e-Money is a zone within the Cosmos ecosystem that issues currency-backed tokens that are fully compliant and interest bearing. Their network is secured by the Next Generation of Money (NGM) token. On March 30th, the e-Money team joined us to answer our e-Money questions.
Based out of Copenhagen, Co-founders Martin Dyring-Anderson (CEO) and Henrik Aasted Sørensen (CTO) have spent the last two years developing the foundations for e-Money. e-Money provides interest-bearing, currency-backed tokens for the Cosmos ecosystem. This means that their currency is backed by a fiat reserve in a traditional bank account.
Currencies currently supported by e-Money include EUR, CHF, DKK, SEK, and NOK, with more planned in the future. Transaction costs are typically around 0.01 EUR, and can be paid using any of the supported currency-backed tokens or their Next Generation of Money (NGM) token.
e-Money sees its first use case in the Cosmos ecosystem as a low cost and low friction payment method, with immediate settlement and as a store of value. An interesting property of e-Money’s zone is its variable blocktime, which means a block will be created as soon as a transaction is available in the mempool. This leads to a very responsive network that provides an end-user experience that is similar to using a credit card. Their token model has been designed for IBC and their tokens are able to travel freely among zones.
e-Money hopes to integrate with more blockchains like Polkadot and Tezos, as more interchain bridges become available.
In the longer term, e-Money plans to grow out of being a blockchain solution and later be seen as a payment solution for cheap and secure payments in the real world. They have been in ongoing talks with a handful of NGOs and retail companies who are looking to adopt e-Money as a payment solution.
e-Money defines the tokens that they issue as “currency-backed” tokens as opposed to stablecoins. Tokens issued by e-Money are not pegged at a 1:1 ratio with a fiat currency. Instead, they are a representation of the reserve backing them in the form of deposits and government bonds held in commercial banks.
For example, if you own 10% of the issued tokens, then you have a claim to 10% of the reserve.
This design makes the issued tokens interest bearing (both positive and negative).
“The interest mechanism essentially ensures that we will not be forced to engage in risky investment behaviour to keep parity with a 1:1 peg. On the plus side, when the economy becomes normalized again, holding the tokens will be like a bank account in the old days, where interest was an actual income.”
Henrik Aasted Sørensen
It is important to note that positive and negative interest rates will be passed on to the currency-backed tokens, and ultimately, the currency-backed token holders.
The Next Generation of Money (NGM) token is the staking token used to secure the network and for reward distribution. There is a fixed supply of 100,000,000 NGM. NGM holders who stake their NGM receive rewards in the currency-backed tokens that are supported by e-Money.
Rewards are created by inflating the supply of all currency-backed tokens by 1% per year. This means that rewards are entirely dependent on the size of the collateral held in reserve, which means that the value of NGM scales with the value of the reserve.
“It all depends on the size of the collateral, to which it is directly tied. We have some internal modeling where we estimate that an NGM token will give an annual yield in the range of 10% to 20%, but this is obviously some kind of speculation.”
Henrik Aasted Sørensen
NGM tokens are also non-transferable. This means that any transfer of NGM must involve e-Money on either side. The reasoning behind this was to reduce the risk of the token being considered a security. e-Money plans to revisit the question of transferability at a later date, but they recognize that this will obviously limit trading in the short term.
e-Money has also launched a decentralized exchange as a way to exchange between their currency backed tokens. Once IBC launches, the DEX will allow any token present in the e-Money zone to be traded without a listing process.
An interesting property of the DEX is its ability to trade synthetic pairs, which means that if the price matches, then trades can transparently go through two orders to execute.
Fees for the DEX must be paid in either NGM or currency backed tokens issued by e-Money, but it is possible that other tokens may be used for fees in the future.
Special thanks to Henrik Aasted Sørensen and Marianne Nellemann for spending an hour with Staking Hub to answer all of our questions!