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$USC: The first Swiss-compliant USD stablecoin


Digital assets exist in the real world where rising inflation, macroeconomic policy and general global sentiment exert substantial influence over their perceived value and declared price. If investors lose confidence in risky assets, like equities or cryptocurrencies, their value declines. The extent of  that lack of trust has made some stablecoins vulnerable to rapid devaluation. We propose a solution to the trust problem which utilises the safest aspects of institutional finance to enable digital currencies to be widely adopted by society-at-large. Colb USD ($USC) is a claimable stablecoin strictly pegged 1:1 to the United States Dollar (USD), that is fully collateralised by cash and cash equivalent, and regularly audited. Every unit of $USC in circulation is worth USD 1, redeemable with cash and deposited in a Swiss private bank in a Trust account. $USC combines the price stability of the US Dollar, the security of the Swiss financial system, cutting-edge technology and the efficiency advantages of a digital asset. As an ERC-20 token, $USC can be used on any Ethereum Virtual Machine compatible blockchain. The future of finance is decentralised. $USC provides the trust, safety and stability to make that future possible. 

1. Introduction

Trust is the foundation of the modern global financial system. However, putting collective trust into the hands of the few has resulted in decades of inefficiency, which in turn, has fuelled vast inequality and rampant instability.

With the rapid growth of cryptography and digital assets, a new paradigm is emerging. Technological advancements are giving individuals the ability to take control of their own financial futures, bypass meaningless intermediaries and create a more inclusive, transparent and frictionless financial system.

Whilst the technology and its applications face a range of challenges, the promise of a more equitable and secure financial system is powerful and attainable. Colb created Colb USD ($USC) to help realise this promise.

$USC is a USD-backed ERC-20 stablecoin issued in accordance with Swiss legislation. $USC is fully collateralised by cash and cash equivalent, strictly pegged 1:1 to the United States Dollar (USD) and transparently verified by third-party attestations. To avoid any operational risk, customer deposits will be segregated from Colb’s balance sheet and held by a Swiss private bank, in the name of Colb Trust (see 6.2.).

By using a simple stabilisation system (see 2.1.), collateralising circulating coins with fiat currency and US Treasury Bills that can be quickly exchanged, we will deploy a resilient stablecoin that is transparent, auditable and efficient.

2. The stablecoin ecosystem

Stablecoins are a type of cryptocurrency token designed to stay at a fixed value. They are a critical component of the decentralised finance (DeFi) landscape; combining the relative stability of fiat currency with the benefits of public blockchain technology.

As a widely accepted unit of account for pricing assets and as a means of exchange, stablecoins play a pivotal role in connecting the physical and digital worlds and advancing the adoption of blockchains.

Moreover, stablecoins are a means to promote financial inclusion, providing accessible and affordable financial products and services to the unbanked or underbanked with little more than a mobile phone and network connectivity.

However, the digital asset market is grappling with distrust and volatility. Despite early interest from institutional investors and evolving regulatory guidance, most stablecoins have delicate and complex stabilisation mechanisms. Although they work in most environments, a full-scale bank run could exhaust the liquidity of many stablecoins, causing delayed withdrawals, negative sentiment and at worst, mass hysteria.

These structures may work when ‘skies are blue’, but as soon as markets turn for the worse, they do not provide the trust and stability necessary for mass adoption to be viable. Depending on the collateralisation asset basket and their liquidity, even a relatively small user exodus could cause the currency stability to crash, effectively putting an end to the project as a whole.

2.1. Price stability mechanisms

Several types of stablecoins have emerged, each with their own price stability mechanism. Whilst the market for stablecoins is expected to continue to grow in size, challenges remain in ensuring stability and trust, both essential for enabling mass adoption.

  • 2.1.1. Algorithmic stablecoins
  • In the absence of tangible assets for use as collateral, algorithmic stablecoins rely on a combination of mathematical rules  and incentives to regulate the price of the stablecoin. Whilst this is an innovative approach, with clear potential, the mechanism creates technical vulnerabilities and exposes stablecoins to instability in the DeFi ecosystem, especially during periods of market stress.
  • 2.1.2. Crypto-backed stablecoins
  • Crypto-backed stablecoins are backed by a reserve of cryptocurrencies, held in a collateral pool. If this falls below a certain threshold, users may be required to add more collateral or risk position liquidation in order to maintain the stability of the stablecoin. In recent years, these assets have experienced significant drops in value, highlighting the fragility of crypto-backed stablecoins when market conditions are unfavourable.
  • 2.1.3. Fiat-backed stablecoins
  • The most prevalent of the three, fiat-backed stablecoins are collateralised with a reserve of fiat currency held in a bank. Despite their relative stability, these stablecoins are vulnerable to issues surrounding the underlying fiat currency, such as bank runs or devaluation. The primary concerns linked to fiat-backed stablecoins are that of run-risk and redeemability, which principally depend on the composition and management of the reserves. Likewise, the absence of a comprehensive regulatory framework could impact the functioning of current stablecoin issuers. On top of that, they are largely custodial, meaning that reserves are held by a centralised entity, raising the risk of unilateral decision-making. Furthermore, the lack of transparency around reserve holdings could lead to speculation about the quality of a stablecoin's collateral, which could include credit, specific investments and rate risks.

Colb employs its own unique price stability mechanism (see 4.2.).

3. Economics

Payments underpin the modern economy. The promise of cryptocurrencies was to enable these payments to happen via a peer-to-peer network without any intermediaries. Yet, realising this promise requires a middle way that traditional investors are willing to use at scale, before a fully decentralised system can be embraced.

We propose to do this by providing a transparent, compliant and stable crypto token, thereby establishing a reliable cryptocurrency which can be used as a store of value and as a means of payment.

In short, Colb will use the safest aspects of institutional finance to enable digital currencies to reach critical mass adoption.

4. Structure

$USC is a USD fiat-backed stablecoin, fully compliant with Swiss financial regulation, delivered securely to its users, with the benefits of a conventional cryptocurrency. $USC is available to all.

FIG. 1 USD to $USC ratio

4.0.1. Deposits

$USC is designed to be a secure and dependable store of value. As a means of deposit, $USC will provide its holder with the right to request the equivalent amount in fiat currency at any time, provided that pre-defined criteria are met and following the 1:1 parity (1 USD:1 $USC)

4.0.2. Capital reserves

$USC holds a specific capital reserve in cash and cash equivalent, equal to the amount of $USC in circulation. The composition of reserves consists of USD or equivalent US Treasury Bills. All reserves are legally safeguarded and insured, in the unlikely event of a default.

4.0.3. Oversight

Colb will offer $USC through its official channel, covering the initial issuance of $USC as well as fiat withdrawal requests. All smart contracts running on the Colb platform were built in-house. We do not outsource the core technology to a third party.

4.2. Stabilization

Colb Trust holds cash and cash-equivalent assets (primarily US Treasury Bills) as capital reserve to provide liquidity to $USC.

The capital reserve acts as a stability mechanism. Each existent $USC in circulation will be backed at a 1:1 ratio.

If a user requests Colb Trust to issue $USC and makes a fiat deposit, Colb Trust will increase the circulating supply with freshly minted coins, backed by the deposit and minted directly on the user’s non-custodial wallet.

The same applies to the reverse process: $USC can be exchanged for USD, removed from circulation and destroyed.

The Colb Trust bank account balance should always match the total number of $USC in circulation. In other words, at any given time, the balance of assets held in the Colb Trust reserves will be equal to (or greater than) the market capitalisation of $USC.

Colb will implement third-party oracles to periodically check the match between the $USC reserves and the amount in circulation, which are transparently available to the public. Therefore, anyone will be able to check if Colb Trust is solvent and able to provide liquidity to the market.

4.3. Minting

Minting is initiated only when a user makes a request to create new $USC tokens and has deposited an equivalent amount of cash into Colb Trust’s collateral bank account.

$USC is then minted directly into the user's wallet, without intermediaries, reducing the possibility of errors or delay. The creation of new $USC tokens is directly linked to the availability of cash reserves and only occurs when the capital reserves are backing the coins 1:1, which ultimately safeguards the coin's stability.

The value of the reserves will be proved through periodic reports published by the custody bank on the current value of the reserves. Colb will implement blockchain oracles to automate the minting process to fulfil Colb’s priorities of transparency and user security.

If someone acquires $USC with cryptocurrency, it necessitates that they are participating in a secondary market.

4.4. Burning

Colb only has authorisation to burn $USC, when demanded by the user. Colb Trust cannot burn $USC directly from any user address.

The holder completes the cash process (legal claim) by sending an exchange request transaction to the smart contract. The smart contract is verified before burning the $USC and finally sending back equivalent USD.

4.5. Reserve protection

Several layers protect the capital reserves of $USC, which provide a comprehensive solution to the off-chain trust and stability challenges faced by the crypto-economy:

• A Swiss bank will hold the reserve custody and publish regular reports on the current value of the reserves

• Default guarantee is provided by the bank to protect collateral

• The capital reserves will be placed in a Legal Trust to create a bankruptcy-remote structure and ensuring protection against interference or illegitimate claims

• A reputable third-party auditing company will oversee the minting and burning process to ensure transparency and safety

• The Colb Trust bank account will be subject to periodic oracle assessments

FIG 2. $USC collateral protection

4.6.  Acquisition

The user will acquire $USC through Colb by sending fiat money to Colb Trust’s bank account. Users interacting with Colb are subject to Know Your Customer (KYC)/Anti-Money Laundering (AML) checks through a whitelisting process and must accept our Terms and Conditions.

$USC will be directly minted to a user’s non-custodial wallet.  

$USC can be freely traded between any business or individual. Users may be able to acquire $USC via decentralised exchanges, or by direct negotiation with other wallets (peer-to-peer). This will give users finer control of the trading process, access to a global marketplace of digital assets on decentralised finance platforms and a wide range of payment options.

4.7. Redemption

Subject to the KYC/AML whitelisting process, $USC holders may redeem their tokens for proportional fiat currency on a 1:1 ratio. Upon making a redemption request, the user will receive the equivalent amount in USD.

5. Technology

$USC is issued on Polygon Network, with a design based on the widely-adopted ERC-20 token format. The decision was motivated by:

• Polygon’s compatibility with Ethereum through the use of a common language, Solidity

• The comparatively low cost of transactions

• The comparatively high speed of validations

• Polygon’s secure reputation in the Ethereum ecosystem

All mint, transfer and burn operations will be visible on the blockchain PolygonScan and every transaction will be traceable.

Operations have been designed so that they will be performed by different individuals, with specific roles. Initially, these roles will be handled internally by a member of the Colb team, who will sign any transaction with an individual key. For security purposes, some transactions may require multi-signature. The list of keys controlled by Colb employees will be made public, enabling users to validate the legitimacy of transactions at all times.  

The minting of $USC (i.e. converting USD to $USC) will be performed once USD has been successfully transferred to Colb Trust’s bank account. Only those members of Colb’s operations team with the designated role of ‘$USC_Minter’ will be allowed to perform the operation of minting.

The burning of $USC (i.e. converting $USC to USD), will be performed by sending an amount of $USC to a 'burning' contract. This contract will validate that a request has been made to cash $USC for USD by a user. Colb’s operations team will then burn $USC and transfer the money to the user. As with the minting process, only those with the designated role of ‘$USC_Burner’ will be allowed to perform this operation.

To ensure that users can always cash $USC and that nobody will be able to mint $USC without transferring the equivalent value in USD, a system has been put in place to ensure that the total amount of $USC in circulation (ERC 20 total supply) is always equal to (or lower than) the amount of USD and US Treasury Bills in Colb Trust’s bank account.

It is worth noting that Colb has adopted a non-custodial and decentralised approach, meaning that each user will have full control over their coins. It is impossible for any third party (including Colb and Colb Trust) to remove, freeze, transfer, destroy or perform any action on any user’s wallet balance. Therefore, any mishandling or loss incurred by the user is their sole responsibility and cannot be reversed by Colb or the Trust under any circumstances.

All code is open source, in line with our commitment to transparency and accountability.

6. Legal

$USC is a stablecoin, and payment token pegged to the US dollar on a 1:1 basis.

Colb Trust, acting through a Trustee, is the issuer of $USC, which is fully compliant with Swiss law as a means of payment.

By using or otherwise interacting with $USC, the user accepts the Terms and Conditions available on Colb Trust’s official website, as amended infrequently.

6.1. Default guarantee

To comply with the Swiss regulation on payment tokens, $USC has a guarantee for payment default issued by a Swiss private bank as an additional layer of protection for token holders.

6.2. Colb Trust

$USC reserves will be deposited in a Swiss private bank account in the name of Colb Trust. The primary purpose of Colb Trust is to protect $USC's collateral from operational risk and illegitimate interference.

The Colb Trust is managed by a Swiss licensed third-party Trustee whose mandate is to safeguard the collateral of $USC.

6.3. Legal status of $USC

$USC is classified as a currency-backed stablecoin and payment token. Under Swiss law, $USC represents a deposit (debt of the Trust) to the $USC holder, mainly deriving from the redemption rights of the holders.

$USC is not a security in the sense of FinSA and according to FINMA’s ‘Supplement to the guidelines for inquiries regarding the regulatory framework for initial coin offerings (ICOs)’.

Colb Trust is exempted from the requirement to obtain a banking licence pursuant to ‘article. 5 (3) (f) Banking and Savings Institutions Ordinance (as of 30 April 2014)’.

6.4. $USC legal representation

The balance of $USC in a wallet, represents the balance in the account with Colb Trust by the holder of this wallet. These transactions do not require written form. Colb Trust will only pay out USD to a current holder of $USC tokens. Previous holders have, under no circumstances, any claim against the Issuer.

6.5. Legal implications of losing $USC tokens

The Issuer is technically unable to retrieve lost or stolen $USC. The loss of $USC and/or wallet private keys is at the sole risk of the user. Colb Trust and Colb Asset SA are, under no circumstances, liable for any loss of $USC or wallet private key.

7. Conclusion

A lack of trust hinders the widespread adoption of digital currencies. For as long as stablecoins are regarded as a highly speculative and risky asset class, the promise of decentralised finance as a whole will not prevail.

$USC offers something different. Colb is the first to issue a claimable stablecoin, strictly pegged 1:1 to the US dollar, that is fully collateralised, backed by Swiss regulations and verified by a third party.

In doing so, we are building a path to connect the traditional financial system to a decentralised future. We have leveraged the security offered by institutional finance with the aim of creating an asset that can be wholly embraced by the general public.

The process of turning an initial innovative idea into an asset that is fully compliant with regulation was not done overnight. Disruption, then, must be a process of radical incrementalism with trust embedded at every step of the way, rather than a revolution, as crypto advocates once hoped and believed it would be.

We conceive of $USC as a stablecoin for the people. We want to bring back positive sentiment to users from all asset classes, regardless of their geographical location, bank exposure and personal financial situation.

Anyone in the world should have access to a stablecoin which they can reliably trade and invest with. By drawing upon the rich history of Swiss private banking and the groundbreaking power of the blockchain, we believe that $USC has now made this a possibility.