Institutional

A government-backed cryptocurrency is gearing up to launch following fund creation and UN talks

Quick Take

  • The Marshall Islands has announced a not-for-profit, independent development fund to manage its government-backed token, SOV
  • SOV will be accepted at all major vendors in the island nation
  • The blockchain behind it will be open-source, allowing other countries to fork it and potentially establish their own local digital legal tender

The Marshall Islands could see its own cryptocurrency replace the US dollar, and a new fund is being launched to spur the digital asset’s adoption.

The so-called SOV Development Fund will sustain the infrastructure around SOV, the digital currency recently declared the republic’s official currency. 

The token, which has a controversial past, hopes to solve what some view to be a major problem with cryptocurrencies like bitcoin: the fact that they aren’t backed by a government. The hope for SOV is that its adoption by the Marshall Islands, a tiny Pacific Ocean archipelago, will give it a leg up over other cryptocurrencies. While bitcoin is officially recognized as acceptable tender in countries like Japan, it is not considered the sovereign currency, a designation that would force international organizations to afford it the same respect as the euro and yen and require merchants to accept it. In Japan, although bitcoin is legal, merchants are not required to take it as payment.

SOV is built on its own blockchain and will have to duke it out with the U.S. dollar, which the country’s 53,000 residents are free to continue to use.

SFB Technologies, the company hired by the Marshall Islands to develop the technology behind SOV, has a tough hill to climb to get the crypto as popular as the bitcoins of the world, to be sure. And there’s no guarantee regular people will ever use it, even the residents of the Marshall Islands. Indeed, the democratically-elected President Hilda Heine almost lost her premiership after the Parliament triggered a vote of no confidence last year over the coin. 

Here comes the fund

Still, the fund could play a key role in making the cryptocurrency a success. It includes heavy-hitter advisors like Luis Ubinas, former President of the Ford Foundation, and seven directors, two of whom the government will nominate, according to a press release. It added that once the token is launched, “the goal is to transition to an alternative governance model based on blockchain.”

Now, Heine’s plans for creating the so-called “first legal tender cryptocurrency” are being presented at the UN’s Blockchain for Impact Summit. They also explained the fund’s utility, which aside from managing SOV, will also include financing social good to rectify some of the Marshall Islands’ issues like corruption and economic underdevelopment.

“The SOV Development Fund’s mandate is to maintain the SOV infrastructure long term; to seed the ecosystem around the SOV; to promote the SOV and its uses, both domestically and internationally,” the SOV’s Chief Economist, Peter Dittus, Ph.D., told the audience via video link. 

The development fund will be endowed with 30% of the SOV’s initial supply, while 10% of total SOV distribution will go to investors in the token for helping jumpstart its development. Another 10% will be delivered to the islands’ population for free via airdrop once the SOV mainnet is launched at a yet-undecided date. This will jump start circulation, which will be followed by a time-released monetary issuance early next year. The tokens will be stored in banks once issued.

Barak Ben-Ezer, Developer of the SOVChain, explained to The Block in a meeting in New York that the token should help build an entirely new economy for the nation. The goal is also to develop a special economic zone to attract new “companies and exchanges and banks and start-ups.”

“[The fund] is going to serve the Marshall Islands, its current economy,” he said. “The more the special economic zone grows, the more the SOV will grow. The more the SOV grows, the more funds we will have in the special development fund to support the ecosystem.”

Meanwhile, Ben-Ezer said that a new token and blockchain were necessary to truly bring together the digital asset and financial worlds. Specifically, he said it was wishful thinking that governments will change laws in the U.S. to treat bitcoin and others as currencies, which has important capital gains tax implications. Ben-Ezer also noted that Bitcoin has a limited supply, which means its value would remain too high to act as a true currency.

As such, Ben-Ezer explained the fund’s plans to open-source the SOV token, so countries like the Cayman Islands and Monaco can fork it and make their own blockchain.