Can stablecoins keep the U.S. on top?

Stablecoins have been getting a bad regulatory rap lately. SEC Chairman Gary Gensler compared them to “poker chips at the casino.” Senator Elizabeth Warren suggested they’re the creation of companies that are “spinning straw into gold.”

But there’s another way of looking at them, one that industry players are putting forward at a key moment in the formation of crypto regulations. As crypto is upending the world of finance, could stablecoins — an innovation that emerged in the United States — give the U.S. an edge in that fast-unfolding future?

Are stablecoins really that stable? That’s been the big worry, because they’re pegged to an established asset like the U.S. dollar. Stablecoins, which have a collective market value of $150 billion, are seen as more useful for applications like payments than notoriously volatile cryptocurrencies like bitcoin.

• But last month, a major federal government report on stablecoins warned about their use in money laundering and the funding of terrorist groups. CFPB Director Rohit Chopra, whose agency was not part of the report, highlighted its warning about “runs and fire-sales.”
• In February, New York State Attorney General Letitia James accused Tether, creator of the tether stablecoin, and crypto marketplace Bitfinex of covering up “massive losses.” They agreed to pay $18.5 million in fines.

• The concerns also stem from a lack of an “overarching regulatory framework” for digital assets in general, as Rep. Maxine Waters noted at Wednesday’s House Financial Services Committee hearing.

But stablecoins can also be a game-changer for the U.S. The U.S. dollar is still the world’s dominant currency, and a digital version is coming, according to the Federal Reserve.

• The dollar is the preferred peg for most stablecoins, a recognition by the crypto world of the fiat currency’s preeminent role. With China’s bid to expand the reach of its new digital currency, that’s not a position to give up lightly, crypto execs argued at the House hearing.

• “The U.S. dollar can't take its primacy for granted.” Bitfury CEO Brian Brooks said. He described as “alarming” the decline in the U.S. dollar “as a percentage of global central bank holdings.”

• Embracing stablecoins and crypto could arguably shore up the dollar. Supporting the development of “digital dollars in the form of stablecoins” will help “the United States dollar be the competitive currency of the internet,” Circle CEO Jeremy Allaire said. “I think that's the opportunity.”
• Anchorage co-founder Diogo Mónica agreed. “All stablecoins that matter are all U.S. dollar-denominated,” he said at a recent Protocol Live event hosted by our colleague Tomio Geron. DeFi and crypto, he argued, “inadvertently created an expansion of reach for the U.S. dollar.”

Why abandon a powerful tool? With dramatic changes in the global financial system, the U.S. needs to play its cards right. “We have created ourselves a tool as Americans to expand the reach of the U.S. dollar,” Mónica said. “Let's not shoot ourselves in the foot and stop it from happening.”

– Benjamin Pimentel

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Tezos has upgraded more times than any other layer one network. Upgrades through Tezos’ unique on-chain governance have resulted in lower gas costs and improved network efficiency even as transactions and smart contract calls have skyrocketed.

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Coming up

Gaming platforms have traditionally been defined by their hardware, from arcades to personal computers to home consoles — and now, mobile phones. But cloud gaming, the rise of AR/VR and the promise of the metaverse have begun to redefine the very nature of gaming platforms and revolutionize the nature of play. Join Protocol's Nick Statt and a panel of experts on Dec. 14 at 10 a.m. PT/1 p.m. ET for a live discussion. Reserve your spot now.

From Protocol | Fintech

Nubank’s IPO is not just about raising cash. The Brazilian neobank wants to make retail investing more popular in the South American country, co-founder Cristina Junqueira told Protocol.

Crypto CEOs faced Congress. Top industry executives got grilled on digital assets — and the conversation took a surprising turn.

This DAO wants to buy an NBA team. The Krause House DAO is looking to be the new owners of the New Orleans Pelicans. (Is anything not being bought by a DAO right now?)

Ledger is gearing up for battle with Dorsey’s Block. The crypto wallet maker’s CEO Pascal Gauthier said he wishes Dorsey was still distracted with Twitter.

A legal battle failed to ID bitcoin’s fabled founder. A Florida civil dispute involving Craig Wright did not lead to definitive proof that he’s Satoshi Nakamoto, as Wright has claimed.

WhatsApp launched Novi’s digital wallet. The messaging app will let some U.S. users send and receive money using Meta’s new digital wallet.

Overheard

“Our view as the state government is this is something that we welcome and we want to make sure that the state government is crypto-friendly.” —Florida Governor Ron DeSantis, on his proposal to let businesses pay state fees in crypto.

Three questions with … Shane Rodgers, CEO, PDX Global

What fintech trend are you most excited about?

I am quite excited about DeFi and digital/virtual banking with crypto, which can help in two primary ways. First, because of the blockchain and independence from developers and backers, DeFi entities and digital-only banks can eliminate intermediaries in banking and finance who take a cut and make transactions more expensive for both individuals and merchants, and second, it can help make financial services and banking more equitable. Currently 25% of Americans are “underbanked” and cannot qualify for loans. With DeFi and virtual crypto banks there are no credit checks and personal identity is typically not shared — your loan repayment potential is based solely on your crypto holdings, not an entire personal history that may be subject to bias. And the yields on interest-bearing accounts can be enormous (although with greater risk) because such banks or entities don’t have to have the reserves.

What fintech trend is most troubling for you?

The constant creation of "new" products, including in the crypto space, that aren't moving away completely from the aging legacy payment systems and architecture. This makes them susceptible to the same fees and risks as the legacy systems, such as long transaction duration, intermediary fees and chargeback fraud. In contrast, a platform that actually reinvents banking to truly sidestep the legacy system, cuts out the middlemen and reduces fees significantly can open up the market in a major way.

What's been your biggest professional blunder and how did it help you?

Not moving into the crypto and blockchain space three years earlier when the opportunity was presented to me. The only way in which this delay might conceivably have helped is that it gave me time to think and to observe what was happening.

Need to know

Affirm adds “buy now, pay now.” The product comes with cash back or Affirm rewards. Klarna also launched a “pay now” product recently in response to U.K. regulators.

Kickstarter is moving to the blockchain. It’s creating a new, standalone crowdfunding business based on decentralized technology.

Making moves

Levi Aron was named Zip’s chief growth officer. He was previously chief revenue officer at SevenRooms.

Deal flow

Neobank Monzo is now valued at $4.5 billion. The U.K. startup has closed $475 million out of a targeted fundraise of more than $500 million.

Affirm spinout Resolve gets more funding for business “buy now, pay later.” The startup raised $25 million led by Insight Partners.

400%

That’s the rise in “buy now, pay later” volume at PayPal on Black Friday compared to last year.

A MESSAGE FROM TEZOS

Tezos has upgraded more times than any other layer one network. Upgrades through Tezos’ unique on-chain governance have resulted in lower gas costs and improved network efficiency even as transactions and smart contract calls have skyrocketed.

Learn more