The First Offshore RMB Stablecoin: a Farce

On September 18, several Chinese media announced that CITIC International Assets Management Limited (hereinafter referred to as CIAM) and Galaxy Digital Assets Management Company Limited (hereinafter referred to as “Galaxy Asset Management”) launched the first stablecoin pegged to offshore renminbi (CNH). It is named as the Wealth in Token(WIT).

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Based upon the released articles and subsequent analysis, cryptocurrency enthusiasts had been highly supportive of the WIT, hoping that it would be a step forward for China to enter the regulated stablecoin market. Yet, some people soon discovered its flaws. This so-called revolutionarystablecoin, pegged to offshore renminbi, is likely to be a fraud designed by the capital and project parties. Investors should be on their guard.

According to the financial analysis, WIT has a questionably high initial supply. Additionally, the project parties’ backgrounds are equally controversial. Serious flaws also exist in the token’s design, access control and other technical features.

What is WIT?

According to the report, WIT is a blockchain application based on Ethereum. Using offshore renminbi for settlement, WIT requires an auditing process in order to issue electric tokens for clients based upon their high-quality digital assets or pledged assets deposited in excess.

WIT and Galaxy Assets Management exchange at a price ratio of 1:1. As a result, the media hailed the WIT as “the first offshore renminbi stablecoin in Hong Kong.”

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 Yet, we know that Chinese law currently prohibits cryptocurrency. As a type of cryptocurrnecy, stablecoin is also banned. It is unlikely that CIAM openly violates the regulations, cooperating with a Hong Kong company to issue this stablecoin.

The biggest obstacle facing WIT is policy risk. The People’s Bank of China, State Administration of Foreign Exchange, and Hong Kong Monetary Authority all have certain supervision over offshore renminbi. In fact, the People’s Bank of China has repeatedly issued regulatory notices, reducing the overall liquidity in the Chinese bitcoin market and stymying exchange activity. For this reason, the stablecoin pegged to offshore renmibi is completely unacceptable according to the policy, at least for now.

In June 2017, the People’s Bank of China released a statement cautioning crypto-enthusiasts of the dangers associated with digital currency trading and initial coin offering. It states that the central bank has not yet legalized nor authorized the issuance of cryptocurrency. Songcheng Sheng, a senior advisor to the People’s Bank of China, said in June 2019 that “the research and development of cryptocurrency must be as considerate as possible. Only the People’s Bank of China is permitted by law to issue the digital currency.”

The central bank sent out clear regulatory signals to the cryptocurrency market, declaring that the issuance of cryptocurrency and the provision of services for digital currency trading remain prohibited. In fact, if we take an in-depth study of the WIT, this new payment channel is suspicious of many illegalities.

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 As shown on its official website, the WIT started to circulate in the market as early as August 1, despite its lack of public notice. Its sudden rise to popularity may be the company’s deliberate attempt to exploit the cryptocurrencybuzz, repackaging a stablecoin that was already on the market.

An Initial Trading Volume of $1 Billion

The issuance of WIT is allegedly based on a capital pool of liquid assets and fiat currencies. Using renminbi cash and other assets as collateral, WIT is endorsed by the bank at a constant value.

Shockingly, the contract addresses of WIT show an initial trading volume of one billion. According to the exchange rate ratio, this amount suggests the issuance of one billion yuan of equivalent tokens starting from WIT’s initial coin offering. Following the logistics of stablecoin issuance, this means that WIT must have a deposit of one billion renminbi as the underlying asset for mortgage. Yet, its deposit information is nowhere to be found.

A Corporate Investigation

As exposed by a number of media in further investigations, WIT issues an initial report that is problematic and misleading in terms of content.

CIAM Denies Its Involvement

CIAM is a member of CITIC Group, with the initial core business of real estate and distressed assets management. Whilst accomplishing its original mission, CIAM gradually transforms into a private equity Investment and asset management company focusing onChina.

Many people concluded from the initial WIT news that having CIAM as its disposal, the newly issued WIT is a radical move for China to enter the stablecoin market.

Yet, staff members from CIAM’s Hong Kong headquarter clarified this matter in an email response to ChainNews, saying that that company involved in the WIT report is not CIAM.

On the company’s official website, there is no announcement about the launch of a stablecoin pegged to offshore renminbi.

The Galaxy Asset Management Fused Pornography With Blockchain Technologies

The creditworthiness of Galaxy Asset Management, which is entangled in the stablecoin scandal with CIAM, remains unverified.

According to the media report, the above-mentioned offshore renminbi stablecoin is issued by Galaxy Asset Management. The company name itself is quite misleading, reminding people of Galaxy Digital Capital Management, which is a leading digital asset management firm founded by the ex-hedge fund billionaire Michael Novogratz.

Unsurprisingly, the Galaxy Asset Management mentioned in the report is completely unrelated to the one founded by Michael Novogratz. The Galaxy Asset Management was not incorporated in Hong Kong until March this year. After its establishment, the company issued a virtual currency called PAO. Blockchain technology is making more moves in the sex industry, as PAO is a cryptocurrency connected to the adult entertainment industry.

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Moreover, the actual controller behind the Galaxy Asset Management and Trust Credit Power (TCP), which is in strategic partnership with WIT, is the same person. Thus, the capital funding in the issuance of WIT is still a puzzle.

TCP aims to integrate blockchain technology with the booming house renting market, building a new set of credit mechanism to ensure the authenticity and efficiency of leasing transactions.

The ArxanChain Accusation

The ArxanChain Fintech Company, which provides technical support for WIT, is also problematic.

As shown on its official website, ArxanChain aims to “explore the application of cutting-edge services such as cloud computing, big data and artificial intelligence in the financial industry by using the blockchain technology” and “become the builder and service provider of the next generation financial infrastructure.”

In addition to its involvement in the WIT fraud, ArxanChain recently appeared in the news for another marketing stunt. According to several media reports, ArxanChain, UnionPay and the Department of Computer Science at Tsinghua University launched an application called “A Digital Wallet Campus Edition.” This allowed them to experiment with the industrial application of cryptocurrency.

The above study was soon arrested, however, for raising two controversies. First, no other entities except the People’s Bank of China are allowed by law to issue cryptocurrency. Without being registered with the central bank, no cryptocurrency can be considered legal, according to a person familiar with the matter. Second, ArxanChain has no cryptocurrency payment license.

Too Many Kinks 

WIT also has many flaws in design and technology. Chao Pan, a stablecoin research expert at MakerDAO, found that WIT has the following problems in token design and access control management.

Token Design

WIT doesn’t have the burn function, which is supposed to send the token to the 0x0 address. This defect will cause WIT to be incompatible with many Proof of Burn contracts. The gas cost of the transfer function is overly high, generating unnecessary gas and balance calculations.

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 Access Right

Let’s take a look at the implementation of access rights, which directly relates to trusteeship. WIT uses openzeppelin’s Ownable, Roles and RBAC for access control while customizing the access rights of CEO, COO, CRO (Chief Risk Officer), operator and auditor.

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In BlackListToken and PauableToken’s contract, we see that the CEO has full authority to freeze, unfreeze and clear the balance of any account at any time. The CRO can also freeze and blacklist any account.

The CEO is allowed to not only appoint a COO anytime, but also re-appoint the CRO, the operator and the auditor. In short, the CEO has the absolute right to control all tokens.

In addition, the issuance and redemption of WIT only require confirmations from the operator and the auditor. The contract is not designed to include security measures such as multi-signature and an offline encryption key.

Similar to GUSD, WIT has new functions in its contract. The owner is allowed to modify the token’s total supply, account balance, transfer, etc.

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 Like other stablecoins, WIT makes no breakthrough in terms of decentralization. The concentration of power in the hands of CEOs entails a lack of transparency, exacerbating security risks and violating the decentralized nature of cryptocurrency.

In general, WIT as a stablecoin allows its company to supervise offshore renminbi, adopting basic security practices such as SafeMath for division overflow (it happens when an arithmetic operation reach the maximum or minimum size of the type) under openzeppelin’s framework. Without the protection of multi-signature and an offline encryption key, however, the owner and the CEO’s access rights are highly centralized. This reality renders WIT very weak in terms of transparency and security.

Its Origin Story Remains Shrouded in Mystery  

In fact, the initial media reports on WIT all point to one news source, Gelonghui, which is a news outlet focusing on the Hong Kong stock exchange. As the voice of doubts grew, people began to question the authenticity of WIT’s news source.

If the above-mentioned stablecoin is trustworthy and meets regulatory requirements, the mainstream media are likely to out-scoop each other to report on this spot news.

As of press time, however, we haven’t seen Gelonghui’s news report on WIT.

The two companies involved in the WIT controversy are unreliable, the design of WIT is full of kinks, and the initial news source remains unsubstantiated. We will leave it here, and let readers decide for themselves whether this yuan-backed stablecoin is an absurd deception or a revolutionary breakthrough.

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