For stablecoins, concept is edging closer to reality, especially for digital dollars – with a dose of regulatory clarity.
To that end, as Jeremy Allaire, CEO of Circle, told PYMNTS’ Karen Webster, a number of trends are converging to bring stablecoins into the mainstream of commercial and consumer payments. As noted in this space earlier in the month, the Office of the Comptroller of the Currency (OCC) said that banks can utilize stablecoins in transactions, among other banking activities. To get a bit more granular, in an interpretive letter, the OCC said that regulated financial institutions (FIs) can participate in independent node verification networks (INVN for short – namely, a blockchain network).
That regulatory move might light a fire under banks’ stablecoin strategies – and it should be noted that Circle itself has issued $700 million more in USDC in just the past several days.
The OCC move, said Allaire, takes place a few weeks after a presidential working group said that dollar-backed stablecoins have the potential to improve efficiencies, increase competition, lower costs and foster broader financial inclusion. But those same payments mechanisms must be in compliance with various regulatory and legal frameworks.
“The OCC interpretive letter was a clear follow on” from the working group’s findings, said Allaire – equating to a “one-two punch” for the stablecoin industry that “speaks to the need for banks and other financial institutions to try and participate in standards” that govern the creation, issuance and use of stablecoins, including Circle’s USDC.
As to the mechanics: The OCC’s interpretive letter indicates that banks and savings associations will be able to create and issue stablecoins, utilizing them with accounts and for a range of transactions. The letter specifically takes note of “the payment of remittances, which often involve cross-border transfers of money.”
Getting those activities in place, said Allaire, will mean that individual FIs that have been mulling stablecoin issuance will have to embrace interoperability – creating an ecosystem akin to email, where different webmail services can interact with one another. He pointed to Circle’s own advocacy of an open standard for digital dollars as an example (the company also has a consortium that brings stakeholders together to spur financial innovation).
But if the road to stablecoins is getting clearer, don’t expect rush-hour traffic on that road yet, cautioned Allaire.
Still In Learning Mode
“A lot of banks are still in a learning mode … I don’t think that every bank – from community banks all the way up to bulge bracket banks – are going to dive in and suddenly launch stablecoins,” Allaire said. But in what he described as a “walk/crawl” scenario, FIs will examine how to connect to blockchains and how to enable use cases underpinned by stablecoin transactions.
He noted that banks have been coming to Circle with renewed interest in USDC in the wake of the company’s December 2020 announcement that Visa would be adding USDC to its payments network – and the recent regulatory comments have only sharpened their focus. Banks’ discussions with Circle have included interactions with FIs’ treasury executives, as well as in-house digital innovation teams and crypto enthusiasts, Allaire said.
“Many of the questions are around, ‘how does USDC work? How do the reserves work? How do the flows work? What’s the technology that it runs on top of it?'” he said. The interpretive letter from the OCC and the presidential task force’s commentary help decision-makers place stablecoins in the context of SWIFT and ACH compliance and operational workflows, he noted, which makes stablecoins easier to understand – connecting the dots, so to speak.
Banks’ approach to stablecoins and crypto in general has broadened from simply holding, say, bitcoin on their balance sheets (and offering services to corporate clients) to include services they can offer to clients. For now, the primary use case for USDC and other stablecoins, and for the banks, is around B2B and B2B cross-border payments, Allaire said – but the net will be cast ever wider.
The consumer and retail side of the equation will come more (in parallel) through 2021 and beyond, he predicted, with many variants of coins and issuers. There’s a parallel to be seen in the development of P2P payments – first there was PayPal, and then, eventually, cash apps, Apple Pay and (through the banks) Zelle.
“I think those types of [retail] products are going to be much more likely to embrace stablecoins as a capability than Bank of America,” Allaire told Webster. “And I think we’ll see some of those types of firms implementing things like USDC, and then lighting up networks.”
The merchant, the payment service provider and then the payment gateway will look at the fact that tens of millions of people will be able to spend balances via stablecoins. They will want to be part of those transactions – crossing gig economy, shared economy and other platforms that can have global reach across long-tail markets (and even the smallest of merchants).
“It’s not hard to set up a digital wallet. It’s like setting up a website. It’s just a piece of software,” Allaire noted – and against that backdrop, digital dollar accounts, APIs and platforms can all converge to reduce the friction that’s inherent in all types of commerce.
There is at least some indication that the incoming Biden administration will commit to big-picture thinking (witness the $3 trillion tax and infrastructure the president-elect has floated).
Over the near term: “We’ll be crawling in 2021, but we will be crawling faster,” Allaire predicted, adding that stablecoins have taken a lot of steps amid “an alignment of technology, maturity and regulatory clarity.”