remuneration of the directors of ARC will be publicly disclosed and can be viewed at all times at
www.arccy.org.
Integrity – There will be centralised elements to ARC at the outset – This is something we will hope to overcome in the future when we believe the ecosystem can support it. This is what makes integrity of central governance so important for ARC. We hope to keep central governance to a minimum and actions will be clearly disclosed.
RoadmapThrough the creation and development of ARC we have identified some limitations, which require further work. Work and research will be continuously performed to ensure these limitations are overcome in the future.
• Decentralisation – One of the main limitations of ARC is its initial degree of decentralisation. It is of paramount importance that work is done to ensure that in the future it is possible for ARC to minimise the degree of centralisation deemed necessary at this point in time to ensure a successful launch. Through our recognition of this limitation and until decentralisation of ARC has been achieved in full, we will use a combination of automated centralised actions, strong governance and the highest possible levels of transparency to provide the opportunity for peer oversight to foster trust. The two main centralised activities:
o Investment Allocation: We will work to research and establish a method for allocating capital into lending investment opportunities without central oversight. In the future, this could take the form of truly peer-to-peer lending, something which could be made possible through the natural development of the blockchain ecosystem.
o Governance of SPV: We continue to explore DAO possibilities, but we believe there is further work to be done in the blockchain ecosystem to facilitate DAOs. We anticipate that a suitable DAO framework could only be adopted once the appropriate currency and investment allocation algorithms are fully implemented. It is important to note that the people who have created ARC wish to adopt decentralised governance in the future as this is central to the idea of blockchain.
The Bigger Picture – If ARC is successful, who will benefit?ARC Reserve Currency is established and operated (until full decentralisation can occur) by a ring-fenced Special Purpose Vehicle (SPV) with ‘leakage’ minimised including no opportunity for beneficiaries (e.g., shareholders) of the SPV to benefit from financial gain arising from dividends or value appreciation of the SPV. Not a single individual, including the founders and advisers to ARC, will be able to purchase ARC at a discounted rate; ARC coin can only be purchased at a price equal to the NAV of the SPV per coin.
Overall, ARC has the potential to be a catalyst for the adoption of cryptocurrencies worldwide.
If you have any questions about ARC and would like further information, please contact
[email protected] and we will get in touch with you. Thanks!
