The case for ZEPH collateralised stablecoins

George Harrap
9 min readMay 30, 2019


This post is mainly directed towards the ZEPH community, a reward token for the Bitspark network. This month marks the 8th buyback of the ZEPH from the markets which is an awesome achievement with more to come as the launch of the new Bitspark mobile app with ZEPH rewards is just over the horizon at the end of Q2. We also recently launched in April the new updated Bitspark web platform ( fully integrated with Sparkdex and enabling anyone to deposit and withdraw via cash in a number of currencies and locations and exchange their fiat for cryptocurrencies and visa versa. ZEPH is centered prominently in every user account by default and with the new updates due soon Bitspark clients will see ZEPH rewards deposited directly to their account for transacting, this helps grow the value in the ZEPH network and enable us to grow the Bitspark cash network.

The whole idea is that usage of the Bitspark platform rewards to the customer a small amount of ZEPH from fees, a portion of these fees is used to buy ZEPH from the market ensuring the more fees paid by transactions the more ZEPH that is bought from the market and increased upward pressure on price. It is also in the pipeline to offer special offers of ZEPH for large customers to sign up and make use of the Bitspark platform- for example various money transfer agents that can bring large volume and coverage. We are always looking for additional methods to add value for ZEPH token holders which I think can increase exponentially with the development of P2P Margin Trading / Lending on the Bitshares DEX, an idea I proposed on this Medium blog last year and which now with the support of the Core Team has made its way to a draft BSIP for a protocol upgrade. Exciting times as it will enable any DEX user to be able to lend their tokens (including ZEPH, BTC, ETH, BTS etc) for a daily interest rate to the market for the purpose of trading at leverage. This will bring passive income opportunities, increase volumes, reduce slippage, incentivise stablecoin creation and bring thousands of new users and applications to the Bitshares DEX and Bitspark markets.

We are therefore very focused on making the BSIP happen and getting it done- behind the scenes we are pushing this for a go live date and locking down any outstanding technical problems, I’m confident it’ll happen its just a question of when. The margin trading is one new mechanism that will help to add value to ZEPH token holders and another potential avenue to look at is ZEPH as collateral for Bitspark issued stablecoins.

#DeFi is cool

Recently, the word #DeFI has really caught on, with a few Ethereum projects getting good traction enabling lending and borrowing of various tokens for a daily rate of interest. This has enabled tokenholders of DAI (an ethereum based USD trustless stablecoin) to be able to lend at approximately 12–14% APR and borrow at slightly higher than that- earning 12–14% on USD is much better than you’d find at a bank. Other tokens like ETH also have lending rates defined by market conditions or used for leveraged trading on platforms like DyDx and this is all done in a transparent and non-custodial manner interacting only with the smart contract available on the blockchain. Very cool. Some projects like Synthetix have created synthetically based stablecoins collateralised by their specific token, SNX. Whereby SNX can be locked in a smart contract in order to create a stablecoin for a specific currency or commodity and users who provide liquidity can earn small fees for doing so. This helps add value to the SNX token and while this could be achieved by using ETH aswell using their own token ensures the incentives to pay for a full development team, security audits, web development, wallet development, token exchange listing and others are aligned between the company and the tokenholders. Nothing good comes for free so the usage of their own token to add value which helps pay for the continuing development of their ecosystem is a good idea. The same can be said of Binance- the BNB token started as an ICO and has since developed into an entire standalone blockchain, DEX, project launchpad and investment fund and it is another good example of a centralised token being used to increase growth and development of new products and services adding value to their customers. BNB has also been the best performing token in the last 6 months due to the alignment of these incentives increasing growth of the finance ecosystem which feedback to increase the growth of the token, a positive feedback loop.

Given the recent exciting advancements to the Bitshares DEX like HTLC and perhaps soon to be the first real large scale margin trading and lending on a DEX, this could be a good opportunity for ZEPH to take front and centre stage being used to collateralise new Bitspark issued stablecoins.

Bitshares Stablecoins

I have previously gone over why I think Bitshares is the optimal platform for stablecoin issuance, today I want to however focus on the issuers and the pros and cons for ZEPH collateralisation vs BTS. At the moment the Bitshares Committee (of which I am a member of, voted in recently by tokenholders) issue a number of stablecoins on the Bitshares DEX: BitUSD, BitCNY, BitEUR, BitAUD, BitSGD, BitKRW, BitARS, BitBTC and many more. These stablecoins are collateralised with the native token of the blockchain BTS and therefore there is no ‘trust’ issues associated with the collateral of these coins. BTS has a fixed supply, no inflation and is not issued or controlled by one single entity, it is therefore a good base for many of the politically neutral stablecoins issued by the neutral committee.

Bitspark also recently launched our first trustless stablecoin, peg.PHP which we are launching with some new partners in the Philippines for transactions and bill payments. Our intent has always been for 180 stablecoins for 180 global currencies on the DEX and we are adding new stablecoins almost monthly with the next in line being Peg.IDR, Peg.VND, Peg.ZAR and others. In the case of Peg.PHP it is also collateralised with BTS in order to ensure the underlying collateral is not ‘trusted’ or can be manipulated by any one entity. I think this is a sound decision but we are also open to collateral of ZEPH being a base for future stablecoins.

As described above, other projects out there are delivering value with their somewhat trusted (and there are many levels of ‘trust’) coin as a base and the market is very interested in seeing that adoption. If we were to add ZEPH as collateral for future stablecoins it would also massively add value to the ZEPH ecosystem due to every stablecoin in circulation requiring an amount of ZEPH to back their value and Bitspark (and anyone else) is in the market to purchase stablecoins since that’s what we need to operate our business. ZEPH is a token issued by Bitspark and ultimately Bitspark as the issuer can change a few flags or permissions in the ZEPH token itself (although we have no intent on doing so) which is where the ‘trust’ element comes in. Some of those permissions can be seen here: with things like setting a market fee, blacklisting user accounts or transferring the asset back to the issuer. There are different uses for permissions, in the Bitshares world there are many permissions an issuer may enable as they may be needed in future, for example the permission enabling an issuer to change the trading fee for that asset over time makes sense. There is also a permission for ‘transferring tokens back to the issuer’ which has been used by other issuers (not Bitspark) when a customer gets hacked and loses coins, the issuer can then recover the coins to the user. We don’t believe this is something we will ever do (and it has been requested by customers who have been hacked and lost their ZEPH before) as it is the responsibility of the individual to maintain ownership of their own keys and where do you draw the line between ‘this customer legitimately lost their tokens through no fault of their own’ and ‘this customer lost their tokens due to their own actions’ it is not up to us to protect customers from themselves and it is also a moral hazard if voluntary transactions can be reversed which is why maintaining backups, proper custody and vigilance of your private keys is very important.

ZEPH as a base

ZEPH is central to the Bitspark ecosystem, it is the one metric we use internally to judge progress as it encapsulates a lot of things- new users, revenue, traction etc. If it was used as the collateral base for future Bitspark issued stablecoins there are some pros and cons to weigh in on:

Pros and Cons of ZEPH Stablecoins

The main consideration is “How much value does the market place on the backing asset being fully decentralised?”. On first look, one might think that decentralised asset backing is the most important thing that trumps all other considerations and while that may be true for some, the evidence is the market values projects which can add value to an ecosystem more, e.g. BNB, MKR, SNX etc. If the market valued trustlessness above all else then nobody would use CEX’s and everyone would be trading on a DEX, however that’s not reality- Binance and Bitmex have billions of dollars in trading volume because they provide a useful service to their customers in a manner that is profitable and centralised. That is not to say ZEPH is really that centralised, if you have ZEPH in your DEX wallet its yours, you own it and you have custody of those private keys and only you can send it or exchange it, self custody is orders of magnitude better than using a CEX like Binance or Bitmex to custody your money.

Another important consideration for ZEPH Stablecoins is liquidity, it might be possible for a whale to influence the market by dumping a lot of ZEPH on the BTS/ZEPH (most liquid market) which pushes the price down, which causes a number of ZEPH based stablecoins to go into Global settlement. In the case of BTS that is less likely because BTS has more liquidity. This is where additional liquidity would be needed and the proposed BSIP on Margin trading might come in handy, with people able to take leveraged bets on the DEX orderbook it increases available liquidity and dampens slippage. In the case of a GS, funds in Bitspark reserve could be used as an ‘Insurance fund’ to bid collateral for the GS’d assets and refloat them, in the case of BTS this costs an amount of money- whereas a ZEPH Insurance pool already exists. Additionally with ZEPH the value is always backstopped from buybacks so the token will always have buys taking place assuring the token can never go to 0 and therefore the collateral bids would have a value and make it easier to refloat a stablecoin in Global Settlement.

As Bitspark grows the usage of our stablecoins with BTS ascollateral that puts upward price pressure on BTS which is good for the ecosystem, in the case of ZEPH there would still be fees paid in BTS to the blockchain so there is a correlation between ZEPH collateralisation and increased buy pressure on BTS although nowhere near the amount that it would be if BTS were the collateral. Bitspark should also not use reserve funds for collateralisation of stablecoins, the massive imbalance would cause the price of said stablecoins to drop if more ZEPH were to enter circulation which would drop the price and increase likelihood of GS, therefore only ZEPH that has been bought from the market from buybacks should be used by Bitspark for collateralising if at all, otherwise the preference is for the market to do it without Bitspark anyway.


This is not on our roadmap and wasn’t planned but I think it might be something interesting for token holders of BTS and ZEPH to consider for ZEPH to be used as collateral for future Bitspark stablecoins. The committees job is to deliver solid neutral stablecoins, our job as a private company is provide value for our customers- if we do that then we add value to the entire BTS ecosystem anyway so it might be the case that privately issued stablecoins can and maybe should have their vested interest aligned with tokenholders of their specific token.

The reason we didn’t do this in the first place was we were placing ultimate value on being as decentralised as possible with our stablecoins. However most of their usage will be via our centralised mobile app and web platform anyway so maybe adding a small element of trust in using ZEPH as collateral instead of BTS is an acceptable trade off for a massive value add. An increasingly valuable ZEPH ecosystem ensures we have the capability much like Binance and others to focus on new applications, business development, marketing and customer acquisition to grow the value of the entire ecosystem and fulfil our mission statement- that of being the leading cash to crypto exchange globally. Im interested to hear your feedback and will be sure to update you if we have any further input.