Cryptocurrency expert says Bitcoin, Stablecoin payments will be accepted by more businesses
More companies will accept cryptocurrency as payment, especially Bitcoin and Stablecoin, Voyager Digital CEO Steve Ehrlich told FOX Business’ Maria Bartiromo on “Mornings with Maria” Tuesday.
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STEVE EHRLICH: I think there’s going to be more, you know, more companies accepting crypto. I think one of the other things are Stablecoins there, and I think there will be more companies accepting Stablecoins as the first step then they will start accepting Bitcoin.
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That’s a growing population. Us at Voyager, we’re already seeing that as… our business caters to small and mid-sized businesses as well as retail consumers.
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Those small mid-sized businesses want to accept USDC Stablecoin, they want to accept Bitcoin and they want to hold some of their Treasury in both of them because you can earn interest on those as well as use them in everyday payment.
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Diem plans to replace USD stablecoin with gov digital dollar
Christian Catalini, the chief economist of Diem (formerly Libra) said that the recently announced Diem USD stablecoin is only intended as an interim step until the U.S. Federal Reserve issues a central bank digital currency (CBDC) or digital dollar.
“Diem has committed to fading out, for example, Diem dollar, if there were such a thing as a digital dollar issued by the Fed,” said Catalini talking at Consensus 2021. “The public sector has a large comparative advantage in developing anything that has to do with stability, money, value preservation and macroprudential policy. We don’t want to change that. In fact, we want to build on and take advantage of that infrastructure to accelerate use cases for consumers both domestically and also globally.”
Business model
A key reason why Diem would be willing to do that is it won’t rely on interest income on the reserves that back the stablecoin. Those reserves will mainly be in the form of Treasuries with maturities of less than 90 days. Instead, Diem will generate revenues from transaction fees which it claims will be very cheap, at less than 0.1%.
The economist didn’t mention its partners, such as Facebook, as the reason why costs could be low given the potential scale it could achieve. Instead, he pointed to Diem’s cost-effective technology choices and the fact that other payment providers have legacy infrastructure and are not interoperable. Diem envisages a small wallet being able to compete with a larger wallet because of interoperability, driving competition and consumer choice. Notably, choice will not just be based on price but also privacy.
Privacy and competition
Privacy and competition are two issues that concern Diem critics. Catalini expanded on the privacy aspect. “This is a technology that is innovating on the privacy landscape when it comes to selective disclosure and what you can really do with it,” said Catalini. “Diem is going to be privacy by design, and we also want to encourage privacy as a dimension of competition on the network.”
On the same panel, Benedicte Nolens of the BIS noted that for consumer cross border payments, the decision-making issues are usually trust, ease of use and cost. From that, one might conclude that most may be willing to trade privacy for a lower cost.
Restrictions on DeFi
Diem has had “intense conversations” with the Fed as a result of which Catalini believes Diem will be the ‘gold standard’ of stablecoins. He noted that stablecoins are heavily used in decentralized finance (DeFi). “There’s a lot of innovation in that space,” he said. “But at the same time, when you tag on DeFi on top of a stabelcoin, what you are essentially doing is reintroducing leverage into a system that is meant to be one-to-one backed. And that’s something that we don’t want on the Diem ecosystem.” Wallets and exchanges will not be able to fractionalize their coin holdings on Diem.
To put that in context, the USDC stablecoin has a total issuance of $21 billion. On the top two decentralized lending sites Aave and Compound, $7.6 billion have been deposited for the purposes of lending out.
Catalini compared the Diem model to the early internet, where the public sector initially developed the backbone infrastructure “and then you had an explosion of commercial activities on top of that.”
“And it is really through that interplay between public and private that I think we can deliver a stablecoin that a consumer can hold in their hands safely, go and spend it like in traditional payment systems, while at the same time getting extremely low fee instant payments and low friction both domestically and cross border,” said Catalini.
The US$100 billion stablecoin question
In case you missed it, so-called stablecoins are becoming huge.
This week, data from The Block showed that the total supply of all stablecoins broke US$100 billion.
The biggest stablecoin still, by far, is Tether, which is also the most infamous, and also the stablecoin that’s closest to being a household name. It’s at the center of many cryptocurrency conspiracies and theorizing. And then the next biggest is USDC, created by the company Circle. The easiest way to think about a stablecoin is that it’s like a money market fund meets a bearer instrument that anyone can hold on their phone or personal device and then pass to someone else. The value of a stablecoin is pegged to the dollar or another currency or asset.
But let’s back up for a second and talk about Bitcoin. What made Bitcoin a breakthrough was that, for the first time on the internet, someone could hold a scarce asset without a third party knowing about it or having a record of it in their database tied to the holder’s identity. And two people, say Alice and Bob, can pass a Bitcoin back and forth to each other without having to go through a centralized intermediary, like a bank or PayPal or Venmo or Zelle.
And obviously people buy Bitcoin for many reasons, but one of them is the appeal of holding an asset that’s not tied to some centralized company like a bank or Facebook or a government issuer. People have always been able to personally hold a decentralized store of value before (like gold in a vault in the basement) but not digitally. So Bitcoin solved a problem.
But now stablecoins exist and are booming. And while, again, there’s plenty of mistrust toward them from all corners, they’re growing quite massively. The biggest use case for them is making it easy for crypto traders to transfer dollar-denominated assets between different cryptocurrency exchanges, something that happens faster using stablecoins and public blockchains than, say, a bank wire.
But what if people just wanted to hold stablecoins as a way to hold dollars which, despite what a lot of people will say, have proven to be a pretty good store of value?
Bitmex Research, the research arm of the cryptocurrency exchange Bitmex, posted this provocative tweet earlier in the week.
There are two things to note here. One is that BitMEX is implying that if you can just hold digital dollars yourself (on your phone, on a device etc.) and pass them between two parties without intermediaries, you do undermine one of the key selling points of Bitcoin. Bitcoiners hate this point because they go on about the Fed balance sheet and the 21 million coin cap and inflation and the Fed and all that. And yes, sure, that’s a reason some people won’t want dollar assets. But since most people around the world have considered dollars to be a pretty solid store of value for some time, this ability would be powerful.
But then the other point is that there’s actually a history of “stablecoin-like-assets” that long precedes the existence of stablecoins. Multiple endeavors have attempted to do something like hold gold in a vault and then give you a token or something allowing you access to that gold, which can then be passed between individuals. And they’ve all been smothered or shut down eventually by regulators or law enforcement for some reason or other. Now, of course, those other entities that got shutdown in the past like Liberty Reserve were more “pirate" operations that operated on the edge or outskirts of the law. Stablecoins like USDC aim to be different than that. Working within the existing system.
But there are still question about their future. In the short term, lots of the focus is on what kind of assets they hold, and how can people know exactly how safe they are. But the bigger question for the industry may be what the regulatory environment looks like going forward, and the degree to which an industry that allows dollar-denominated assets to be passed around P2P is always allowed to flourish.