In a recent landmark move, Israel has finally approved BILS; a sandbox stablecoin model pegged to the New Israeli Shekel (NIS). This was authorized by the Capital Market, Insurance and Savings Authority (CMISA) of the country which paved the way to a small-scale launch.
With stablecoins gaining traction in the mainstream across the globe, this approval is not only a regulatory move, but also an indication of a strategic move towards making the shekel a part of the global digital economy.
What exactly is the BILS?
BILS is a digital currency, which is pegged to Shekel, and is expected to have a 1:1 value with the currency. It was published by Bits of Gold, a crypto financial services firm in Israel . The BILS pilot was built on the Solana blockchain and Fireblocks, a leading institutional-grade digital asset infrastructure company, and was introduced to oversee the issuance and custody of the currency. This newly adopted policy will actually provide a clear and safe base for the token by ensuring that reserve assets that support BILS are deposited in specific and isolated accounts of domestic banking institutions.
The regulator included the conditions related to the technology risk management, cybersecurity, business continuity, and constant disclosure requirements. Moreover, Israel also had the privilege of utilizing QEDIT for privacy and compliance technology, and EY for independent auditing and professional control of the project, giving it a considerable level of credibility.
The two-year regulatory process that resulted in the sandbox approval
The path to the sandbox approval of BILS was not very fast and easy. The sandbox license was given following a two year review process whereby Bits of Gold provided a special pilot to assess its capability in issuing and operating stablecoins safely, responsibly and under supervision. The pilot reviewed the capabilities of the company in issuing and managing a stablecoin, protecting the assets of the customers and addressing the custody risk.
It was carried out as a pilot within a regulatory sandbox framework, which aims to test financial innovation in a supervised manner but with minimal risks to both the system and the population. The regulator examined the issuance, client asset custody, risk management, and business continuity, cybersecurity, and adherence to regulatory standards. Amit Gal, the head of the authority said that the initiative favors technological innovation, financial stability and customer protection, something that aligns well with the country’s financial motives.
What are the most important features of BILS?
BILS is not just a computerized version of the Shekel, it is created as a versatile financial instrument that has numerous applications in real life. Israel has made sure that the stablecoin will meet the domestic and global financial requirements. The major features of the BILS and the scenarios of its application are provided below:
- Real-Time Payments: BILS will allow real-time blockchain-based domestic and cross-border payments across the country, decreasing the time to settle a payment to several seconds.
- Foreign exchange transactions: BILS is meant to be used in foreign exchange transactions against the major stablecoins, like USDC, and provide a user with an alternative to dollar-based digital assets in their local currency.
- Smart Contract Execution: The token is programmable and can be deployed to on-chain finance protocols and automated financial deals in decentralized finance (DeFi), expanding the involvement of the country in on-chain finance.
- Global Shekel Transfers: The sandbox approval permits global shekel-denominated transfers, supporting communities and international trade relationships
- Financial Inclusion: With BILS, anyone who has access to the internet can do financial transactions, without the requirement of a traditional bank account: a major milestone towards becoming more financially accessible in Israel.
- Liquidity Provision: This stablecoin is developed to help liquidity pools in decentralized exchanges, which is helpful in the context of market makers and institutional traders in the digital asset market.
- On-Chain Trading: BILS can be used as a foundation by the traders on decentralized platforms to trade pairs without having to rely on USD-pegged stablecoins, which subject users to foreign monetary policy.
Role of BILS in the overall crypto strategy of Israel
The sandbox approval of BILS does not exist in isolation: it is included in a more extensive and concerted initiative by the country to create an overall regulatory framework of digital assets.
The new activity will be implemented in accordance with the decision of the government regarding the further development of regulating the activity of digital assets, and it will be possible to start this work right now, when the draft of the bill on the issuance of stablecoins will be published and will be discussed by the population. Therefore, BILS has been designed as a live product and a policy instrument at the same time.
The approval is meant to be a stepping stone for Israel’s upcoming Stablecoin Law. The project is also a among a broader move by the Tax Authority and the Finance Ministry to control the activity of digital assets. Bits of Gold, which has been in business since 2013 and has over 250,000 registered users is best placed to be this regulatory test case as it will give the country real-world data to shape its national digital asset legislation.
What does the global stablecoin market tell us about the impact of BILS?
To understand the magnitude of this move, we should look at the stablecoin market as a whole. The market cap of the stablecoin market is over $320 billion, with annual transaction volumes of approximately $46 trillion. Stablecoins have transitioned from a crypto-native instrument to infrastructure used in payments and settlement. The move by Israel to this space is thus not a far-fetched one, rather it is a strategic reaction to a financial infrastructural change that is already in progress around the world.
However, in spite of such a booming market, dollar-pegged tokens, such as USDT and USDC, command almost the whole market. A shekel-denominated stablecoin will provide customers and institutions with a local currency alternative that does not expose them to foreign policy and a more frictionless experience when carrying out local transactions.
By taking this opportunity, Israel becomes one of the very few non-dollar economies to make the transition to the on-chain financial system with its national currency under a decent regulatory framework.
Conclusion
The sandbox approval of BILS is a historic milestone not only for Israel, but the entire stablecoin ecosystem. This country has been one of the pioneering nations to receive regulatory authorization to operate a nationally-pegged, fully-supervised stablecoin constructed on a public blockchain, which can be followed as a model by other countries.
The painstaking two-year planning, the role of partners of the highest caliber and the clear orientation to future legislation are all indicative of a long-term initiative rather than a reactive regulatory move.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
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