Best 10 comments: Banks can use Stablecoins
On 4 January 2021, The Office of the Controller of the Currency (OCC) published a letter indicating that U.S. banks and federal savings associations’ authorities are now allowed to use stablecoins and participate in independent node verification networks (INVN). The Source of the statement.
I have asked Experty platform professionals about what is worth noticing from the OCC statement. I've gathered different points of view and picked the finest responses, so you can enjoy this time-saving brief. Feel free to follow up with quoted specialists if you’d like to take matters further.
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The United States is not in a recession but its manufacturing sectors are in trouble and the global economy has slowed considerably due to Covid-19. The picture of a possible American debacle can begin to be imagined.
In the context of the delicate balance between the macro-economic and financial components, the US dollar is "still" maintaining the conditions of credibility and confidence in the markets. After the Nixon decision in 1971, the US currency bases its value on the "credibility" of the USA and on international balances. Nothing more. Re-entry of cryptocurrencies linked to the US dollar (or to assets related to it in turn) becomes urgent and necessary to maintain a close correlation and a regulated structure of currencies while maintaining control, even if on parallel financial tracks. Bringing everything back into banking control was the only way of controlling the US currency value. Besides it was to be expected this action, given the hypothesis in the field of the BCE to launch a European cryptocurrency. We are only at the beginning of a series of decisions that will be made by central banks to control alternative currencies.
This is an interesting announcement but we need to be clear on what this actually means. There are two components to this, stablecoins and INVN. References made to INVN implies approval to use blockchain network as a means of a more secure network for payment processing. Stablecoins still refer to as “cryptocurrency backed by an asset such as a fiat currency, including U.S. dollars or other foreign currency" and not Bitcoin or any other cryptocurrency. See OCC's article on stablecoins https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-125.html.
This is still a good step forward for innovation with respect to the use of blockchain technology in business and particularly in the financial vertical. Cryptocurrency is still a subject that needs maturing and stability. As OCC states in their definition, for cryptocurrency to be accepted by the industry as a payment currency, it needs to be stable. Unfortunately, all cryptocurrencies and there are 1000's of them are not stable including BTC. Yes, there are some examples of cryptocurrencies being used as payments, widespread acceptance of cryptocurrencies will require stability. There is also considerable debate on the pros and cons of the use of cryptocurrency but today’s financial model requires assurance of stability which cryptocurrencies have yet to demonstrate.
Mainstream adoption of cryptocurrency may happen over time but the definition of cryptocurrency will most likely change. For example, in early 2019, JP Morgan announced its own digital currency https://www.jpmorgan.com/solutions/cib/news/digital-coin-payments which was intended as a digital coin to be used for instantaneous payments. This coin is backed by assets and "JPM Coin always has a value equivalent to one U.S. dollar". All of this states that digital coins must be stable in price and price is determined by asset value that backs them and not market speculation. Just imagine buying a house today using BTC valued at today’s price and BTC drops in price by 20% like it did before. Who would use BTC to purchase a house or any other asset? This is the biggest dilemma with cryptocurrencies today and will be for some time to come. Promoters of crypto coins will always paint a bright picture simply to make a profit for themselves. For now, cryptocurrencies including BTC are highly speculative items with the considerable risk associated.
Yes the OCC is doing good and necessary stuff. My initial opinion is that the adoption of cryptocurrencies, digital assets, decentralized finance, and so on, is a foregone conclusion.
When we stopped trading shells… we never went back.
The same will apply here. The OCC has been consistent in recognizing the role that financial institutions play today, and how / why those roles might evolve into tomorrow.
In a release from OCC recently, Acting Controller, Brian Brooks removes any “any legal uncertainty about the authority of banks to connect to blockchains.” More important to me, is the indication that banks can serve as “Nodes” on these stablecoin blockchains. This will allow banks to retain a key role in a digital economy as well as allow them to act as SWIFT and other settlement networks had.
It is a big deal. Just as the internet required a critical mass of emails to realize its’ full potential, the cryptocurrency market requires that same critical mass of individually held, decentralized, digital wallets. This will lead us in that direction and benefit the overall adoption of the market, ultimately leading to the flood of innovation that will come with it!
This development goes hand in hand with the moves to regulate crypto wallets. In simple terms, the real impacts of stable coins on the economy is yet to be fully understood, because they bring a new dimension to the behavior of the money supply. So from the regulator's standpoint, the objective is to begin the process of learning how to control and regulate stable coins and ultimately cryptocurrency economics hence an introduction to the banking system is the safest way forward.
What this means for decentralized projects e.g. MakerDAO, is that they have to change their corporate and community posture from "reactive towards issues" to "highly proactive, transparent and aggressive towards exploit scenarios and potential issues." For example, the existing change proposal and governance processes used to manage the project will need to be much more transparent for laypeople than currently, so changes that could lead to real world impacts can be sensed much more readily by crypto and non-crypto participants. The challenge is that linking the banking system up to stable coins after some of the exploits of 2020 means that failures in decentralized projects and infrastructure that impact stable coins can potentially disrupt the global financial system much like the subprime crisis. For decentralized projects this means simply is that whilst the usage boom is about to happen, it is counter weighted by the explosion in regulatory exposure.
This is huge for cryptocurrencies as a whole because it will allow banks to not only custody crypto-based stablecoins, and future CBDC's, but also makes it legal for them to utilize these technologies to transmit money around the world. The US basically let the private sector create the product rather than a more centralized route such as China. This will bode well for projects that are already linked to stablecoins, especially USDC, such as Stellar, Ethereum, and Algorand. Most decent stablecoin related projects will likely receive a boost from this development.
I am not sure if it will have a noticeable impact on society as it is mostly bank-to-bank transfers, and crypto currencies at the moment can not handle the volume if banks actually start using it. It could however be used for banks that operate internationally, especially when they don't have good methods to send money to each other because each region has different standards. This may make it cheaper and faster to send money from one country to another.
In the near term it may have a positive effect on price as this news will generate attention and high expectations, however in the longer term it may actually have a negative effect once the inflated expectations are not met (for example because stable coins can't handle the volume and clog the network, and scaling is still in the future or because this won't have a noticeable or obvious effect to everyday live)
Suddenly, in 2021, there is a "regulatory blast" about crypto, and we see the American financial mainstream suddenly looking to shift its crypto attitude 180 degrees. We live in interesting times because what we discussed with the financial market a few years ago at many formal and informal meetings, how to regulate activities in crypto assets for the benefit of the community itself and the entire emerging industry, is finally becoming a reality today. At that time, the big players of financial institutions, regulators, did not believe that blockchain would maintain a new form of digital assets, including internet money.
The fact that banks can conduct payments using Stablecoins will be another huge push for the whole crypto-space. In my opinion, specifically, ETH will profit the most and gain even more strength. I do think that ETH actually will make much more gains (in %) wise for an investor, than BTC in this bull run.
This is a very important step and something I believe was worked hard on accomplishing. In the next year, I expect to see news from the EU & US with significant projects regarding central banks, etc. Especially, stablecoins backed by gold.
What this will mean for decentralized projects? It seems that it's not correlated with big coins like Bitcoin or Ether.
Nothing directly. But indirectly it will have a big impact. But it's a two side blade. While there is positivity in it, there is also the fact that it goes against the whole idea of being decentralized. I compare it with the situation where a person goes into a car dealership and the friendly car dealer asks what are the wishes, the answer is: I would like a car that drives very fast and with a large motor. But it should run 50 km/miles per liter fuel and the insurance should be cheap. The potential buyer ends it by saying, I would also love it if it comes with a leather interior, and the milage should be under 1000 km/miles. Lastly, it shouldn't pollute as the environment is very important to me.
The O.C.C. letter shows that there are sectors of the government and traditional finance that understand that part of the basis of the future of the payment and financial systems is in the cryptographic networks, just as the cryptographic sector has to readjust itself with the regulators, the government, banking, and traditional finance sectors have to adapt and integrate themselves to the innovation offered by the cryptographic networks.
This is great news for stablecoins, as it is giving the stablecoin a bit more utility than just maintaining value on the crypto-trading world. Also will be a great way for cryptocurrencies to make friends with banks, as it will give them a new source of income (for the banks that act as custodial and validators on the network), making cryptocurrencies, in this case, stablecoins, a bit more appealing to the everyday user, in terms of usage and accessibility and to the banks that use it for the transaction and serve them with a new task of validating the transactions that occur in the Blockchain.
While I am not American and have not read the OCC statement, I can however say that you should look at the historical chart for the market cap. The situation is alarming since it does appear that they keep printing Tether and there is little proof that they have the collateral USD. They might be in a precarious position should the SCC start a lawsuit. It might have ripples on the whole crypto market as well.
Here is an article. In theory, Tether should be 100% backed by USD. In practice, it is doubtful, since it would prevent them from turning a profit. How much collateral there actually is hard to know. https://coinmarketcap.com/headlines/news/tether-cto-explains-where-collateral-for-newly-minted-usdt-comes-from/
According to the OCC letter, banks are allowed to use stable coins emitted only by certificated companies. Would you think this may force the transparency of those companies?
Transparency? Unsure. It would certainly mean that some stablecoins would need certification and/or would have trouble getting certification based on arbitrary settings.
It doesn't surprise me at all, with the FOMO that exists around the CBDCs during 2020, it was to be expected that the large financial entities want to take advantage of the moment.
This year 2021 is going to be full of surprises around the crypto world. In my case, I am a confirmed hodler so whatever comes I like to believe that I will be prepared. The SEC will be very active in the following months.
I think it's going to be great for crypto. When banks and the government start recognizing crypto as a true form of currency, it will begin to receive wider mainstream acceptance. When that happens, coin values for the top 5 to 10 projects will grow and everyday people will be able to get returns and credit usually reserved for the wealthy ones. Looking forward to web 3.0.
It is a bit confusing regarding stablecoins because they are working on CBDC for now. I would say keep a close eye on the Stable Act because they are foes more than friends.
Stable coins are like the normal fiat currencies, only that they are digital currencies. They are not volatile and thus can offer stable ground for transactions. Most institutions and even investors are wary of the cryptos because of their volatility. They share a lot of the same powers as ETH but their value is steady, more like a traditional currency. So you have access to stable money that you can use on Ethereum.
Now that the banks are willing to transact with Stable Coins, it will open the market for people to exchange other cryptos for stable coins and use them locally. For me, it is a welcome idea.
That would be great and convenient. Very useful for consumers. This is because their values are pegged to other assets such as the US dollar or gold. As a result, stablecoins enjoy the many benefits of being a cryptocurrency (transparency, security, privacy, etc.) without the extreme volatility that comes with most other types of digital coins.
I think that factor is not a hindrance at all. Assets to be managed by a third party is alright as long as there is transparency and the safety of the assets is guaranteed. Of course, this is just my opinion.
From this statement, we can clearly see the shift from traditional finance to digital finance as to changing times. With stablecoins as the new options for payments, paves the way for cryptocurrencies and stablecoin in creating a healthy financial ecosystem.
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