Thursday, 04 May 2017 16:35

Building a Better Digital Dollar


Lessons from PayPal, AirTM, and Tether.


Much can be learned about the potential and pitfalls of fintech by studying successful digital USD ventures, understanding how they work, and where they fall short.

Make it Useful


All tech adoption is use-case driven. People needed PayPal so they could safely complete Internet purchases on Ebay. Tether’s USDT (a token built on top of bitcoin[1]) provides a safe harbor for cryptocurrency speculators. AirTM gives consumers and businesses in the developing world an easy way to preserve wealth from local currency devaluation.

Make it Reliably Redeemable


PayPal money is widely accepted for online sales by merchants all over the world, but only because it can be redeemed for bank money in over 60 countries. Venmo’s digital USD would never have been adopted for social payments in the U.S if it couldn’t be redeemed for US bank money. AirTM’s USD is redeemable for money in over 200 bank networks and e-money systems via a P2P network of AirTM cashiers.


Tether’s recent difficulties is a case-study in the importance of reliable redemption. Starting on April 19th, Tether stopped redeeming USDT for bank USD via wire transfers. That means if you own USDT and want to turn it into money you can use to buy something in the real world (as opposed to participate in the hottest new ICO), your only choice is to exchange your USDT for Bitcoin on a cryptocurrency exchange and then send the Bitcoin to another exchange, like Coinbase or Uphold, that allows for conversion from BTC to USD that can be withdrawn to a U.S. bank account. The market swiftly penalized Tether with a steep discount, sending USDT below USD parity.

Manage Your Reserve Carefully


Redemptions of your digital USD on the front-end by your app users means rebalancing the USD reserve backing those digital IOUs on the back-end. Paypal supports 100 national fiat currencies with redemption to banks in 60 countries — their FinOps department must comprise a small army in order to ensure they don’t incur forex losses due to currency mismatches.

Venmo (and up until recently Tether) have it easier because they only allow redemptions in USD.

Fintech platforms that allow clients to hold balances in fiat and cryptocurrencies are the most vulnerable to finops screw-ups due to the volatility of these new forms of value. Thinly-capitalized ventures caught on the wrong side of a bitcoin bull market can be quickly overtaken by insolvency.

Engineering Ideal USD


Applying the lessons learned from PayPal, AirTM, and Tether, what sort of digital USD might a fintech entrepreneur build?[2]

Target Big Pain Points


Multi-national companies — airlines, consumer goods, cash logistics — have a notoriously difficult time extricating their profits from countries with weak currencies trapped and isolated bank networks.

Remittance companies in the developed world have am equally hard time moving the money they collect from immigrants across borders to pay their off-boarding partners in the developing world.

Tech platforms with global ambitions — Uber, WeWork, AirBnB — need to enable mass payments within bank networks all over the world, send funds in, and hopefully repatriate profits out.

Accessible, Low-Cost


Tether gets a lot of things right despite its recent bank problems. Its USD combines some[3.] of the benefits of bitcoin — ownership and transfer of USDT validated by bitcoin’s decentralized public ledger, low-cost transfer, accessibility — with the relative stability of the U.S. dollar.

Trust vs. Transparency


No one doubts the value of digital dollar IOUs issued by banks with FDIC insurance (despite the risky nature of fractional reserve banking and the fact that all the banks became insolvent in 2008). Likewise, no one asks where a fintech powerhouse like PayPal holds their money or if their assets match their obligations. Justified or not, fintech start-ups face a lot more skepticism and scrutiny. Publishing a real-time accounting of the bank USD backing your digital USD (See Tether and Uphold for examples) is way to obviate the need for trust. Proof of funds held on the closed ledgers of banks will always be inferior to the immutable data of a decentralized public blockchains like bitcoin[4.], but quarterly audits can confirm real-time transparency with regard to USD assets, while crypto-based USD liabilities can be tracked on the underlying blockchain.



Building digital USD on an open protocol like bitcoin means that it can be integrated into other value networks (such as cryptocurrency exchanges) without permission. This compares to digital USD platforms like Circle and Uphold that require network by network integrations to its closed ledger.

Existing Bank Relationships


Paypal benefits from established bank connections so they can hold USD reserves without fear of being cut off from the U.S. bank system transfers, as Tether was recently by Wells Fargo.

Of course, having established bank connections implies that this new and improved digital USD needs to be created by an existing financial service whose KYC and AML protocols and business model are already known and trusted by banks. It would be a plus if cash collection and logistics were an essential part of their existing business since this new USD crypto, like Tether and Bitcoin, can be transferred to anonymous blockchain-based addresses after creation, making a custody trail impossible to trace, just as it is with bank notes.

And the Winner Is…


Brinks, Paypal, Western Union, or Uber check all the boxes. But the first three are huge public companies unlikely to innovate towards anything that smells remotely like bitcoin, while Uber needs to focus on transportation innovation and probably won’t be distracted with a fintech project, no matter how promising.

That leaves the field wide open for any fintech entrepreneur who can build an app that engineers superior digital USD to solve the value transfer and trapped cash problems beleaguering these giants.

Build digital USD that connects more bank networks than PayPal and is as open as Tether but without its redemption problems. Then watch the acquisition offers come pouring in.


Please feel free to share this with your network. If you know anyone at Brinks, Paypal, Western Union, or Uber who are interested in learning more about how digital cash can add high-margin, low-risk revenue to their existing business, have them contact me at This email address is being protected from spambots. You need JavaScript enabled to view it..


  1. USDT is enabled by the Omni Layer (which makes it easy for small fractions of a bitcoin to represent non-bitcoin value). Colored Coins is another way to achieve the same result.
  2. A Fedcoin issued by the U.S. Central Bank would be the ultimate USD-pegged crypto. This report by JP Koning published by R3 is great background reading:
  3. Speculative upside would be the big missing benefit, but you can’t have USD stability and bitcoin moon-ness in the same coin.
  4. Stalwart bitcoin Blogger Piachu has a bunch of great posts on this and other topics related to Digital USD.

This article was published in linkedin.com by Tim Parsa

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