The Via is a multi-currency token which tracks exchange rates and returns on fiat currencies using a novel interest rate mechanism. The Via is usable on any blockchain platform that supports contracts such as the ERC20 standard on Ethereum. The Via is designed to function as a payment token but also as a stable store of value on decentralized, digital finance (DeFi) applications.
The API documentation for developers to integrate DeFi applications to the Via will be published publicly, along with institutional paying and custody related information for commercial partners that issue the Via for their native fiat currencies. This article is to publish the basic concepts on the Via.
Unlike crypto currencies that are not issued against any fiat currencies, and unlike stable coins such as USDC that are issued against a single fiat currency or stable coins such as Libra that are issued against a basket of fiat currencies, the Via can be issued in many variants such that a Via-USD is issued against the US dollar, and the Via-EUR is issued against the Euro and so on. The Via can be issued against a payment of supported fiat currencies or against a redemption of securities that otherwise would have given returns in a supported currency.
Supported fiat currencies for the Via are those currencies for which the Via’s primary operator and its partners have paying and custody set up. Since a variant of the Via (eg, Via-CHF) is issued against a specific supported fiat currency (eg, Swiss franc), the paying in and custody of fiat for the issue of the Via itself is decentralized and is native to the issuer’s jurisdiction.
The Via reference implementation is an ERC20 token on Ethereum and each Via token can be purchased with a pay in of fiat currency at an exchange rate of 1:1. For example, 1 Via-USD can be brought for 1 USD. Similarly, 1 Via-CHF can be brought for 1 CHF. The Via token has functions that allow it to be sold/purchased and lent/borrowed on a blockchain. Each Via token subscribes to the Via funds rates which are published by Verified AG. The Via funds rate combined with a spread is the Via lending rate for a specific Via token pair. For example, the Via-USD funds rate could be 1.5% pa for the Euro zone and 1% pa for Switzerland while the Via-CHF funds rate could be 0% pa for the Euro zone and 0.5% for the US, and so on for other Via token pairs.
The Via funds rate is set by the operator of the Via platform in such a way that the opportunity cost of holding the Via tokens is made good by the returns on loans of the Via tokens. The chart below shows the Via funds rate for the Via-Euro.
The simulation model done on real interest rates and exchange rates since the late 1980s shows that Via funds rates remain close to and track interest rates on fiat currencies (in this case, the Euro below).
The same simulation model also shows that setting of Via funds rates in such a way leads to exchange rates between Via token pairs (eg, Via-USD to Via-CHF) track exchange rates of corresponding fiat currency pairs (eg, USD to CHF).
The Via is therefore not a stable coin whose exchange rate with the base fiat currency is determined by regulating demand and supply by the stable coin operator by issue of the stable coin and purchase of the stable coin using fiat currency reserves. Instead, the Via relies on its interest rate regime to regulate demand and supply of Via tokens based on different fiat currencies, in such a way that Via token holders of a particular currency make close to what they would if they had held fiat currency in an interest bearing deposit account with a bank and such that the exchange rate between a Via token based on a fiat currency and Via tokens based on other fiat currencies track the corresponding fiat currency exchange rates.
The Via guarantees no compulsory redemption by its issuers but issuers can remain free to purchase the Via back from holders. By holding fiat currencies generated by issue of Via tokens in custody accounts denominated in the same fiat currencies, the Via avoids complex treasury and reserve management operations.
By being based on multiple fiat currencies, real interest and exchange rates, and local custody and regulations, the Via also avoids complex questions that are raised by stable coins based on a basket of currencies with their own monetary policy that are perceived as a threat to fiat currencies and central banks, more so, if they belong to weaker economies.
Finally, in addition to stability, the Via provides the security and efficiency of a digital store of value and enables goods and services on a digital platform to be brought and sold without incurring transaction costs and conversion costs of a fiat currency to a digital token and back.
Call for contributors : Verified AG invites software developers to create reference implementations of the Via on multiple block chain platforms, and to implement DeFi applications that use the Via. You can reach us on twitter @veridefi and write to us at email@example.com.