In an effort to avoid the regulatory challenges faced by many centralized exchanges
In an effort to avoid the regulatory challenges faced by many centralized payment exchanges and services, Diamond Standard Co. launched a blockchain alternative payment system called CARATS.
CARATS departs from centralized exchanges and traditional payment services by using tokenized diamonds, backed by real commodities, to facilitate payments, money transfers and wealth transfers between users.
Individuals can purchase full or partial quantities of these tokenized diamonds, exchange them, transfer them, exchange local fiat currencies, or choose to exchange the token for delivery of physical diamonds.
Standard Diamond Co. This is done by minting physical coins and bars, studded with real diamonds, and an embedded chip that can authenticate the diamond and broadcast a tokenized copy of the asset on the blockchain.
Users can send these carats via SMS or social media platforms, allowing people without bank accounts to send electronic payments.
Since CARATS is not actually a cryptocurrency, but a means of transferring receipts for a physical good, the platform is protected from the normal regulatory hurdles surrounding money transfer services.
This allows CARATS to act as a payment center without having to obtain a money transfer license in each jurisdiction where the service is active.
Elon Musk’s social media platform X faces the same regulatory challenges in its attempt to become a social media network with an integrated payment system.
In 2023, X was able to obtain money transfer licenses in the US states of Missouri, Michigan, Arizona, Georgia, Maryland, New Hampshire, Pennsylvania, South Dakota, Kansas, Wyoming and Rhode Island.
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However, the platform must obtain a money transfer license in each of the 50 US states, as well as a license for each country in which the social media platform’s money transfer service will be active.
This means that hundreds of individual licenses must be issued before X becomes a viable money transfer service. Cormac Kenny, CEO of Diamond Standard, said:
“Many money transfer companies are stuck in the past, ignoring all available tools or adhering to legal and regulatory hurdles when it comes to payments and money transfers. »
“This is a difficult problem to solve, even for forward-thinking payment innovators like Elon Musk, whose X platform cannot do business as a money transfer device in 34 US states and 200 other global jurisdictions,” he explained.
Likewise, centralized cryptocurrency exchanges face the same problem: having to obtain money transfer licenses and other permits to operate in each jurisdiction in which a particular platform offers its services.
Despite these strict regulations, many centralized cryptocurrency exchanges with money transfer licenses still engaged in questionable practices that led to their demise and loss of customer assets, including FTX in 2022.
Obtaining these regulatory permits is often a long and arduous process. IBTCEX, Huobi HK, QuanXLab and four other exchanges recently withdrew their applications for operating licenses in the Hong Kong market.
