Your Crypto Credit Union (YCCU): Bridging Two Worlds
Your Crypto Credit Union
Bridging Two Worlds
Thomas K Sheppard
& Patrick Martin
July 2024
© Copyright
2024 The Skillful PM, LLC & Gilman Patrick, LLC. All rights reserved.
Don't Miss These Related Articles:
https://www.gilmanpatrick.com/lebanon-crypto-credit-union-solution/
Introduction
Taming the Frontier
In 1869 the Transcontinental Railroad was completed,
connecting the Eastern and Western United States of America. Facilitating the
movement of people, goods, and communication, the railroad played a crucial
role in integrating the Western frontier into the national economy and
fostering economic growth and development across the country (Atack, et al,
1994).
Your Crypto Credit Union (YCCU) will do for the Crypto
Econosphere what the Transcontinental Railroad did for the American West. Like
the Transcontinental Railroad before it, YCCU facilitates the movement of money
to and from the frontier of the Crypto Econosphere. With this enhanced ease of
movement, the two econospheres will be brought closer together and both will
grow. YCCU will fuel a level of economic growth that hasn’t been seen since the
period that followed the completion of the Transcontinental Railroad.
In case you missed it (see Surveying the
Terrain, below), this
is a $480-billion opportunity, right now. On the horizon, the
opportunity expands into a $120-trillion opportunity.
The first-to-market implementing this strategy may enjoy
many unforeseen benefits from being the primary driver behind Credit Union Currency (CUC™). Once
implemented, CUC™ will quickly become the de facto standard for a
cryptocurrency that is directly backed, 100%, by USD deposits.
The building of the Transcontinental Railroad didn’t depend
on any revolutionary new technology. Existing technology, backed by capital,
favorable regulations, and the dogged determination of a few individuals made
it happen. Likewise, the building of YCCU doesn’t require bleeding-edge
technology. It requires modest adaptations of existing technology, capital,
favorable regulations (which exist and are emerging), and the dogged
determination of a few individuals.
The backers of the Transcontinental Railroad benefitted
significantly from its success. However, the benefits that came to the people
who rode the rails to settle the West are incalculable. Likewise, the early
benefits for the first-to-market and early-adopters of the YCCU model, although
substantial, pale in comparison with the substantial and widespread benefits
that will derive those who use YCCU as their well-regulated and low-friction
financial bridge between the USD Econosphere and the Crypto Econosphere.
Premier Safe Haven Cryptocurrency
CUC™ will become the go-to safe haven cryptocurrency when
cryptocurrency investors want to move to a liquid position outside of the
volatile cryptocurrencies. Unlike the USD-based stablecoins, CUC™ is not driven
by obscure algorithms and opaque deposits. Being entirely based on cash
deposits, CUC™, will be the premier USD-related cryptocurrency. If the USD
Econosphere becomes unstable, YCCU will be there, enabling legal capital flight
across the bridge to cryptocurrency.
Because CUC™ is backed entirely by USD deposits in a fully
accredited, audited, and regulated credit union, deposits are insured up to
$250k by the credit union equivalent of the FDIC, the NCUSIF. No other
USD-pegged stablecoin has that advantage.
Legal Anonymity and Privacy
Membership in YCCU, validated through compliance with KYC
regulations, is not a matter of public record. CUC™ is a private blockchain, so
the transfer of CUC™ between members is not on the public record, unlike
transactions on the Bitcoin and Ethereum blockchain networks. The membership
and transaction history of members within YCCU can only be obtained by outside
parties with lawful warrants, controlled by US courts and carried out by US law
enforcement agents.
Member’s Only Bridge Access
The liquidity bridge between USD and Crypto Econospheres,
that is YCCU, is only accessible by members of YCCU. There are no stampedes.
Transactions between YCCU members, although subject to
regulatory oversight, is invisible outside of YCCU and gas fees incurred will
be lower than those on a public blockchain.
Private, Regulated Blockchain
The private nature of the CUC™ blockchain, and its integral
role in the YCCU architecture means that this is the only governmentally
regulated blockchain in the world. There
are no opportunities for front running or any other unethical or illegal
transaction arbitrage schemes that abound in the Crypto Econosphere.
Because YCCU is a properly licensed, regulated, and audited
credit union under US laws and regulations, a rug pull isn’t possible with
YCCU. Current banking and credit union regulations prevent that. The principals
in the institution don’t have the ability to pull what Sam Bankman Freid did. Within
FTX, he had no oversight and no segregation of duties. Credit unions are
required to have oversight and segregation of duties.
Member’s Only Treasury
Perhaps one of the most exciting opportunities that YCCU
offers exclusively to members who are businesses are treasury management functions
that span both econospheres.
Although not widely known, credit unions have launched
treasury management services that include automated clearing house (ACH)
transactions, remote deposit capture, wire transfers, and fraud prevention
tools. These services help businesses streamline their payment processes,
improve cash flow, and enhance security (Credit Union Connection, 2023). YCCU
offers the opportunity to bring these treasury management services into the
Crypto Econosphere.
YCCU treasury management services will have a high degree of
privacy because all treasury exchanges are performed by YCCU on behalf of
collective membership. YCCU is the on-chain alias.
Alias
YCCU is the on-chain alias because, when YCCU moves money as
part of a treasury management function, the public blockchain shows transactions
to and from YCCU. The underlying transactions with the specific member account(s)
are recorded on the private CUC™ blockchain. The information is available to
satisfy a legal subpoena, but otherwise is not visible to the public. This is a
sharp contrast to the public nature of the Ethereum and Bitcoin blockchains,
where all transactions are visible to everyone who cares to look.
The New Frontier
The emergence of the cryptocurrency-based econosphere[i]
is obviously one of the biggest disruptors to the current USD-based Econosphere
since the abandonment of the gold standard. While banks are currently
ill-suited to entering the Crypto Econosphere, the basic regulatory and
operational design of the credit union lends itself to becoming a premier
financial bridge between these two econospheres.
While many in the crypto space vociferously repudiate
governmental financial regulation, increasingly they are realizing that the
biggest barrier to the adoption of their beloved cryptocurrencies is the
extreme legal uncertainties of the cryptocurrency econosphere.
The arrival of US Marshalls, local sheriffs, and the US Army
was the beginning of the transformation from the Wild West into someplace
ordinary people wanted to live. It was cemented when the West became safely and
easily accessible by the arrival of the railroad.
Singular Opportunity
The absence of a trusted and well-regulated bridge between traditional
financial services and the worldwide cryptocurrency market represents a
singular banking opportunity.
This paper sets out the opportunity and outlines the path to
create an NCUA chartered Federal credit union built on the blockchain and
serving the needs of people around the world who want / need to keep one foot
in the Crypto Econosphere and the other in the USD Econosphere.
Creating Your Crypto Credit Union (YCCU)
In Banking on the Blockchain, published back in May
of 2024, Thomas Sheppard wrote, “I see the greatest opportunity for immediate,
effective application of these technologies specifically in the realm of Credit
Unions.” Now, we will explore in more detail how to build “Your Crypto Credit
Union” (YCCU).
If some of the cryptocurrency terms we use are unfamiliar,
you may want to look them up in the Key
Terms section, below.
Surveying the Terrain
Square One
In case you missed this part, credit unions are
not-for-profit institutions that provide a range of financial services,
including savings accounts, loans, and other financial products, primarily to
their members. The credit union members share a common bond, such as a
community, employer, or association.
Cryptocurrency users and investors are a worldwide community
with a common bond. They tend to be highly individualistic, independent,
mobile, and come from all walks of life. Their common bond is their belief that
blockchain technology represents a unique opportunity to create an economic
system (econosphere) that runs in parallel with the traditional financial
econosphere typified by fiat currencies.
Crypto Users Profile
The profile of the typical cryptocurrency user can vary widely,
but several common characteristics and trends have been identified through
various studies and surveys. Here’s a general overview of the typical
cryptocurrency user profile, along with few salient facts:
Locations: Cryptocurrency
users are found worldwide, with significant concentrations in regions such as
North America, Europe, and parts of Asia. Emerging markets are also seeing
increased adoption.
Age: Cryptocurrency
users are generally younger compared to traditional financial service users.
Studies indicate that the majority of cryptocurrency users are between the ages
of 18 and 44. This younger demographic is more tech-savvy and open to
new financial technologies. (Pew, 2023)
Gender: The
cryptocurrency user base has historically been predominantly male. Recent data
shows that around 70-80% of cryptocurrency users are male, although female
participation in this space is increasing. (Statista, 2024)
Income: Cryptocurrency
users often have higher income levels compared to the general
population. They are typically individuals with disposable income who can
afford to invest in speculative assets like cryptocurrencies. (Chainalysis,
2024)
Behaviors: Behaviorally,
crypto users tend to be more technologically inclined and comfortable
with digital platforms. They are familiar with online trading platforms and
digital wallets, and they often use technology to manage their investments.
(Deloitte, 2023)
Investors: Many
cryptocurrency users view cryptocurrencies as an investment rather than a
currency for everyday transactions. They are often interested in speculative
trading, seeking high returns on their investments (eToro, 2023). Cryptocurrency
users generally have a higher risk tolerance. They are willing to invest
in highly volatile and speculative assets, understanding the potential for
significant gains as well as losses. (Fidelity, 2023)
Consumers: A survey
conducted by Pew Research Center in 2023 (Pew, 2023) found that 32%
of cryptocurrency users are interested in migrating most or all their financial
transactions to cryptocurrencies. This indicates a significant portion of users
are inclined toward adopting digital assets as a primary means of financial
management.
Crypto Users Conclusions
Despite the enthusiasm, 40% of cryptocurrency users
acknowledge barriers to fully migrating to cryptocurrencies, such as regulatory
concerns, volatility, and limited acceptance among merchants, according to a
survey by eToro (eToro, 2024). These factors contribute to the cautious
approach of many users who may not yet be ready to fully transition away from
traditional financial systems.
The Crypto Econosphere
The nascent cryptocurrency financial market (Crypto
Econosphere) is a natural extension of the precepts and operations of credit
unions. The Crypto Econosphere is also a significant market opportunity for a
trustworthy financial institution.
Size of the Crypto Community
Where We Are
As of mid-2024, the total market capitalization of all
cryptocurrencies globally is approximately $1.5 trillion (CoinMarketCap,
2024). This figure represents the combined value of all cryptocurrencies in
circulation and fluctuates based on market conditions.
In the US, the cryptocurrency market is also robust, with a
significant number of investors and users. According to Statista (2024), the
market capitalization of cryptocurrencies in the US alone is estimated to be
over $500 billion, reflecting a substantial portion of the global market.
The US continues to be a major player in cryptocurrency
adoption. A report by Pew Research Center (2023)
highlights that approximately 16% of Americans have invested
in or used cryptocurrencies, indicating widespread engagement and investment in
the sector.
The increasing adoption of decentralized finance (DeFi)
platforms, which facilitate financial transactions and services using
blockchain technology, reflects a broader trend towards using cryptocurrencies
for a range of financial needs. DeFi Pulse (2024) reports that the total
value locked in DeFi platforms has reached approximately $60 billion,
demonstrating substantial interest in using crypto for financial services.
On the Horizon
According to Deloitte’s 2021 Global Blockchain Survey: A
New Age of Digital Assets (Deloitte, 2021), around 40% of
traditional banking customers expressed interest in exploring or using
cryptocurrencies and blockchain technology for enabling end-user financial
transactions.
Sources indicate that the traditional banking world consists
of about 1.9 billion bank accounts holding more than $300 trillion. (World
Bank, 2024) (Bank for International Settlements, 2024)
An Obvious Opportunity – Transfer Payments
The global market for consumer transfer payments, which
includes various forms of money transfers such as remittances and peer-to-peer
transfers, is substantial. According to a report by Allied Market Research
(2023), the global money transfer and payment services market was valued at
approximately $1.7 trillion in 2022, with significant growth expected in
the coming years.
The share of cryptocurrencies in the consumer transfer
payments market is still relatively small compared to traditional methods.
However, it is growing rapidly. According to Chainalysis
(2024), global cryptocurrency transactions reached approximately $10
billion in 2023, with an increasing portion of these
transactions involving cross-border transfers.
Despite its growth, cryptocurrency still represents a small
fraction of the overall consumer transfer payments market. Statista
(2024) reports that cryptocurrencies account for roughly 0.6%
of the total value of global transfer payments, but this proportion is expected
to increase as adoption grows.
The usage of cryptocurrencies for transfer payments is
expanding. According to a Pew Research Center report (2023),
about 8% of adults who use cryptocurrencies have engaged
in transfer payments, indicating a growing trend but still a minor part of the
overall market.
Because YCCU is an international credit union, the ability
of members to move money across international boundaries is inherent. A joint
account, where one member is in one country and the other in another is the
most simple vehicle allowing the effect of a transfer payment without having
money leave the account, or paying any transfer fees. In a similar vein, many
credit unions provide simplified means for members to transfer money from one
member to another. While these would still be subject to AML and Bank Secrecy
Act (BSA) regulations, they would be less costly and less public than public
blockchain transactions.
There are many more potential use cases possible in this
space than we have room to discuss here. Each will be constrained by the risk
appetite and regulations of the YCCU.
Less Obvious Opportunity: Safe-Haven Currency Access
Financially distressed countries are creating the need for individuals
to move their money from their native currency into a safe-haven currency[i].
In the past safe-haven currency opportunities were accessible only to the most
wealthy. The wealthy would convert their wealth into gold or USD, then jet off to
Europe or the USA. Once there, they open a numbered account in Switzerland, or a
private banking account in the USA and deposit their wealth where the rule of
law prevails. Then, they are free to return to their native country and pursue
their objectives with the assurance that
they would not feel the full effects of the financial turmoil in their
native land.
The relentless penetration of the internet into nearly every
region of the globe brings access to safe-haven currencies within reach of more
people than has ever before been possible, even in many financially distressed
countries. The International Telecommunication Union reports that as of 2024,
around 64.5% of the global population has access to the internet. The
ITU's data provides insights into global connectivity trends and efforts to
increase internet access in underserved regions. (International Telecommunication
Union, 2024).
As of 2024, several countries are experiencing significant
financial distress as evidenced by indicators such as debt-to-GDP ratios,
economic instability, and default risks. According to the International
Monetary Fund (IMF) (2024), as many as 30 countries are considered financially
distressed or are experiencing high levels of debt distress. This includes
countries facing severe debt problems, high default risks, or significant
economic instability.
The financially distressed countries collectively represent
approximately 10% of the global population. This estimate is based on a
combined population of these countries compared to the total world population
of about 8 billion people (World Bank, 2024). Collectively, financially
distressed countries contribute roughly 5% of the world GDP. This figure
reflects their total economic output compared to the global GDP of
approximately $100 trillion (World Bank, 2024).
By creating an NCUA compliant credit union with an
international community, YCCU is poised to open a floodgate for international
monies flowing from native currencies into cryptocurrencies (i.e., BTC &
ETH) and thence into the universally recognized safe-haven currency, USD.
Exceptional Opportunity – Rule of Law
According to the IMF Global Financial Stability Report of
2024 (International Monetary Fund, 2024), the biggest issue deterring people
from embracing cryptocurrency today is regulatory uncertainty. This encompasses
concerns about legal frameworks, compliance, and the potential for adverse government
intervention.
Without robust regulatory frameworks, consumers may face
higher risks of fraud, scams, and financial loss. The lack of protections can
make people wary of entering the cryptocurrency space. (CFPB, 2024)
In contrast with the public perception that cryptocurrency
users are averse to government regulations, a 2024 study by Bitwise Asset
Management (Bitwise, 2024) found that 56% of cryptocurrency users
believe that clear regulatory frameworks would improve the market's legitimacy
and protect investors. According to a Chainalysis report (Chainalysis,
2024), 50% of users and investors are in favor of regulations that offer
clear guidelines without overburdening the industry.
This means that 50%
or more of the $1.5 trillion Crypto Econosphere is already desiring the
benefits of regulatory stability and the rule of law.
Benefits from the Rule of Law
In contrast with the “wild west” environment currently
prevailing in the Crypto Econosphere, YCCU offers members the refuge of
civilization. Within YCCU they enjoy significantly elevated protections and
trust that today are glaringly absent in the Crypto Econosphere.
The advantages to members of YCCU are significant:
- · 7X24, physically agnostic access to their monies via the internet
- · Deposits stored in the premier safe-haven currency of USD
- · Deposits protected by the rule of USA law
o
Predatory local governments are unable to seize
accounts without going through due process in US courts.
o
Bad actors are deterred by US systems and
regulations.
o
NCUSIF[i]
insured deposits.
- · Easy flow of assets between US national and international banks via standard transfer mechanisms for all fiat transactions accepting USD.
- · Easy flow of assets between USD and the world’s leading cryptocurrencies for non-fiat currency transactions.
Admittedly, YCCU is not for everyone. To open an account
will require full compliance with US KYC regulations. Moving money into an
account will require full compliance with US AML regulations. Bad actors will
not be enamored of YCCU.
Planning
Alternate Starting Points
There are two ways to create YCCU.
- 1) De novo: Create a new credit union specifically as your Crypto Credit Union.
- 2) Ex novo: Convert an existing credit union into your Crypto Credit Union.
Both alternatives must address the same essential obstacles.
While ex novo might appear to have an advantage by already being in operation, turning
an existing credit union into YCCU will likely require refiling and getting
regulatory approval for a new charter.
We believe that de novo YCCU will be the most likely path to
success, although we are prepared to guide a team through either approach.
Ex Novo YCCU
When converting an existing credit union into Your Crypto
Credit Union (ex novo), much of the heavy lifting on the regulatory side is
already done. However, this will, correctly, be seen as radical shift for an
existing credit union. You will need approval from your board and probably from
your members, as well. After all, when the dust settles, each of them will now
become a member of your DAO. Then, it will require you to convince the
regulators, just as you would have to for a de novo effort.
You may need to update your charter
and you will need to:
- · Convert your charter into a smart contract
- · Convert your membership into a DAO
- · Implement smart contract driven governance
- · Implement CUC™ on a blockchain
- · Implement smart-contract based accounts
- · Forge links with outside DeFi exchanges
- · Create your own inhouse exchange
De Novo YCCU
Creating a credit union in the United States involves several steps and
regulatory requirements designed to ensure the stability and integrity of these
member-owned financial cooperatives. The process begins with organizing a group
of potential members and developing a clear mission and business plan.
YCCU Members
We are proposing a native blockchain Credit Union that
bridges the analog world where we live and the digital world where we
transact. Legally organized and
domiciled in the United States with NCUA institutional oversight and insured
deposits but whose members are world citizens.
For Your Crypto Credit Union, the common bond establishing the community of
members is the desire to:
1)
Use cryptocurrencies as a means for saving and spending
2)
Need to easily transition funds from the blockchain into
US Dollars (USD), and vice versa
3)
Safe-haven currency tied directly to USD instead of
relying on unproven, opaque, and variable algorithms[i]
4)
Citizens of failed states needing to keep their wealth
safe from criminal elements
5)
Citizens of countries experiencing economic collapse
and hyperinflation
This will be your decentralized autonomous organization (DAO) which embodies
and enables your members.
Crypto Investors with substantial crypto wealth (Whales) may be members,
subscribers, or founders. They can provide a portion of their crypto to fund
the captive exchange of YCCU. They can benefit from a portion of the captive
exchange transaction fees. Less well-capitalized members may also contribute to
liquidity pools through the functional equivalent of certificates of deposit.
All members will benefit from the reduced transaction fees inherent in a
captive exchange, versus the public centralized and decentralized
cryptocurrency exchanges. Those with savings accounts may also participate in
the “profit” portion of the exchange fees which come back to YCCU. Since YCCU
is a non-profit organization, these will appear as dividends on savings
accounts, just as the profits in any other credit union does today.
Charters
Old School and New School Charters
The initial step in forming a credit union is the establishment of a charter
and submitting it to either the National Credit Union Administration (NCUA) for
a federal charter or to the appropriate state regulatory authority for a state
charter. The application includes a detailed business plan, financial
projections, and evidence of the common bond among potential members (National
Credit Union Administration, n.d.).
As of today, creating the YCCU charter means writing one up the way they
have been done for several decades, and faithfully converting that into
something that can also be used to run YCCU. The first charter, the old-school
one, is for the consumption of regulators, the non-crypto world, et al. The
second, new-school charter, is not only for the consumption of regulators, the
crypto world, et al, it is also a key element in running the business of YCCU.
It is the charter and controlling contract for your DAO.
Creating the Charter
Credit unions are cooperatives, meaning they are
member-owned and operated. Federally chartered credit unions must have an
NCUA-approved field of membership, which is the legal description of the
persons, organizations, and other entities the credit union will serve. We are
proposing a DAO be created to encapsulate the Credit Union’s purpose and core
values, field of membership, capital funding plan, and subscribers[ii].
NCUA requirements fit neatly into DAO best practices
1)
Define the structure of the DAO project[iii],
2)
Decide the type of DAO,
3)
Decide DAO Token: Supply, allocation and
incentives,
4)
Create DAO,
5)
Create DAO Treasury[iv].
The charter for Your Crypto Credit Union must be brought to life in the form
of a smart contract. This smart contract, which is a computer program, will
both embody the terms of the charter and automate the execution of some of the
key elements of the charter.
Creating a charter in the form of a smart contract is not a trivial
exercise. It requires a combination of expertise and experience with credit
unions and with building and implementing smart contracts. Furthermore, simply
knowing how to create a smart contract isn’t sufficient. The charter as smart
contract must be integrated into the blockchain architecture of the whole
enterprise of YCCU. Blockchain
architects aren’t very common. Because the rise of the blockchain is relatively
new the skillset isn’t specifically taught in schools and not many people have
developed the relevant skills and necessary contextual intelligence.
Fortunately for you, if you are reading this article, then you know at least
one: the author.
Federal or State Charter
Although the Federal Government, in the form of the US Treasury Department,
Comptroller of the Currency, and other financial regulatory entities has not
been especially prompt in developing and deploying clear laws and regulations
around cryptocurrency, a federally chartered YCCU is optimal. YCCU should be legally
organized and domiciled in the United States with NCUA institutional oversight
and insured deposits but whose members are world citizens.
The Federal charter streamlines regulation and elevates regulatory
requirements onto the same level as international financial regulations. This
will lend credibility and confidence that YCCU is a legitimate institution,
recognized by the US Government and operating within the secure shelter of its
rule of law.
Technology and legal infrastructures exist today to complete this organizational
phase.
Domiciling YCCU
In one sense YCCU is domiciled in the Crypto Econosphere.
However, that is not enough. YCCU needs a legal presence within the USD
Econosphere. This legal presence is the bridge that brings the rule of law into
the Crypto Econosphere.
Physical Domicile
Currently, there are several states within the United States
of America, which have already established laws designed to create a legal
framework for the Crypto Econosphere. Laws recognizing and governing the legal
framework of the decentralized autonomous organization (DAO) and digital
currencies are the most relevant to YCCU. As of 2024, Wyoming, Tennessee,
Nebraska, and Florida have made significant strides in this area. The
forward-thinking demonstrated by these states is critical for the creation of
YCCU.
Wyoming has been at the
forefront of DAO legislation. It was the first state to legally recognize DAOs,
allowing them to register as limited liability companies (LLCs). This legal
framework provides DAOs with a formal structure and the ability to operate
within the bounds of state and federal laws while offering limited liability
protections to their members. This move is intended to attract blockchain-based
businesses to the state by providing a clear regulatory environment (Global
Fintech & Digital Assets Blog, 2024).
Tennessee has followed Wyoming's lead
by enacting similar legislation that allows DAOs to be recognized as LLCs. This
legislation provides clarity and a legal framework for DAOs operating within
the state, helping to foster innovation in the blockchain sector (Mondaq,
2024).
Nebraska has also made significant
regulatory advancements with the Nebraska Financial Innovation Act. This act
sets out guidelines for digital asset depositories, allowing them to offer
services such as digital asset custody, issuance of stablecoins, and use of
blockchain technologies for payment activities. Nebraska’s laws aim to provide
a supportive environment for blockchain innovators and expand financial
services within the state (Stevens Center for Innovation in Finance, 2024).
Florida has developed a comprehensive
approach to digital currencies. The state has defined virtual currencies under
its money transmission laws, requiring businesses dealing with digital
currencies to obtain the appropriate licenses. Additionally, Florida has a
Financial Technology Sandbox that allows businesses to operate with relaxed
regulatory requirements for a period, fostering innovation while ensuring
consumer protection (Bloomberg Law, 2024).
These states are leading examples of how local governments are adapting to
the evolving landscape of digital currencies and blockchain technology. Their
legislative efforts provide a framework that other states may look to as they
develop their own regulations in this rapidly changing field.
One, or more, of these states will need to be selected for the physical,
legal presence of YCCU in the USD Econosphere.
Digital Domicile
The YCCU charter will be embodied in a smart contract on
either the Ethereum Mainnet blockchain or the Bitcoin blockchain.
Rights, responsibilities, and privileges of YCCU
subscribers, management, and members will be built into publicly viewable smart
contracts which protect and enforce the rights, responsibilities, and
privileges with the emotionless, relentless, unsleeping, precise drive of the
computer programs they are.
Where Crypto and USD Meet
The USD Econosphere is undergirded with digital technology. Even
the most modest business or financial institution keeps it books in digital
ledgers. Captive technology teams, and independent technology companies alike,
offer suites of software applications to keep the books and integrate the business
operations with those books.
YCCU does not need to reinvent this wheel to succeed. It
only needs to make a modest adaptation.
A blockchain is an electronic ledger. YCCU only needs to
integrate blockchain records with existing general ledger (GL) tools and
banking systems to provide full-service offerings within both econospheres it
services.
Domiciling Summary
As the bridge between the econospheres, it is both legally
and functionally required that YCCU have a substantive presence in both. On the
one hand, YCCU has a physical presence in one or more states of the USA. This
physical presence provides the anchor for the rule of law. It establishes
jurisdiction, enforcement mechanisms, and protections for YCCU subscribers,
management, and members.
On the other hand, YCCU lives and breathes in smart
contracts on the major blockchains which are publicly viewable and
automatically enforced. Built in conformity with the laws of the USA, smart
contracts provide transparent and consistent application of the rules of the
YCCU.
Raising Capital
Once the charter application is approved, the next step is to raise the
initial capital. Credit unions typically raise capital through membership fees
and the sale of shares to their members. This capital is essential for funding
initial operations and providing the necessary reserves.
YCCU will be funded by seven subscribers who become the initial seven
governing members of the YCCU DAO. To fund YCCU, collectively they will donate a
combination of BTC, ETH, and USD equivalent to 700 BTC. Having a treasury
anchored by the dominant cryptocurrencies is essential for the key
functionality of YCCU.
Under the Charter, there are provisions whereby those donations can be
converted into deposits. However, there is no precise timeline or definitive
trigger for that conversion. Rather, it is conditional based on successful
operations of YCCU.
It is worthwhile to point out here that one of the common scams in the
Crypto Econosphere is something called a “rug pull[v].”
The commitment of these funds as a donation by the subscribers is both legal
and operational protection preventing YCCU from becoming a rug pull (see Private,
Regulated Blockchain
elsewhere in this document).
Governance
Credit Unions organized and domiciled in the United States are required to
have operational organizations supported by-laws, management plans, general
ledger, and all required policies[vi]
for operations. Additional nice to have artifacts include mission statement,
proposed products and services, physical HQ location and marketing plans. Where
practical, these governance documents will be built as smart contracts.
Particularly for policies, this allows a direct, programmatic application of
policies into the systems and practices of YCCU.
In addition to raising capital, the organizers must establish a board of
directors and other governance structures to oversee the credit union's
operations. The board is responsible for setting policies and ensuring that the
credit union operates in the best interests of its members (Credit Union
National Association, 2021).
YCCU DAO members will vote for the board members using cryptocurrency
enabled technology, and controlled the YCCU smart-contract-charter. This
technology enables secure voting from anywhere in the world with an internet
connection. Essentially, this moves some of the most basic parts of corporate
governance of credit unions from the nineteenth century into the twenty-first
century.
Regulatory Compliance
Regulatory compliance is a critical aspect of creating and operating a
credit union. Federally chartered credit unions must adhere to regulations set
forth by the NCUA, while state-chartered credit unions must comply with state
regulations. These regulations include requirements for maintaining adequate
capital, ensuring the safety and soundness of the institution, and protecting
member deposits through insurance provided by the National Credit Union Share
Insurance Fund (NCUSIF) (NCUA, n.d.). Additionally, credit unions must
implement robust risk management practices, including internal controls,
audits, and compliance programs to address issues such as know-your-customer
(KYC), anti-money laundering (AML) and consumer protection.
These by-laws and regulations are required to operate a responsible
financial operation. All support operating a blockchain-native credit union.
Additional and modified bylaws should be considered to support tokens, crypto
treasury assets, rug pull restrictions and other unique elements of operating
on a blockchain.
YCCU must build or acquire these regulatory tools as part of the costs of
doing business. Fortunately, tools to aid in these compliance efforts are
rapidly maturing in the crypto world. Because of certain quirks of the
blockchain, many of these crypto-based tools are faster, more reliable, more
probative, and less labor intensive than their non-crypto alternatives.
As an example, because of the public nature of blockchain records, whenever
any member is trying to deposit funds in their YCCU account, the sources of
those cryptocurrency deposits can quickly be traced backwards through several
generations of transactions to identify any that might have originated through
a known exploit[vii].
These back-traces are usually accomplished in seconds, without any manual
intervention. The results can be automatically screened, and appropriate
policies, procedures, and regulations applied. This level of automation
dramatically decreases the cost and time required for AML compliance, while
significantly increasing the diligence and accuracy of the process.
Building Trust
Finally, ongoing education and outreach are essential for the success of a
credit union. This involves educating members about the benefits and services
offered by the credit union and encouraging their active participation. Credit
unions thrive on member involvement and feedback, which help shape policies and
services that meet the needs of the membership. Community engagement and
financial education initiatives can also help attract new members and build a
strong, loyal member base (National Credit Union Administration, n.d.).
YCCU will likely have a level of engagement from the member base that will
be the envy of any Co-op organization. The crypto community is probably the
most technologically interconnected and communicative community in the world.
Your success, and your failures, will likely be touted far and wide to both
members and non-members around the world, all in a matter of seconds.
Unlike traditional credit unions, YCCU governance and treasury functions reside
on public blockchains. The transparency of your operation will be on display
for the whole world, almost in real time. If that level of transparency doesn’t
build trust, nothing will.
De Novo Summary
In summary, creating Your Crypto Credit de novo in the USA involves a series
of well-defined steps, including organizing potential members, obtaining a
charter, raising capital, establishing governance structures, and ensuring
regulatory compliance. Ongoing member education and community engagement are
also crucial for the growth and sustainability of the credit union.
The Iceberg: Managing Crypto Assets
One of the biggest risks banks, and by extension credit
unions, face today regarding cryptocurrencies is how to carry them on their
books. Most institutions want to find a way to carry them as deposits. Therein
lies the problem, and the solution.
The Problem
Almost without exception today, cryptocurrencies are
speculative in nature. As such, their valuations are subject to extreme, and
extremely rapid, value changes. This makes it nearly impossible for regulators
and risk managers to create realistic reserve requirements for these
cryptocurrencies.
Arguably, it was exposure to volatile cryptocurrency
accounts as deposits which led to the failures of both Silvergate and Signature
banks
Dodging the Iceberg
YCCU avoids the volatility risk of cryptocurrencies. It
won’t hold volatile cryptocurrencies as deposits. Credit Union Coin™ (CUC™) is
the only cryptocurrency YCCU will hold in member accounts. CUC™ is fully backed,
dollar for CUC™, by credit union deposits in US dollars (USD).
Although YCCU members can deposit ETH, BTC, or USD, all are
immediately converted into CUC™ and 100% reserved with USD. To be clear, the
reserve is USD, not treasuries or other near-liquid forms of USD.
As with all rules, there is an exception.
The Exception
Like most credit unions, YCCU will offer members three types
of consumer accounts: demand deposits, savings accounts, and time deposits.
Checking accounts receive no dividends.
Savings accounts (AKA Share Accounts), accounts falling
under “Reg D”, will earn a very modest dividend return, just as most savings
accounts in credit unions earn today. On any given day, the liquidity backing
these demand deposits may be less than, or more than, 100%. Demand deposits are
often used by financial institutions to fund very short-term credit vehicles.
The spread between the interest charged on these short-term credit vehicles and
what is paid to the members is revenue to YCCU.
Time deposits, such as certificates of deposit, provide a
greater return for the depositor in exchange for a commitment to allow YCCU to
use the money for lending against medium and long-term credit vehicles. In the
cryptocurrency world, there are very striking similarities between time
deposits and “staking.”[i]
(Buterin, 2014) (Wood, 2014) (Narayanan et al, 2016)
A Gordian Knot - Lending
The issue of extending credit in the Crypto Econosphere is
complicated. Answering it completely requires members, directors, and managers
to agree on risk thresholds and risk management.
The Nancy Reagan Model of Lending
In 1985, Nancy Reagan, wife of then President Ronald Reagan,
launched the “Just Say No” campaign to combat recreational drug use (Reagan,
1985), encouraging children and adolescents to refuse drugs and resist peer
pressure.
Likewise, YCCU can embrace the Nancy Reagan model when it
comes to lending. The simplest answer is “no.” Totally avoiding the risks
associated with any sort of lending is the easiest way to avoid lending
losses. However, that simple answer
deprives YCCU members of one of the significant benefits of a typical credit
union. Traditionally, the credit union has been the premier micro-lender for
small businesses as well as a significant source of consumer credit.
If You Don’t Need It, We Will Lend It
The fact is that, when you boil down most credit policies to
their bones their essence is that if the borrower can show that they don’t need
the loan, we will lend the money.
This is the next, most simple answer. Only offer 100%
secured credit. This is a very low-risk approach to lending. Secured lines of
credit and secured loans are wonderful ways for members to increase their
credit scores. However, they seldom meet the credit needs of most members.
Wholesale Lending
The third best alternative, in terms of minimizing risk, is
to adopt a wholesale lending model where YCCU originates loans conforming to
prearranged credit standards and then sells those loans to a third party. Under
this well-proven model, YCCU capital is only used for short term funding of
loans. The financial rewards to YCCU are modest, and in line with the modest
amount of risk associated with providing short-term funding.
Collateralized loans are probably the most common credit
vehicle offered by banks and credit unions today, both for portfolio and
wholesale lending. However, risk ratings associated with collateralized loans depend
heavily on the ability of the lender to take possession of the collateral. With
an international membership base, offering collateralized loans would require
YCCU to navigate property rights in jurisdictions all over the world. Wherever
the rule of law is weak, property rights laws quickly decompose into the old
maxim that “possession is nine-tenths of the law.”
Securities Lending Model
When it comes to collateralized lending in the international
sphere YCCU may be best advised to borrow the securities-based lending model used
by banks today. Lend no more than 50% of the value while constantly monitoring
the value of the security and liquidating the collateral to repay the loan if
the value drops too far. Securing the collateral into a smart contract automates
the relationship and the agreement, dramatically reducing risk. Treating
cryptocurrencies like securities, for collateralized lending purposes, seems
like a natural fit.
Unsecured Lending
Unsecured loans are always high risk and should generally be
avoided. However, YCCU could transfer this risk by doing what many banks and
credit unions already do; partnering with credit card providers who underwrite
the line of credit and carry the risk.
Gordian Summary
The members of YCCU, through their board of directors, will
need to decide their credit policies and procedures, and offer (or not)
products accordingly. While this is a challenging issue for every credit union,
for YCCU this is an especially tangled issue. The international membership of
YCCU, even operating under the nominal umbrella of US law, significantly
complicates risk management by multiplying the jurisdictions where collections
efforts might be required.
Transferring those jurisdictional risks through wholesaling
is one significant element of the solution. The other is to limit portfolio
lending to what YCCU can reasonably be expected to control, cryptocurrency.
YCCU Econosphere and Architecture
Econospheres Defined
The financial equivalent of an ecosphere can be thought of as a financial
ecosystem or an econosphere. Just as an ecosphere includes
various interconnected organisms and environmental factors that create a
balanced, self-sustaining system, an econosphere consists of various
interconnected financial entities and elements that interact to create a
functioning economic environment.
The term "econosphere"[ii]
generally refers to the integrated system of economic activities and processes
within a particular region or on a global scale. It encompasses all economic
interactions, institutions, and systems that contribute to the functioning and
development of the economy (Drexler, 2020).
Explanation:
The econosphere represents
the interconnected network of economic entities, including businesses,
governments, markets, and consumers. It highlights the interdependence of
economic activities and the flow of goods, services, and capital. This concept
can be used to understand how various economic factors and actors influence and
sustain economic systems (World Bank, 2021)[iii].
Key Components of an Econosphere:
- Financial
Institutions: Banks, credit unions, investment firms, and
insurance companies that provide financial services and products.
- Market
Participants: Individuals, businesses, and institutions
that engage in financial transactions, including investors, consumers, and
corporations.
- Regulators
and Authorities: Government agencies and regulatory bodies
that establish and enforce financial laws and regulations to ensure
stability and integrity.
- Payment
Systems: Infrastructure and technologies that facilitate
transactions, such as digital wallets, payment processors, and blockchain
networks.
- Financial
Products: Assets and services offered within the
ecosystem, including loans, insurance, stocks, bonds, and
cryptocurrencies.
- Technological
Innovations: Fintech companies and platforms that drive
advancements in financial services, such as robo-advisors, peer-to-peer
lending, and blockchain technology.
Characteristics of an Econosphere:
- Interconnectedness:
Components of the financial ecosystem are interrelated, with changes in
one part affecting others. For example, shifts in interest rates can
impact investment returns and borrowing costs.
- Adaptability:
The ecosystem adapts to changes in regulations, technological
advancements, and market conditions, similar to how an ecosphere adapts to
environmental changes.
- Self-Regulation:
Within a financial ecosystem, market forces and regulatory frameworks work
together to maintain stability and prevent systemic risks, akin to how
natural ecosystems self-regulate to maintain balance.
In essence, an econosphere is a dynamic, interconnected network of financial
entities and processes that work together to support economic activities, much
like an ecosphere supports diverse forms of life within its environment.
Competing Econospheres
On a global level there currently exist three major
econospheres.
- 1) USD
- 2) Cryptocurrency (Crypto)
- 3) BRICS[iv]
Although I call these ‘major’ econospheres, based on their
respective scales USD is a major econosphere. BRICS and Crypto aspire to be
competitive, parallel econospheres. Both BRICS and Crypto[i]
are expressly driven by the desire to replace, compete with, or operate in
parallel with USD.
Unlike BRICS and USD, the Crypto Econosphere is not built on
a fiat currency. Instead, it is built on utility currencies; primarily Bitcoin
and Ethereum. The value of these utility currencies is set by the market
instead of by government dictates. While this frees the Crypto Econosphere from
many of the distortions inserted by governments, it also makes these currencies
much more volatile than the major fiat currencies of the world (e.g., USD, Yen,
Franc, Euro, Yuan, Ruble, Rupee, etc.).
The YCCU econosphere, as noted elsewhere, intentionally is a
bridge between USD and Crypto[ii].
The architecture of the business and YCCU’s enabling
technology seamlessly connects the two econospheres. Consistent with general
trends in banking, for YCCU brick and mortar branches are not a significant
component for the success of the endeavor. Rather, digital banking will be the
vehicle which nearly all members of the YCCU will use, by both preference and
necessity. (Accenture, 2023) (Deloitte, 2022) (KPMG, 2021).
Building Blocks
Being a bridge between the USD and Crypto econospheres means
the YCCU must address the state and integration of the elements of both.
USD Econosphere Building Blocks
The technological and operational building blocks of the USD
econosphere are both well-established and emerging with new capabilities. Most
notable and relevant for this discussion is the current and emerging
capabilities of FinTech[iii]
into the USD econosphere.
Crypto Econosphere Building Blocks
While a few minor elements of the Crypto Econosphere are
emerging right now, the bulk of them have been in the market for several years
and adoption puts YCCU in a fast-follower situation instead of being on the
“bleeding” edge. This translates into a substantial reduction of operational
risks for YCCU.
The technological building blocks of the Crypto Econosphere
are blockchains, smart contracts, DeFi, dApps, and Web 3.0.
Web 3.0 defines a computerized architecture which, like
YCCU, can operate seamlessly in both USD and Crypto econospheres. With CUC™ an
internet user (YCCU member) can interact with YCCU through a Web 3.0 front end
and move back and forth between Crypto and USD with very little friction.
Today, Bitcoin (BTC) and Ethereum (ETH) are the two leading
blockchains and cryptocurrencies in the world. Both have weathered and survived
a wide variety of attacks by bad actors. They have adapted and proven to have
evolved into nation-state security features. Recently, US regulators have
categorized both as commodities, removing substantial regulatory uncertainty.
Regulatory stability, security, resilience, and widespread adoption are all
foundational features which will significantly enable the success of YCCU and
CUC™.
Building the YCCU treasury with BTC, ETH, and USD is
critical to create and maintain liquidity across the YUCC ecosphere.
Captive Crypto Exchange
As mentioned elsewhere, the Bitcoin and Ethereum blockchains
are not cross compatible. Converting (exchanging) USD for BTC or ETH without
the correct technology will literally result in money being lost, as surely as
though it were tossed into the ocean.
Transaction costs (exchanges rates and “gas fees”) and some
fundamental technology components to convert between BTC and USD are distinct
from those required to convert between ETH and USD. To convert money between
BTC and ETH requires both technologies and an intermediary. YCCU and CUC™ put
all this technological complexity into the background and make it irrelevant
for most YCCU members.
When the Federal Reserve Bank of the United States rolls out
a blockchain based Central Bank Digital Currency (CBDC) it will be readily
integrated into the YCCU architecture.
YCCU Treasury
The YCCU treasury is built on BTC, ETH, and USD. CUC™ is, literally,
the common denominator across these currencies. CUC™ is a USD equivalent
cryptocurrency with a one-to-one backing with USD deposits held by YCCU. CUC™
resides on a YCCU private, proprietary blockchain[i].
YCCU deploys three “flavors” of CUC™.
- . CUCu™: This is CUC™ programmed to be compatible with USD.
- . CUCb™: Programmed to be compatible with the Bitcoin blockchain.
- . CUCe™: Compatible with the Ethereum blockchain.
Operationally, when a depositor deposits BTC, ETH, or USD,
they are converted to CUCu™. In the background, this means that YCCU
converts the deposit through the equivalent of a captive cryptocurrency Forex
from the deposit currency into USD and represents the deposit as CUCu™.
Exchange fees, distinct from gas fees, in the exchange are retained by YCCU.
Both gas fees and exchange fees decrease the net deposit to the member.
Although the treasury retains BTC and ETH, those balances
are not used to sustain the liquidity of the deposits base. Including them in
the deposits base would expose YCCU liquidity to all the volatility of those
currencies.
When a YCCU member wants to make a withdrawal, they can
withdraw directly into CUC™ or they can exchange CUC™ for BTC or ETH, directly
through YCCU. Likewise, they can deposit BTC or ETH into YCCU and it will
automatically be converted into CUC™.
YCCU will not denominate deposits in BTC, ETH, or CUC™. Nor
will it hold custody of BTC or ETH for members. I repeat. When a member
deposits BTC or ETH into a YCCU account, the deposit is immediately converted
into CUC™ and credited to the member account as USD.
Conversion of all accounts into CUC™ is critical to protect
the liquidity of YCCU from the volatility of BTC and ETH. Conversion to CUC™ limits
the liquidity of deposits solely to fluctuations of the fiat (USD) currency.
Creation and Destruction of CUC™
Creating CUC™
In the USD Econosphere and the Crypto Econosphere, the
creation of money is called ‘minting.’ Whenever YCCU receives a deposit, it
mints the appropriate amount of CUC™ to represent the USD denominated value of
that deposit.
Destroying CUC™
In the USD Econosphere, when paper currency gets worn or
damaged it is gathered up and sent to a secure facility where it is burned. In
the Crypto Econosphere, digital currency never gets damaged or worn.
Regardless, there are still situations where it needs to be destroyed.
Destroying cryptocurrencies is called ‘burning.’
Whenever YCCU processes a withdrawal, it converts the CUC™
into the preferred currency for withdrawal and then it burns the CUC™ which has
just been drained of its value through the withdrawal.
‘Domestic’ CUC™
Minting and burning CUC™ in direct proportion to the USD
value of deposits and withdrawals, respectively, is essential to eliminate the
possibility of CUC™ becoming inflated, or depreciated in value relative to USD.
The alternative approach, which we reject, is an algorithmic
approach such as are currently used by most so-called stable coins which are ‘pegged’
to USD. The fact that their exchange rates are frequently greater or less than
one US dollar betrays the underlying unreliability of their algorithms. The
collapse of the Terra-Luna stablecoin shows that the algorithmic stable coins are
vulnerable to catastrophic collapse when stressed (Liu, 2023).
This strict requirement to limit the amount of CUC™ to
correspond 100% to the amount of USD reserved is why YCCU members cannot put
CUC™ into a self-custody wallet. From a self-custody wallet, the CUC™ could be
exchanged with parties who are not YCCU members. This would put CUC™ into ‘the
wild’, beyond the control of YCCU.
‘Wild’ CUC™
While there may arise algorithmic methods which promise to allow
CUC™ into the broader Crypto Econosphere without causing inflation, algorithms
are only as reliable as the minds of the people who devise them and the skills
of the people who implement them into code. Rather than relying on the
implementation of a complicated algorithm to prevent the inflation of CUC™ as
they leave YCCU and go into the wild, the safest and simplest approach is to
not permit them to go beyond the custody of YCCU, and ensure that each CUC™ is
100% backed by USD reserves.
Wallets v Accounts
Digital Wallets
In recent years, digital banking has innovated digital
wallets (e-wallets). E-wallets[ii]
are designed to limit the financial damage which can be done to a customer by
‘walling off’ the wallet from direct access to the customer accounts.
Unfortunately, the notion of e-wallets causes significant confusion when
discussing crypto wallets. Both e-wallets and crypto wallets are often lumped
together under the generic term of digital wallets. Unfortunately, that
imprecise language obscures important differences between the various kinds of
digital wallets.
e-Wallets (Banking)
- Usage:
Primarily used for traditional banking transactions, online purchases, and
managing bank accounts. Examples include Apple Pay, Google Wallet, and
PayPal.
- Integration:
Linked to bank accounts or credit/debit cards, and often offer seamless
integration with financial institutions.
- Security:
Employs encryption and multi-factor authentication to protect user
information.
Cryptocurrency Wallets
Cryptocurrency wallets are designed specifically for storing
and managing cryptocurrencies like Bitcoin and Ethereum. Examples include
hardware wallets (e.g., Ledger, Trezor) and software wallets (e.g., MetaMask,
Trust Wallet).
- Integration:
Typically, not linked to traditional bank accounts but to blockchain
networks. Users manage private keys to access their cryptocurrencies.
- Security:
Involves private key management; hardware wallets offer high security by
storing keys offline, while software wallets are more vulnerable to online
threats.
Custody Matters
Custody refers to who has access and possession.
Understanding custody clarifies whether a wallet is really a wallet, or a
sub-account.
Wallets, both in Crypto and USD are differentiated from
accounts based on custody. Accounts are ledger entries against a fund whose
custodian is a financial institution. Wallets, in contrast, are in the custody
of the individual who owns or possesses the wallet.
Some exchange providers, e.g., Coinbase, Binance, etc.,
offer centralized custody of “wallets.” Although these providers refer to these
as wallets, they are merely specialized ledger entries, and the institution
still has custody of the funds and can deny or restore access to these
so-called wallets.
True crypto wallets, like their physical counterparts,
always have the characteristic of being solely in the custody of the possessor.
This means that when YCCU transfers a customer balance into a wallet, that
balance (and the monies it represents) exit the balance sheet and custody of
YCCU.
Self-custody: If you lose it, your monies are gone.
- · Physical Wallets (e.g., the billfold in your pocket, or purse). Used to carry physical cash, credit/debit cards, and identification. It’s a tangible object rather than a digital tool. Vulnerable to theft or loss; lacks digital security features such as encryption or biometric authentication.
- · Hardware crypto wallets: hardware wallets offer high security by storing keys offline. Vulnerable to theft or loss. If the cryptographic key is not compromised, the contents of a hardware crypto wallet will not be accessed by anyone not having the key.
- · Software crypto wallets: software wallets are more vulnerable to online threats. However, if the cryptographic key is not compromised, the contents of a software crypto wallet will not be accessed by anyone without the key.
Central-custody: When an institution has custody of
funds, regardless of the choice to refer to some accounts as e-wallets, or
crypto-wallets, the financial institution can both seize, release, and restore
balances, as required by law and customs.
- · Accounts
o
E-wallets: sub-accounts designed to store fiat
currencies.
o
Software crypto wallets: sub-accounts designed
to store cryptocurrencies.
YCCU maintains accounts and may deploy e-wallets and
software crypto wallets with centralized custody for members. These sub-accounts
remain on YCCU books.
For a customer to move CUC™ into a self-custody wallet, it
is a withdrawal and must first be converted to another currency. Self-custody
assets are not deposits and are not carried on YCCU books.
Conclusions About Wallets and Accounts
To understand cash flows and regulatory responsibilities for
YCCU it is necessary to understand wallets and accounts.
All accounts, regardless of what they are called, are
centralized custody products. They are carried in YCCU books and YCCU bears
regulatory responsibility for those accounts.
In contrast with accounts, YCCU has no custody of wallets
and bears no accounting or regulatory responsibility for those balances.
Who Will Build YCCU?
To make YCCU a reality requires a team of high-performing
individuals who bring a variety of things to the table.
We need Subscribers and Donors who bring both expertise and
money to the table. And, we need guides who understand how these two
econospheres can be bridged.
Subscribers and Donors
Subscribers[iii]:
We are looking for seven, or more, subscribers who are ready to lead the USD
and Crypto Econospheres into the next level of growth.
Donors: We are looking for cryptocurrency investors
and USD investors who are ready to bring financial civilization to the
wilderness of the Crypto Econosphere. Some may become both subscribers and
donors.
In the context of credit unions, the term "donors"
typically refers to individuals or entities that contribute funds or resources
to help establish and operate a new credit union. These donors may benefit in
several ways, although their motivations and rewards are different from those
of investors in for-profit enterprises.
Donations
When a credit union receives donations, these contributions
are typically accounted for in specific ways, depending on the nature of the
donation and its intended use.
Donations to support the formation of a credit union may be
eligible for tax deductions, depending on the nature of the donation and the
donor’s tax status. This can provide financial benefits through reduced taxable
income. (IRS, 2024)
Here’s a breakdown of how different types of donations are
categorized and managed:
Gifts
Donations made to a credit union
are usually considered gifts. These are voluntary contributions provided
without any expectation of repayment or return. (CUNA, 2024)
Gifts are recorded as income in
the credit union’s financial statements. They are typically classified under
"contributions" or "donations" in the income section. Gifts
can be used to cover initial capital requirements, operational costs, or
specific projects.
Endowments
If the donation is intended to be
held in perpetuity or invested to generate income over time, it may be
classified as an endowment. This is less common for credit unions but can occur
if donors specify that their contributions should be used to generate ongoing
support.
Endowments are usually recorded as
a separate fund within the credit union’s financial statements. The principal
amount remains intact, and only the income generated from the endowment may be
used for operational purposes or specific projects. (AICPA, 2024)
Loans
Donations are not typically
structured as loans. Loans involve an agreement for repayment with interest,
which is not characteristic of donations made to credit unions. However, if a
donor provides funds with the expectation of repayment, it might be considered
a loan rather than a donation.
If funds are provided as a loan,
they are recorded as a liability on the credit union’s balance sheet. The
credit union would account for repayments and interest payments as specified in
the loan agreement. (FASB, 2024)
Staking
A portion of the donations may be treated similarly to CDs. In the Crypto Econosphere this is called staking. These portions of the donations are used to fund the liquidity pools of the captive exchange. When BTC/ETH/USD are converted to CUC there is a transaction fee. Likewise, when CUC™ are converted to BTC, ETH, or USD there are transaction fees. When donations are used to fund those exchange liquidity pools, a portion of the transactions fees are paid to the donors. The remainder is retained as earnings to YCCU.
As
the financial domain of YCCU expands inside the Crypto Econosphere, the value
of exchange transactions will grow apace. This will provide a substantial
ongoing cash flow to the donors.
Deposits
Under the rules of YCCU (and most credit unions) there are mechanisms where, over time, donations can be converted into deposits.
While
founders don’t directly receive profits like shareholders in a for-profit
entity, they benefit from any profit-sharing or dividends distributed to
members. These distributions are based on the credit union’s overall financial
performance and are shared among all members, including founders. (Credit Union
Journal, 2024)
Donations Summary
Donations to a credit union are primarily accounted for as
gifts or contributions, recorded as income in the financial statements. They
may also be classified as endowments if specified by the donor to generate
ongoing support. Donations are generally not considered loans, or staking, as
they are given without the expectation of repayment.
Donors to a credit union can benefit from community impact,
enhanced reputation, potential tax benefits, strategic business opportunities,
and future involvement in the credit union. While these benefits are generally
less direct compared to financial returns in for-profit ventures, they align
with the mission-driven nature of credit unions and the broader social and
economic goals they serve.
How are Donations Used
When donors contribute financial resources to help found a
credit union, their contributions are used in several specific ways to ensure
the successful establishment and operation of the institution. Here’s a
detailed breakdown of what typically happens to these financial contributions:
Initial Capital and Reserve Requirements
The donations are often used to meet the initial capital
requirements set by regulatory authorities, such as the National Credit Union
Administration (NCUA). This capital is essential for starting operations and
ensuring the credit union has sufficient resources to cover early operational
costs and absorb potential losses. (NCUA, 2024)
Operational Costs
Funds are allocated to cover the initial setup costs, which
include legal fees for forming the credit union, obtaining necessary licenses,
and complying with regulatory requirements. Other operational costs include
office space, technology infrastructure, and initial staffing. (CUNA, 2024)
Regulatory Fees
A portion of the contributions is used to pay for regulatory
fees associated with the application process. This includes fees for reviewing
and processing the credit union’s charter application, as well as any ongoing
compliance costs. (Credit Union Journal, 2024)
Community and Member Outreach
Some of the donated funds may be used for community outreach
and marketing efforts to attract members and build a customer base. This
includes educational campaigns about the credit union’s benefits and services,
as well as efforts to engage the local community. (Credit Union Times, 2024)
Building Financial Stability
Donations help build financial reserves that provide a
safety net for the credit union. This ensures the credit union can operate
sustainably and remain solvent, even if it faces financial challenges in its
early years. (BIS, 2024)
Donations Usage Summary
The financial contributions from donors founding a credit
union are primarily used to meet initial capital and reserve requirements,
cover operational and setup costs, pay regulatory fees, fund community
outreach, and build financial stability. These expenditures are crucial for
establishing a sound and effective credit union that can serve its members and
fulfill its mission.
Intangible Benefits to Donors and Subscribers
In addition to the material benefits that accrue to donors
and subscribers, there are intangible benefits.
Community Impact
Donors may derive significant satisfaction from contributing
to a credit union that supports community development, financial inclusion, and
economic empowerment. By helping to establish a credit union, donors can
positively impact underserved or economically disadvantaged communities. (CUNA,
2024)
Personal or Corporate Branding: Enhanced Reputation
Donors, particularly corporate donors or philanthropic
organizations may benefit from enhanced reputation and positive branding.
Supporting the creation of a credit union can align with corporate social
responsibility goals and improve public relations. (HBR, 2024)
Business and Networking Opportunities
For businesses or individuals with strategic interests in
the financial sector, contributing to a credit union may provide networking
opportunities and foster relationships with other stakeholders in the industry.
(Financial Times, 2024)
Membership and Influence:
Donors who are also potential members might benefit from
future involvement in the credit union. They could have influence over its
operations, benefit from its financial products, or participate in governance
if they become members. (NCUA, 2024)
Donors and Subscribers Summary
There are many tangible and intangible benefits deriving
from being a founder of YCCU. The founders of the Transcontinental Railroad,
Leland Standford, Collis Huntington, Mark Hopkins, Charles Crocker, Thomas
Durant, and Grenville Dodge became wealthy, famous, and highly influential. On
their heels came Cornelius Vanderbilt who transitioned from steamships to
railroads in the 1860s to become one of the richest men in US history.
(Ambrose, 2001).
YCCU promises in 2024 to do for the Crypto Econosphere and
the USD Econosphere what the Transcontinental Railroad did for the Western
Frontier and the Eastern United States of America in the 1860s.
Now is the time to get on board.
Guides
With the vision, blockchain, and financial industry experience of Gilman Patrick, LLC and The Skillful PM, LLC you can build a financial legacy that will stand as a monument for as long as the metaverse exists.
Don't Miss These Related Articles:
Lebanon: How a Crypto Credit Union Can Help You Survive a Failed State
https://www.gilmanpatrick.com/lebanon-crypto-credit-union-solution/
Notes
[i] Keeping CUC™ on a
proprietary blockchain, instead of on a public blockchain, is required to
protect the financial privacy of YCCU members. All transactions on a
public blockchain such as Bitcoin and Ethereum are publicly viewable.
[ii] Digital wallets (also
known as e-wallets) are software applications that store payment information
and facilitate electronic transactions. They can be used to make purchases
online, transfer money, and manage payment methods. In modern banking, digital
wallets integrate with banks and financial institutions to provide convenient
access to funds and streamline payment processes. They often include features
like contactless payments, transaction history, and security measures such as
encryption and biometric authentication.
[iii] “subscribers” = a team
of people to help the credit union start (https://ncua.gov/support-services/credit-union-resources-expansion/starting-new-federal-credit-union
)
[i] The desire to use
cryptocurrencies to replace traditional fiat currencies such as the USD is a
topic of significant discussion in the financial and technological sectors.
Here are some quotes and citations reflecting this desire:
"Cryptocurrencies have the potential to replace
traditional fiat currencies as they offer a decentralized and secure
alternative to the current financial system" (Tapscott & Tapscott,
2016, p. 245).
"The move towards a decentralized financial
system, driven by cryptocurrencies, is seen as a way to mitigate the risks
associated with central banking and fiat currencies" (Narayanan et al.,
2016, p. 12).
"Cryptocurrencies challenge the traditional fiat
currency system by providing an alternative that can operate independently of
central banks and national governments" (Catalini & Gans, 2016, p. 4).
"The vision of cryptocurrencies replacing
traditional currencies involves a radical transformation of the economic
system, where blockchain technology ensures transparency and efficiency in
financial transactions" (Yermack, 2013, p. 35).
These quotes and sources reflect the various aspects of
the conversation surrounding the potential for cryptocurrencies to replace
traditional fiat currencies, focusing on their benefits, economic implications,
and transformative potential.
[ii] If BRICS becomes a
functioning econosphere YCCU may also bring it within its architecture.
[iii] FinTech represents a
broad category of technological innovations that disrupt traditional financial
services by offering more convenient, efficient, and cost-effective solutions.
These innovations leverage advanced technologies like artificial intelligence,
blockchain, and big data analytics to provide services such as digital
payments, automated investment advice, and personal finance management. (Arner
et al, 2015) (Gomber et al, 2017) (PWC, 2020)
[i] Staking in the context of
cryptocurrencies refers to the process of locking up a certain amount of a
cryptocurrency to support the network's operations for a specific time period.
In return for their participation, stakers are often rewarded with additional
cryptocurrency.
[ii] Drexler, A. (2020). The
econosphere: A new perspective on economic systems. Oxford University
Press.
This book provides an overview of the concept of the
econosphere and its application to understanding economic interactions and
systems.
[iii] World Bank. (2021).
Global economic prospects. https://www.worldbank.org/en/publication/global-economic-prospects.
This report offers insights into global economic conditions and interactions,
reflecting aspects of the econosphere in a broader context.
[iv] BRICS is an acronym for
an association of five major emerging economies: Brazil, Russia, India, China,
and South Africa. The group was originally known as "BRIC" before
South Africa joined in 2010. BRICS aims to enhance cooperation among its member
countries, promote economic growth, and provide a platform for political
dialogue on global issues. BRICS represents a significant bloc of emerging economies
with substantial influence on global trade and economics. The member countries
collaborate on various fronts, including economic policy, development
initiatives, and reform of global financial institutions. The group's primary
goals are to foster mutual economic development, improve trade relations, and
enhance political coordination on international matters.
(Krahmann, 2019) (The Economist, 2023) (BRICS, 2024)
[i] Today, many crypto users
rely on so-called stable coins which are pegged to the USD using algorithms.
Unfortunately, the collapse of Terra-Luna showed that these algorithms are
unable to withstand significant stressors. The fact that all the remaining USD-pegged
stable coins typically trade for more and less than one dollar reflect the
underlying reality that their algorithms are not entirely sound. Having a
safe-haven crypto tied directly to USD deposits instead of using an algorithm
would be more stable than the current self-anointed stable coins. (Liu, 2023)
[ii] NCUA defines a subscriber
as any seven or more natural persons who seek to form a federal credit
union. We propose these subscribers also
be the funding Bitcoin donors and governing members.
[iii] In the crypto community every
new currency or enterprise is referred to as a project.
[iv] DAO Treasury, once
approved by NCUA the Credit Union DAO is created on the L1 Ethereum and its
seven governing members donate 700 Bitcoins or the equivalent amount of ETH.
The DAO Treasury will be created on L1 Bitcoin. There is no obligation for the
Credit Union to repay or refund these Bitcoins. However, a typical CU’s will
convert these donated funds into savings accounts once the CU is deemed
sustainable.
[v] A 2024 report by
Chainalysis (2024) found that rug pulls accounted for approximately 37% of all
DeFi-related scam incidents. This underscores the prevalence of this type of
scam within the DeFi space.
[vi] Required Policies: Fair
Lending Policy and Loan Policy, Collection Policy, Loan Charge-Off Policy,
Allowance for Loan and Lease Losses Policy, Investment Policy, Cash Policy,
Bank Secrecy Act/Customer Identification Program, Office of Foreign Assets
Control Policy, Truth-in-Savings Policy, Director Fiduciary Duties,
Reimbursement Policy, Asset Liability Management Policy, Liquidity Policy,
Vendor Management/Third Party Relationships, E-Commerce Policy, Security
Program, Disaster Recovery and Business Continuity/Resumption Policy, Privacy
Policy, Identity Theft Red Flags, Credit Report Discrepancies, and Records
Disposal.
[vii] Exploits are illegal or
unethical activities resulting in the transfer of cryptocurrencies into the
hands of criminals or terrorists.
[i] NCUSIF (National Credit
Union Share Insurance Fund) is the credit union equivalent of the Federal
Deposit Insurance Corporation (FDIC). The coverage of NCUSIF mirrors that of
the FDIC.
[i] Safe-haven currencies are
currencies that investors seek out during times of economic uncertainty or
financial market turmoil. These currencies are perceived to retain value or
appreciate when other assets are declining in value. They are considered safe
investments because they are associated with stable economies, strong financial
systems, and low levels of political risk. Examples of safe-haven currencies
are the Swiss Franc, US Dollar, and the Japanese Yen.
[i] The financial equivalent of an ecosphere can be thought of as a financial ecosystem or an econosphere. Just as an ecosphere includes various interconnected organisms and environmental factors that create a balanced, self-sustaining system, an econosphere consists of various interconnected financial entities and elements that interact to create a functioning economic environment.
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