Lael Brainard, governor of the U.S. Federal Reserve, listens during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., on Thursday, Jan. 13, 2022. Brainard, nominated by President Biden to serve as Fed vice chair, said tackling inflation and getting it back down to 2% while sustaining an inclusive recovery is the U.S. central bank's most pressing task. Photographer: Al Drago/Bloomberg via Getty Images
Photo: Al Drago/Bloomberg via Getty Images

The digital dollar is stuck in Washington

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: crypto’s soul, the digital dollar debate, and Instagram im-Peirce-onators.

Off the chain

He’s got soul(bound tokens), but he’s not a soldier. Vitalik Buterin co-wrote a lengthy paper about finding Ethereum’s “soul” earlier this month, which includes NFTs called “soulbound tokens” that reflect users’ accomplishments. He also wrote an academic-paper-length blog post about automating stablecoins, saying that consistency and resiliency should be the No. 1 goal, not growth. Will all of this mean that “Web3 can eschew today’s hyper-financialization,” as Buterin and his co-authors suggested in their soul proposal? We’ll let you know after we check the price of ether.

— Veronica Irwin (email | twitter), with special thanks to Ryan Deffenbaugh for the killer Killers reference

The digital dollar debate

Congress once again took up the issue of a U.S. CBDC — the digital dollar — with a new sense of urgency and plenty of questions, but few definitive answers. Federal Reserve Vice Chair Lael Brainard spoke at a House Financial Services Committee hearing yesterday, pointing out how the recent chaos in the crypto markets required thinking not just about the present but the future — always a challenge for lawmakers gripped in the crises of the moment.

There’s a real concern that other countries are going to outcompete the U.S. Chair Maxine Waters pointed out that dozens of nations representing 90% of global GDP are either researching or actively developing CBDCs.

  • Committee members repeatedly brought up China’s e-CNY as the most visible sign of global competitiveness in the CBDC race. The digital yuan was in use at the Winter Olympics held in Beijing this February.
  • The EU and U.K. were also mentioned as possible competitors. If the U.S. falls behind, it could create a financial innovation gap, as well as undermine the value of the U.S. dollar. The Bank of England and HM Treasury created a U.K. CBDC task force in April, and this month, an ECB official said the digital euro “would fortify our monetary sovereignty.”

Properly regulated stablecoins could make a digital dollar moot. The collapse of Terra’s UST stablecoin could propel regulation forward.

  • Committee members asked Brainard why a CBDC would be needed at all if stablecoins pegged to the U.S. dollar exist, regulation is coming and the private sector is working faster than the government.
  • “When I look at private-sector innovations like stablecoins, I already see that many of the claims of CBDCs being achieved by stablecoin providers,” Rep. Ted Budd asked, bringing up Circle’s USDC stablecoin as an example.
  • But other committee members were quick to rebut that point. Stablecoins issued by companies in the private sector aren’t backed by the full faith and credit of the government, they said, and the implications of that are all too evident in UST’s fall and tether’s recent wobbliness.
  • Brainard argued a CBDC could coexist with stablecoins, with the Fed working in tandem with the private sector as it has with other payment systems.

The bottom line is it seems all but certain that the Fed won’t proceed without Congressional and White House approval. And that could be slow in coming.

  • Brainard said she hasn’t held discussions with other federal agencies about a potential CBDC yet. That’s one of the mandates in President Biden’s March executive order on crypto, which set a September deadline for most agencies to report back on the prospects for a CBDC.
  • Biden’s order didn’t definitively call for moving toward a CBDC, just evaluating whether it’s in the national interest, and it’s possible the Fed might ultimately conclude it shouldn’t issue one. That could leave “a stablecoin as the dominant digital form of the dollar,” Brainard said.
  • Congress doesn’t seem close to a consensus on the issue, either.

The digital dollar debate seems stuck for now. Brainard stressed in her testimony that the central question now is not “whether there is a need for a central bank-issued digital dollar today, but rather whether there may be conditions in the future that may give rise to such a need.” We may know more in September, when agencies file their reports under Biden’s executive order. But that seems like an eternity for the fast-moving crypto market.

— Lindsey Choo (email | twitter)


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On the money

On Protocol: Top crypto leaders answer a burning question: how regulators could go astray in dealing with the UST crash.

JPMorgan Chase is testing the blockchain for collateral settlements. The bank said the blockchain could be used to transfer collateral assets instantaneously, even outside market hours.

Also on Protocol: The CFPB wants banks and lenders to explain their algorithms. Instead of saying their systems are just “too complicated,” banks and lenders must explain the specific reasons for denying an application for credit, the agency warned.

PayPal is laying off more workers. PayPal is reportedly cutting workers in risk management and operations, just weeks after it laid off more than 80 employees at its San Jose headquarters.

Tether launched a new stablecoin pegged to the Mexican peso. The move marks the company’s first move into Latin America, which has seen a rise in the use of crypto recently. Tether also has stablecoins pegged to the U.S. dollar, the euro and the Chinese yuan.

Perianne Boring wants you to cool the Twitter trash talk. In a Q&A with Protocol, the leader of a blockchain trade group says that while the SEC’s crypto regulation efforts aren’t great, advocates’ personal attacks aren’t helpful, either.


The Luna 2.0 airdrop, scheduled for today, has been pushed back to Saturday. Some are ready to collect their coins; others are waiting in the wings with popcorn. “Luna 2.0 will show the world just how truly dumb crypto gamblers really are,” tweeted dogecoin co-creator turned crypto meme-slingerBilly Markus.

Don’t talk to strangers — and don’t give your money to strangers pretending to be your Crypto Mom, either. SEC Commissioner Hester Peirce warned her Twitter followers Thursday about users impersonating her on Instagram. “Anyone asking for money in my name is someone you should run away from while holding on tightly to your wallet,” she said.

Actor Seth Green bought a Bored Ape and licensed it to be the main character in a new TV show. Then a scammer phished Green, stole the NFT and sold it to an anonymous user. Now, nobody’s quite clear on who has the licensing rights: After all, Green didn’t buy the Ape, he bought the token on the blockchain representing the Ape, and the blockchain is immutable and public and, and, and … you’re seeing where this goes. But Cornell professor James Grimmelmann has it all figured out, and walked us through the IP law at play in an insightful Twitter thread.

Christine Lagarde, president of the European Central Bank and an outspoken bitcoin skeptic, admitted that her son trades crypto. In fact, she said, this meant she followed the crypto world “very closely.” But she’s not following his lead: “I would not put my finger in there,” she said.


The Stellar network is optimized for remittances and can help reduce the time and costs typically required. You can move any currency on a single network, connecting your business directly to financial institutions and cutting out intermediaries. Learn more about how you can leverage the Stellar network.

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The chart

A recent report from Andreessen Horowitz, “A Framework for Navigating Down Markets,” illustrates a sad state of affairs for the fintech industry, which has gotten clobbered in the tech-stocks downdraft. Fintech valuations have declined more sharply than any other sector by a significant margin. The VC firm’s analysis, which looks at forward revenue multiples, found that fintech valuations have fallen from 25 times forward revenue in October 2021 to four times forward revenue in May.

An analysis of valuations based on forward revenue multiples show fintechs have fallen harder than other tech sectors.Image: Andreessen Horowitz

Thanks for reading — see you Monday!

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