3 PAYMENT METHOD SCORECARD: STABLECOIN
3.6 Stablecoin Security Metrics
Refund Mechanisms Refunds are possible through the payment service provider the merchant is using. For example, some service providers offer mechanisms for both consumers and merchants to initiate a refund using stablecoins. 867 868 Brand Risk Cryptocurrencies have a reputation for illicit transactions. Stablecoins have offered the same opportunity for criminals and therefore are seen as risky both to consumers, merchants and legislators. 869 Fraud Risk (Merchant) Each user’s wallet has a private key and a public key that makes it unique. The public key can be thought of as an account number and can be shared to peers and businesses to make a transaction. 870 The private key can be derived from the public key but is supposedly very difficult to crack. The increased security with how stablecoins utilize blockchain technology is helpful to decrease fraudulent transactions. On the other hand, stablecoins continue to present themselves as useful for crime. 871 872 Fraud Risk (Consumer) As noted in the error resolution framework section, the user accepts the risk when sending stablecoin. In the instance of fraudulent activity, it is not guaranteed a user would receive the funds back.
Weight Score
Approvals Considerations Error Resolution Framework System Liability Rules (i.e. Network Rules)
15% 5.0
15% 1.0
20% 2.0
Refund Mechanisms
10% 3.0 10% 1.0 15% 3.0 15% 1.0
Brand Risk
Fraud Risk (Merchant) Fraud Risk (Consumer)
TOTAL SCORE
2.3
Approvals Consideration Blockchain technology ensures security regarding approvals for stablecoin transactions. Validation of the transaction, including fund verification, correct formatting, and blockchain rule compliance, is necessary before the transaction is added to the blockchain. 863 Error Resolution Framework Tether 864 states in its Terms of Service, “Tether Token transactions are not reversible. Once you send Tether Tokens to an address, whether intentionally or by a fraudulent or accidental transaction, you accept the risk that you may lose access to, and any claim on, those Tether Tokens indefinitely or permanently.” Circle 865 also states similar users’ responsibility of loss in the case of fraudulent activity on a state-by-state basis. Liability Rules (i.e., Network Rules) Stablecoin transactions are final and immutable given the nature of blockchain technology. This means users are usually held liable for both fraudulent and unauthorized transactions. 866
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